Two Prime CEO Calls Bitcoin (BTC) Yields From Babylon and Stacks VC-Funded Subsidies

Blume Calls Babylon and Stacks Yields Subsidies

Two Prime CEO Alexander Blume has dismissed the rewards that Bitcoin (BTC) layer-2 protocols such as Babylon and Stacks pay to BTC depositors, calling them venture-funded subsidies that thin out as more capital arrives. He set out the argument in an interview recorded on Oct. 22 and posted this week, and it cuts against the pitch that Bitcoin DeFi can make the base asset productive on its own terms. His core claim is mechanical rather than moral: the subsidy pool is fixed while deposits are not. “The more scale you put into it, the less the subsidy pays out because there’s more money attracting the same subsidy,” he said. “You can’t run on infinite losses VC money forever.” In his reading, depositors end up “running around finding the next yield because they all dry up,” rotating through yield farming programs and taking on fresh technology and hack risk with each move. Each dried-up program, in his account, sends the same depositors hunting again, with the risk bill growing at every stop. On Stacks (STX) he was less categorical, saying “I don’t know it as well” and that holders likely collected Stacks tokens “or maybe Bitcoin” for keeping BTC in place. He made the remarks on the same episode as Pareto’s chief executive, whose firm builds the rails for the model he prefers. The remarks land as BTC holders weigh where Bitcoin can earn anything at all, whether through on-chain reward budgets, centralized lending or plain holding. The Bitcoin price moved 4.7% over the past 24 hours, and Blume’s point concerns the layer above that market return, where yield comes from someone’s budget rather than borrowing demand. Two Prime, the bitcoin lender and asset manager he co-founded, takes the opposite route: it lends client coins offchain, a structure he says needs no subsidy to keep paying.

Babylon’s 40,800 BTC Against Stacks’ Consensus Claim

Babylon, the staking protocol that drew early deposits after launch, states in its token documentation that people who stake Bitcoin (BTC) and people who stake its native BABY token are both paid in BABY. The same page puts BABY inflation at 5.5% a year, down from 8%. Tracking data put roughly 40,800 BTC, worth about $3.28 billion, on the protocol as of Nov. 4. Stacks describes its main BTC yield, Bitcoin Staking, in its own documentation as set at the consensus level rather than drawn from an incentive budget. That program replaced Dual Stacking, the sBTC initiative it retired on Sept. 10, six weeks before Blume’s interview. Dual Stacking paid against sBTC, Stacks’ onchain representation of bitcoin, and its rewards came from an incentive budget that Stacks-affiliated groups seeded with their own Proof of Transfer earnings. In other words, the earlier design was distribution-funded in the way Blume’s critique describes. A separate incentive push, Stack Sats, is distributing 1 BTC a month through Dec. 10 to borrowers and liquidity providers on the DeFi apps Zest and Bitflow. Against these designs, Blume pointed to the product Two Prime shipped in September: a vault for wrapped bitcoin (WBTC) on Pareto, which builds onchain infrastructure for private credit. He said the only onchain element is the gathering of assets, with the wrapped Bitcoin (BTC) lent offchain to borrowers the firm vets. In that model, “the source of capital is not a VC subsidy” but borrowers paying for capital they can put to more profitable use. Pareto CEO Matteo Pandolfi, on the same episode, said the firm is building the infrastructure that lets credit underwriting operate onchain while lenders do the underwriting, and argued vaults on EVM-compatible chains can now plug into Morpho, Aave and Pendle, a difference from earlier layer-2 attempts.

Babylon’s Inflation Meets Two Prime’s Credit Book

The protocols do not sit equally inside Blume’s critique. Babylon’s BABY rewards draw directly on token inflation, close to the subsidy structure he describes; Stacks’ consensus-level claim is a different mechanism, and his own uncertainty about that design shows in the interview. The argument also echoes a long-running bitcoin maximalism skepticism toward reward tokens, though its substance here is arithmetic, not ideology. The weaker joint sits on the other side of the trade: Two Prime’s vault earns only while vetted borrowers keep wanting wrapped BTC, so the yield Blume calls sustainable rests on private-credit demand holding up. A borrower-funded yield is not immune to cycles either; it changes which balance sheet a downturn lands on. Depositors choosing between the models are ultimately choosing which dependency they would rather carry.