Two Prime CEO Alexander Blume says Bitcoin yields on Babylon and Stacks are temporary subsidies that shrink as more capital flows in, warning depositors of diminishing returns.
In an interview on Unchained Premium, Alexander S. Blume, CEO and co‑founder of Bitcoin lender Two Prime, characterized the yields offered by Bitcoin layer‑2 protocols Babylon and Stacks as essentially venture‑capital‑funded subsidies. Blume argued that as more capital is deposited, the subsidy per depositor falls, creating a diminishing‑return environment that cannot be sustained indefinitely.
According to Blume, the reward structures of Babylon and Stacks rely on external funding rather than organic network economics. Babylon’s token documentation notes that both BTC and its native BABY token are paid out in BABY, with an inflation rate currently set at 5.5% annually, down from 8%. As of Nov. 4, DefiLlama data shows roughly 40,800 BTC (about $3.28 billion) staked on Babylon. Stacks, meanwhile, moved its Bitcoin Staking program to a consensus‑level model in September, after previously drawing rewards from an incentive budget seeded by Stacks‑affiliated groups. A separate Stack Sats program is distributing 1 BTC per month through Dec. 10 to participants on Zest and Bitflow.
Blume warned that the finite nature of these subsidies forces depositors to continually seek new yield opportunities, exposing them to additional technical and security risks. “You can’t run on infinite losses VC money forever,” he said, noting that once the subsidies dry up, investors may be compelled to migrate to newer, untested protocols. The CEO also expressed limited familiarity with Stacks, suggesting that holders might receive Stacks tokens or Bitcoin for staking, but emphasized the overall subsidy‑driven model.
Two Prime recently launched a wrapped Bitcoin (WBTC) vault on Pareto, a platform that builds on‑chain infrastructure for private credit. Blume clarified that the vault’s on‑chain component is limited to asset aggregation, while the actual lending occurs off‑chain to vetted borrowers. In this setup, capital is sourced from borrower repayments rather than VC subsidies, offering a potentially more sustainable yield source. Pareto CEO Matteo Pandolfi echoed this view, highlighting that the infrastructure enables credit underwriting on‑chain and can integrate with EVM‑compatible lending protocols such as Morpho, Aave, and Pendle.
Investors should monitor how Babylon and Stacks adjust their incentive mechanisms as deposit volumes grow, and whether alternative on‑chain credit models like Two Prime’s WBTC vault gain traction. Additionally, the broader Bitcoin layer‑2 ecosystem may see new subsidy structures or shifts toward fee‑based rewards if VC funding recedes.
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