Bitcoin is now more than just something people trade or hold as a store of value; it starts paying interest.
But there’s a catch: the coins that earn these rewards can’t move for months or years. A growing number of holders are locking their BTC into time-based contracts that promise returns but also freeze the supply.
The upside, however, is that this reduces the market’s breathing space and opens the way to future price increases that drive supply.
Timelocked and staked Bitcoin create a duration structure in the UTXO set that affects the free float, execution costs, and fee reflexes.
The change is most visible in Babylon’s self-custody model, which uses timelocks in Bitcoin scripts to let holders bet without packing coins, and in the broader rise of locktime use on L1.
Per BabylonCurrently, approximately 56,900 BTC have been staked. According to Babylon’s staking script documentation, the design relies on CLTV and CSV primitives to enforce time, so the duration is originally at the UTXO level rather than in a bridge or synthetic claim.
The macroeconomic background for supply tightness is already present.
The long-term supply of holders amounts to almost 14.4 million BTC and the illiquid supply amounts to almost 14.3 million BTC. These are behavioral cohorts, not hard locks. Still, they indicate how much additional maturity due to timelocks could impact the marginal currency available to meet new demand or sell during a drawdown.
An effective free-float proxy subtracts Babylon-staked coins and a discounted portion of other time-taxed outputs from the circulating supply to make that link concrete. The discount takes into account that some time slots will expire soon and that some scripts allow partial spending paths.
The result is a free-float that changes with live staking and locktime usage rather than just the price.
Governance and policy choices shorten the operational period for stakeholders, while the costs of protection increase. The dissolution delay for new stakes were cut from 1,008 to about 301 blocks, about 50 hours at the target block time.
The same change increased the preset fee for pre-signed slash transactions to 150,000 sats, which for a typical transaction size of 355 vB equates to approximately 422 sat per vB.
That parameter is intended to ensure anti-censorship recording over a range of blocks and becomes a live stress dial as the allowance band warms up. In calm conditions, the preset costs become clear immediately and the use of UX is stable.
When average reimbursement levels are between 50 and 200 sat per vB, the preset is still cleared, but packages where the child pays for the parent for non-slashing operations become more expensive.
As median levels approach the preset slashing, the risk of slashing latency increases unless the governance minimum is moved or policy changes improve the ability to pass and mine packets.
According to Bitcoin Optechversion-3 transaction relay, also called TRUC, and package relay are making progress on the policy track and are designed to make ancestor and child packages more secure and predictable, which is important when many users need to free encumbered coins at once.
Current fee observations do not fully reveal this structural pressure.
The market has depressed average compensation almost 1 sat per vB, indicating slack block space. At the same time, mainnet.observer now breaks out altitude- and time-based time slots and displays the distribution of fees, providing a way to track whether the share of encumbered UTXOs is rising while typical fees remain low.
As the time-sensitive share grows, the marginal user who needs to act quickly relies more on ancestor packages and CPFP mechanisms, which can sharpen peaks in tariff pressure even if basic demand appears unchanged.
This is a mechanical channel rather than a sentiment call, and it ties duration directly to the shape of fee spikes.
The magnitude of the duration effect can be outlined with simple ranges. Using a circulating supply near the 19.7 to 19.8 million BTC band, subtracting Babylon’s live stake count and a conservative portion of other timed outputs yields the following guiding cases:
Case | Babylon has deployed BTC | λ-adjusted time-locked BTC | Estimated free float reduction (BTC) | Share offering (approx.) |
---|---|---|---|---|
Base | 57,000 | 10,000 | 67,000 | ~0.34% |
Grow | 100,000 | 10,000 | 110,000 | ~0.56% |
Stretch | 200,000 | 20,000 | 220,000 | ~1.11% |
For every additional 50,000 BTC that enters hard time slots or Babylon staking, the free float decreases by approximately 0.25 percent of the supply.
That’s the part of the book that can be hit in one session, so even modest changes in duration share can change the depth at the top of the book.
Illiquid and long-term holding cohorts are still useful for color, but the above free-float arithmetic deliberately only counts explicit script constraints and Babylon staking to avoid double counting of behavioral portfolios that also happen to be time-locked.
The settlement stack adds new duration consumers.
Citrea positions a zk rollup that settles on Bitcoin and sets its own finality window to promote predictable time horizons for collateral and settlement. According to the project’s blog, it is moving towards the mainnet.
Stacks’ sBTC deposits are livecreating a path for BTC-anchored collateral that interacts with L1 over time rather than immediate redemptions. These designs rely on time slots to manage peg safety and settlement guarantees, meaning demand for L1 duration can grow even if spot trading activity is flat.
A stable risk-free rate of almost 4 percent on the US 10-year yield, visible on standard interest rate dashboards and referenced in the Citrea update, provides financial context for why a native yield story can keep a bid below maturity even when price volatility is low.
The timing of the policy is important. Bitcoin Core v30 just launched with an active debate about mempool defaults and relay rules.
Bitcoin Core v30 comes with packet relay improvements and policy defaults, especially for OP_RETURN, which are now notably permissive unless an operator chooses to revert to more stringent settings. This improves the system’s ability to move safety-critical packages during congestion, reducing the tail risk associated with drastic transactions when the cost band is printed near the preset value.
If defaults had increased, more of the burden would have shifted to compensation levels and governance parameters such as Babylon’s minimum reduction fee. Anyway, the compensation and wagering policies are now linked via the mempool.
Two practical comments should anchor the monitoring in the short term.
First of all, Babylon’s change applies to new, even older, bets guides can still refer to the previous delay of 1,008 blocks, so data slices should be clear about the cohort timing.
Second, snapshots of mainnet.observer’s fee distribution, including the share of less than 1 sat per vB trades, can be combined with Babylon’s live stake count to see if duration increases during silent blocks.
A continued increase in the stake total to 100,000 BTC would warrant a renewal of the free-float scenarios, and a shift in fees to higher medians would bring Babylon’s preset fee reduction back into view.
The picture that emerges is a market where a measurable chunk of coins now has an expiration date set by a script or by wagering conditions, and where peak behavior is determined by how many of those coins need to be moved at once.
The shape of that curve now depends on Babylon’s stake count, live fee regimes, and Bitcoin Core’s ultimate policy decisions.