Earning Interest on Your Bitcoin With Bonded Staking
Kraken Introduces Bonded Bitcoin Staking
I recently achieved a new passive income stream by tapping into my long Bitcoin holdings. Thanks to Kraken's new bonded Bitcoin staking I'm now earning 0.25%-1% APR in interest against my Bitcoin.
Previously, Bitcoin required "bridging" to other assets or other more complex maneuvers in order to earn staking rewards. For comparison, Ethereum and Solana have native staking. Bitcoin is now able to earn staking rewards without needing to leave its native blockchain. The rewards are earned in exchange for securing the network by locking up your assets for up to 7 days before you can unstake.
This is a significant win for me. It's a new income stream that Kraken has enabled that I previously didn't have. I estimate my Bitcoin holdings would yield approximately $175 per year if I could achieve a 1% yield. The exciting part is the compounding this could enable by reinvesting the earnings back into Bitcoin or other assets. Potentially, my payouts will grow over time as my bitcoin holdings increase. I'm 35 years old, so this means I might invest an extra ~$5,000 of earnings into Bitcoin by the time I'm 70. This estimate assumes I live that long, stay invested, earn close to 1% and continue to reinvest the staking rewards.
No matter what Bitcoin's price does, I'll continue to earn rewards. I don't plan to sell any Bitcoin anytime soon. So the 7 day lockup associated with unbonding does not worry me at all. Someday, I might reduce holdings to diversify and reallocate elsewhere, but I believe I'll hold Bitcoin for the rest of my life. I might as well earn yield against this asset.
How It Works
Kraken has teamed up with the Babylon protocol to allow Bitcoin holders to collect staking rewards against your sats. It took my Bitcoin about 45 minutes to transfer into Kraken. Once on the exchange, it's very easy to "allocate" your Bitcoin to bonded staking. It only takes a few minutes to do. Go to the "Earn" page and click a button to allocate to bonded staking. Once you've done this, you'll receive a weekly payout in BABY tokens.
My first payout was $0.21, about 4.9 BABY coins. One quirk of holding the BABY tokens is that you need to accumulate about 25 tokens before you can convert the tokens back into Bitcoin.
Kraken does take a commission on your earnings, which tends to be about 16-20% for smaller stakes. You can read more details about the fees here.
This is an awesome opportunity that Kraken has enabled for extra passive income against the king of crypto assets. If you're holding Bitcoin, do some research into yield opportunities for your holdings. It can potentially become a new income stream.