Alexander S. Blume, CEO and co-founder of bitcoin lender and asset manager Two Prime, said yields from what he called bitcoin layer-2s, such as Babylon and Stacks, are subsidies that pay each depositor less as more money comes in.
Blume said on Unchained Premium, in an Oct. 22 interview, that "in my mind, these are, these are basically just VC-funded subsidies" and that "the more scale you put into it, the less the subsidy pays out because there's more money attracting the same subsidy."
He also said "you can't run on infinite losses VC money forever," which in his view leaves depositors "running around finding the next yield because they all dry up," taking on new tech and hack risk with each move. On Stacks, Blume said, "I don't know it as well," adding that he thought holders got Stacks tokens "or maybe Bitcoin" for keeping BTC there.
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How Babylon and Stacks Describe Their Rewards
Babylon, a bitcoin staking protocol Unchained covered as it drew early deposits, says in its token documentation that people who stake BTC and people who stake its native BABY token are both paid in BABY. The same page puts BABY's inflation at 5.5% a year, down from 8%. About 40,800 BTC, worth about $3.28 billion, was staked on Babylon as of Nov. 4, according to DefiLlama data.
Stacks' main BTC yield, Bitcoin Staking, is "set at the consensus level rather than drawn from an incentive budget," its documentation says. Rewards from Dual Stacking, the sBTC program Bitcoin Staking replaced on Sept. 10, six weeks before the interview, "came from an incentive budget" that Stacks-affiliated groups seeded with their own Proof of Transfer earnings. A separate Stacks incentive program, Stack Sats, is distributing 1 BTC a month through Dec. 10 to borrowers and liquidity providers on the DeFi apps Zest and Bitflow.
Lending to Borrowers Instead
Two Prime launched a WBTC vault in September on Pareto, which builds onchain infrastructure for private credit. Blume said the only onchain part of the product "is really just the gathering of assets." Two Prime lends the wrapped bitcoin offchain to borrowers it vets.
In that model, he said, "the source of capital is not a VC subsidy" but borrowers paying for capital they can put to more profitable use.
Matteo Pandolfi, Pareto's CEO and co-founder, said on the same episode that "what we are building is the infrastructure that allows the credit underwriting to operate on chain," while firms like Two Prime do the underwriting.
He said "it's a different time" than when bitcoin layer-2s tried this, because vaults on EVM-compatible chains can plug into lending protocols Morpho and Aave and yield-trading protocol Pendle.
Watch the full conversation on Unchained Premium: Premium members get the complete interview with Two Prime's Alexander Blume and Pareto's Matteo Pandolfi on why bitcoin yields on layer-2s are drying up. Watch it here.
