DeFi incentives are coming to Zest Protocol Stacks market

Zest Protocol users will receive STX equivalent to 0.5 BTC per month in DeFi incentives, powered by the Stacks Endowment. The current plan divides that funding equally between sBTC supply and qualifying USDCx borrowing on Zest Protocol's Stacks lending market.

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For sBTC suppliers, the proposed rewards support supplying without taking out a loan. For USDCx borrowers, the allocation rewards borrowing positions that meet the program's LTV requirement.

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Key takeaways:

• Monthly funding will be paid in STX, with a budget equivalent to 0.5 BTC.
• Half is planned for plain sBTC supply, with no borrowing required.
• Half is planned for qualifying USDCx borrowing at 20% LTV or more.
• Supply incentives aim to facilitate future Levered Bitcoin Staking Vault borrowing.

How the DeFi incentives will be allocated

The current plan directs equal shares of the Stacks Endowment funding to two activities: supplying sBTC and borrowing USDCx. The supply allocation supports keeping sBTC available in the lending market. The borrowing allocation supports users taking out eligible USDCx loans against their collateral.

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The split is:

• sBTC supply: Half of the monthly funding goes to users supplying plain sBTC, without needing to borrow.
• USDCx borrowing: Half of the monthly funding goes to borrowers meeting 20% LTV.

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Both allocations concern Zest Protocol's Stacks lending market. The funding is denominated in BTC value but distributed in STX, rather than paid out as BTC.

What sBTC suppliers will earn

The sBTC supply estimate is approximately 0.6% APY, combining interest from organic sBTC borrowing activity with STX incentives. Suppliers can participate without taking out a loan or entering a vault. Over the coming months, organic lending interest will likely account for more of that yield as Bitcoin Staking-driven borrowing grows. The incentives support sBTC supply while borrowing demand develops.

Bitcoin Staking helps build a base rate for sBTC on Stacks

BTC supply offers remarkably little yield elsewhere. Today, Aave's Ethereum V3 Core market displayed a WBTC supply APY below 0.01%, less than one basis point. A 0.6% sBTC supply APY combines organic borrowing interest with incentives, while Bitcoin Staking provides a source of borrowing demand that can support yield beyond the incentive period.

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Zest Protocol's Stacks Market is building a base rate for sBTC around that demand. The Levered Bitcoin Staking Vault posts stBTC as collateral, borrows sBTC, and stakes the borrowed sBTC into more stBTC. The process repeats within the strategy's risk limits, connecting Bitcoin Staking yield to demand for sBTC loans.

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That gives Stacks a route to a durable advantage in Bitcoin DeFi. Higher sBTC supply yields attracts more BTC liquidity and a base rate for sBTC backed loans. Bitcoin Staking creates the economic reason for that capital to come and stay: yield that can increasingly be supported by borrowing demand.

Which USDCx borrowers will qualify?

The other half of the monthly allocation is planned for USDCx borrowers who meet an LTV eligibility requirement. LTV describes the value of a loan relative to its collateral. Eligibility requires LTV above 20%. The proposed rewards apply to borrowing USDCx. 

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