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Bitcoin Yield Risk Framework
Version 1.2
This framework evaluates Bitcoin yield products across five pillars: Custody & Asset Control, Smart Contract & Execution Risk, Yield Source & Economic Sustainability, Liquidity & Exit Dynamics, and Transparency & Verifiability.
Scoring principle
We prioritize the risk of capital impairment. A product is judged by how easily user principal can be impaired, not by how decentralized or elegant it looks on paper.
1. Custody & Asset Control
Who controls access to the underlying BTC, and can user principal be withheld, seized, or frozen by a single party?
Green · Trust-Minimized / User-Enforced — users retain unilateral or protocol-enforced claim to BTC without relying on a single entity’s discretion. Recovery is governed by Bitcoin-native or credibly decentralized rules.
Yellow · Quorum / Qualified Custodian — recovery depends on an honest quorum, bridge signer set, federation, or regulated custodian rather than direct user control.
Red · Single-Entity Dependency — recovery depends on one company or legal structure that can freeze access, fail operationally, or leave users structurally exposed in insolvency.
2. Smart Contract & Execution Risk
If the code fails or admins intervene, how much user principal can actually be impaired?
Green · Limited Blast Radius — contracts are immutable or tightly scoped, and a contract failure would not directly allow unilateral loss of core user principal. Operational disruption may still be possible.
Yellow · Admin Guardrails / Contained Control — the protocol is upgradable, pauseable, or still maturing, but admin powers are primarily defensive and do not create clean unilateral control over principal.
Red · Direct Fund Control / Unbounded Blast Radius — a contract exploit or admin action can directly move collateral, rewrite withdrawal rules instantly, or materially impair principal.
3. Yield Source & Economic Sustainability
Does the yield come from durable economic activity, or from subsidies, reflexivity, and fragile strategy dependence?
Green · Economically Real / Non-Reflexive — yield comes from identifiable economic activity and would still exist if token incentives disappeared. The payout may vary with market conditions but is not sustained by emissions.
Yellow · Real Yield, Material Dependencies — yield is economically real, but a meaningful share depends on active management, basis spreads, counterparties, credit underwriting, market structure, or temporary incentive support.
Red · Reflexive / Fragile — yield depends primarily on token emissions, undercollateralized credit, aggressive leverage, or structures that weaken when new capital slows or incentives fade.
4. Liquidity & Exit Dynamics
How quickly and reliably can a user redeem back to base BTC during stress?
Green · Immediate & Rules-Based — users can redeem on demand with no protocol-enforced queue, lock, or discretionary gate.
Yellow · Queued / Market-Dependent — exits are allowed, but require notice, unbonding, cool-down periods, batch processing, or reliance on secondary-market liquidity.
Red · Locked / Discretionary — exits can be blocked by fixed lockups, manual intervention, legal restrictions, or terms that allow the operator to pause redemptions during stress.
5. Transparency & Verifiability
Can I independently verify the assets, liabilities, and yield path with minimal trust and minimal delay?
Green · Continuously Verifiable — a third party can independently verify solvency, backing, and strategy exposure on a continuous or near-real-time basis, either on-chain or via public cryptographic attestations.
Yellow · Delayed / Partial Attestation — transparency is present but delayed, incomplete, or dependent on a single authorized verifier (e.g., periodic proof-of-reserves, monthly auditor reports, proof of assets without liabilities).
Red · Opaque / Black Box — no cryptographic proof of reserves, hidden wallet addresses or counterparties, omitted liabilities, or a proprietary non-auditable yield engine.
How we score
Every pillar has an objective Pass/Fail check. A product cannot score Green on any pillar unless the supporting evidence is explicit in the research report.
