Bitcoin is now more than just something people trade and hold as a store of value. I'm starting to pay interest.
But there's a catch. The coins that earn these rewards cannot be moved for months or even years. More and more holders are locking up their BTC in time-based contracts that promise yield but freeze supply.
On the positive side, however, this reduces market headroom and paves the way for higher prices that could squeeze supply in the future.
Time-locked and staked Bitcoins are creating a term structure within the UTXO set that affects free float, execution costs, and fee reflection.
This change is most evident in Babylon's self-custodial model, which uses timelocks in Bitcoin scripts to allow holders to stake their coins without wrapping them, and the widespread increase in the use of locktimes in L1.
There is currently approximately 56,900 BTC staked per Babylon. According to Babylon's staking script documentation, this design relies on CLTV and CSV primitives to enforce time, so duration is set natively at the UTXO level, rather than in bridges or synthetic claims.
The macro background for tight supply is already in place.
The long-term holder supply is close to 14.4 million BTC and the illiquid supply is close to 14.3 million BTC. These are behavioral cohorts, not hard rock. However, they do frame how much additional duration from timelocks can impact the marginal coins available to meet new demand or sell towards drawdown.
An effective free float proxy materializes that link by subtracting discounted slices of Babylon staking coins and other time-sensitive products from the circulating supply. This discount recognizes that some timelocks expire quickly and that some scripts allow partial spend passes.
The result is a free float that varies not only based on price, but also on live staking and lock time usage.
Governance and policy choices reduce operational time for stakeholders while increasing protection costs. The new stake uncoupling delay has been reduced from 1,008 blocks to approximately 301 blocks, resulting in a target block time of approximately 50 hours.
The same change increased the pre-set fee for pre-signed slash transactions to 150,000 sats. This equates to approximately 422 sats per vB for a typical 355-vB transaction size.
This parameter is intended to guarantee inclusion against censorship over a series of blocks, and becomes a live stress dial when the toll tape heats up. In quiet situations, preset slash fees clear without delay and the staking UX is stable.
If the median price level is in the range of 50-200 sat per vB, the preset will still be cleared, but the non-slash-operated child-paying parent package will be more expensive.
As the median level approaches the slash preset, the risk of slash latency increases unless minimal governance moves or policy changes improve the ability to relay and mine packages.
According to Bitcoin Optech, version 3 of Transaction Relay and Package Relay, also known as TRUC, is an advancement on the policy track and is designed to make ancestor and child packages more secure and predictable. This is important when many users need to release encumbered coins at once.
Looking at fees today does not fully reveal that structural pressure.
The market has published median prices close to 1 Sat per vB, indicating a lack of block space. At the same time, mainnet.observer unlocks height-based and time-based time locks and provides a way to view fee distributions to track whether the share of burdened UTXOs rises while the general fee bucket remains low.
As the time-locked share grows, marginal users who need to migrate quickly become more dependent on ancestry packages and CPFP mechanisms, which can lead to steeper peaks in pricing pressure even though baseline demand appears unchanged.
This is a mechanical channel rather than a sentiment call and ties duration directly to the shape of the fee spike.
The size of the duration effect can be roughly illustrated by a simple range. Using a circulating supply around the 19.7 million to 19.8 million BTC band, and subtracting a modest slice of Babylon's live stake counts and other time-sensitive outputs, we get the following directional case.
| case | Babylon Stake BTC | λ adjusted time lock BTC | Estimated free float reduction (BTC) | Supply share (estimate) |
|---|---|---|---|---|
| base | 57,000 | 10,000 | 67,000 | ~0.34% |
| growth | 100,000 | 10,000 | 110,000 | ~0.56% |
| stretch | 200,000 | 20,000 | 220,000 | ～1.11% |
For every additional 50,000 BTC transferred to hard timelocks or Babylon staking, free float decreases by approximately 0.25 percent of supply.
Because this is the part of the book that can be accessed in one session, even small changes in duration percentage can change the depth near the top of the book.
While the illiquid and long-term holder cohorts still help with color, the free float calculation above intentionally only counts explicit script constraints and Babylon staking to avoid double-counting time-locked behavioral wallets.
A new consumer for the period is added to the payment stack.
Citrea positions the ZK Rollup to be settled in Bitcoin with a unique finality window that prioritizes predictable periods for collateral and settlement. According to the project blog, it is in the process of moving towards mainnet.
Stax sBTC deposits are live, not instant redemption, and establish a path for BTC anchor collateral to interact with L1 over time frames. Because these designs rely on timelocks to manage peg safety and settlement guarantees, demand for L1 duration can increase even if spot trading activity remains flat.
The stable risk-free rate of nearly 4% on the US 10-year bond, shown on the Standard Rates Dashboard and mentioned in Citrea's update, provides the financial context for why the native yield narrative can sustain a bid under duration even when price volatility is low.
Policy timing is important. Bitcoin Core v30 has just been released and there is a lively discussion about memory pool defaults and relay rules.
Bitcoin Core v30 includes package relay improvements and policy defaults, particularly OP_RETURN, which are now particularly forgiving unless operators choose to revert to stricter settings. This improves the system's ability to move safety-critical loads during busy times and reduces the tail risk faced by slush transactions when toll tapes are printed close to preset values.
If defaults had been more severe, more of the burden would have shifted to governance parameters such as fee levels and Babylon's minimum fee reductions. In any case, fees and staking policies are now combined through Menpool.
Two practical notes should be central to short-term monitoring.
First, while the Babylon Uncoupling changes apply to new stakes, old guides may still reference the previous 1,008 block delay, so data slicing needs to be clear about the timing of cohorts.
We can then combine the fee distribution snapshot from mainnet.observer, which includes sub-sat shares per vB transaction, with Babylon's live staking counts to monitor whether duration increases during quiet blocks.
If the total stake continues to push towards 100,000 BTC, the free float scenario will need to be updated, and if the fee bucket shifts to a higher median, Babylon's pre-set fee reductions will come back into view.
What emerges is a market where measurable slices of coins have expiry dates set by scripts or staking terms, and peak fee movements are shaped by the number of coins that need to be moved at once.
The shape of that curve now depends on Babylon’s stake numbers, live fee regime, and Bitcoin Core’s final policy decisions.
