Kraken Now Lets You Earn Yield on Bitcoin Holdings via Lending Vaults

Bitcoin holders can now generate yield on the BTC they hold on centralized exchange Kraken, the firm announced on Wednesday. 

Exchange users can lock their funds in the exchange’s new “Bitcoin Vault,” which allows them to earn up to 2.5% APY in “Bitcoin-denominated rewards” that accrue automatically to their Kraken accounts. 

“Many Bitcoin holders on Kraken have made it clear they want simple ways to earn on the Bitcoin they already plan to hold,” said Kraken Earn & Trade Director of Product John Zettler, in a statement. 

“Bitcoin Vault is built for that mindset,” he added. “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 opt to put their BTC into the Bitcoin Vaults, it is put to work in on-chain vaults powered by DeFi infrastructure firm Veda, with risk and strategy controlled by institutional DeFi firm Sentora. From there, the risk firm builds and executes lending and borrowing strategies to earn yield directly on-chain using “well-known on-chain protocols like Aave, Morpho, [and] Tydro.” 

The providers then take a 25% performance fee from the rewards, though the projected yield of up to 2.5% is inclusive of this fee. 

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

The new Bitcoin-yielding feature is designed to remove that complexity, with customers able to “get started in seconds” and deposit to the Bitcoin vaults from their Kraken or Krak accounts.

Though customers can remove their funds at any time, withdrawals are subject to a 5-day processing and return time. The firm highlighted that the rewards rate it offers comes directly from on-chain strategies, and is not the result of “token subsidies or promo rates.” 

Previous yield-bearing products from centralized exchanges, like Gemini Earn, drew scrutiny from regulators and significantly impacted consumers, who were alleged to have been misled by the actual risks of the program, according to settlements after it was wound down in the wake of the FTX fallout. 

Even before that time, the Biden-era SEC had investigated defunct crypto lender BlockFi for its high-yield Bitcoin and Ethereum lending products.