Summary

  • Kraken has launched Bitcoin Vaults, allowing users to earn yield on their Bitcoin holdings.
  • Users can achieve up to 2.5% APY in Bitcoin rewards by depositing their BTC.
  • Withdrawals will take five days to process and return.

Bitcoin holders can now earn yield on their BTC through the centralized exchange Kraken, as the company announced on Wednesday.

Users can deposit their funds into the newly introduced "Bitcoin Vault," which enables them to earn Bitcoin-denominated rewards of up to 2.5% APY that accumulate automatically in their Kraken accounts.

John Zettler, Kraken's Director of Product for Earn & Trade, stated, "Many Bitcoin holders on Kraken have made it clear they want simple ways to earn on the Bitcoin they already plan to hold." He further remarked, "Bitcoin Vault is built for that mindset. It gives customers a way to earn rewards on their Bitcoin through an experience that is easy to access and grounded in the trust Kraken has built over time."

When users choose to deposit their BTC into the Bitcoin Vaults, their assets are utilized in on-chain vaults supported by DeFi infrastructure provider Veda, with risk management and strategy handled by institutional DeFi firm Sentora. This firm constructs and implements lending and borrowing strategies to generate yield directly on-chain using established protocols such as Aave, Morpho, and Tydro.

The service providers will charge a 25% performance fee on the rewards, but the anticipated yield of up to 2.5% includes this fee.

Kraken noted, "Bitcoin ownership is evolving beyond simple buy-and-hold behavior. Customers increasingly want ways to earn on Bitcoin without adding complexity."

This new yield-generating feature aims to simplify the process, allowing users to "get started in seconds" by depositing into the Bitcoin vaults from their Kraken or Krak accounts.

Although users can withdraw their funds at any time, the withdrawals are subject to a 5-day processing period. The company emphasized that the rewards rate is derived directly from on-chain strategies, not from token subsidies or promotional rates.

Prior yield-generating products from centralized exchanges, such as Gemini Earn, faced regulatory scrutiny and adversely affected consumers, who were reported to have been misled about the actual risks of the program following its closure after the FTX collapse. Additionally, the SEC had investigated the now-defunct crypto lender BlockFi for its high-yield Bitcoin and Ethereum lending products even prior to these events.