Alexander S. Blume, co-founder and CEO of the bitcoin lending and asset management firm Two Prime, remarked that the yields from bitcoin layer-2 networks, such as Babylon and Stacks, act as subsidies, resulting in decreased payouts for each depositor as new funds are added.
In an interview on Unchained Premium on October 22, Blume stated, “These are primarily venture capital-funded subsidies in my view. As you increase the scale, the payout from the subsidy diminishes because more capital competes for the same subsidy.”
He further noted, “You can’t rely on losing VC funds indefinitely,” which leads depositors to continuously seek out new yield opportunities that often carry new tech and security risks. Regarding Stacks, he admitted, “I’m not as familiar with it,” but suggested that those who stake BTC may receive Stacks tokens or potentially Bitcoin as rewards.
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Reward Structures of Babylon and Stacks
Babylon, a bitcoin staking protocol, highlighted in its token documentation that individuals staking BTC and those who stake its native BABY token both receive BABY as rewards. The document also states that BABY’s annual inflation rate has been reduced to 5.5% from 8%. As of November 4, approximately 40,800 BTC—valued around $3.28 billion—was staked in Babylon, according to data from DefiLlama.
The primary BTC yield from Stacks, termed Bitcoin Staking, is defined at the consensus level rather than sourced from an incentives budget, as stated in its documentation. Before the replacement of the sBTC program Bitcoin Staking on September 10—just six weeks prior to the interview—Dual Stacking rewards came from an incentive budget established by affiliated Stacks entities using their own Proof of Transfer profits. A distinct incentive program called Stacks Sats is distributing 1 BTC monthly until December 10 to borrowers and liquidity providers utilizing the DeFi applications Zest and Bitflow.
Pivoting to Lending for Borrowers
Two Prime introduced a WBTC vault in September on the platform Pareto, which develops on-chain solutions for private credit. Blume explained that the only on-chain aspect of their offering “is essentially the aggregation of assets.” The wrapped bitcoin is lent out off-chain to prequalified borrowers.
In this framework, he described, “the capital source does not stem from VC subsidies” but rather from borrowers who pay for the capital to leverage it for more advantageous opportunities.
Matteo Pandolfi, CEO and co-founder of Pareto, shared on the same episode that “we are constructing the infrastructure that enables credit underwriting to function on-chain,” while Two Prime handles the underwriting process.