Framework for Evaluating Bitcoin Yield Products
Bitcoin yield products are suddenly everywhere. Most of them promise income, many of them misunderstand risk, and almost none give institutions what they actually need: clarity. This framework gives you a simple, repeatable way to evaluate any Bitcoin yield product using custody quality, liquidity, tenor, and derivatives exposure. It ends with a scorecard you can use for internal approval or investment committee discussions.
Why a Framework Matters
Institutions cannot evaluate these products the way retail influencers do. You are not chasing hype, you are assessing operational resilience, risk pathways, and payoff reliability. A product with high nominal yield but poor custody or hidden derivatives exposure is not a yield product, it is a time bomb. A framework protects you from this scenario.
1. Custody Quality, Liquidity, Tenor
These three pillars determine whether a yield product can survive market stress.
Custody quality.
Who holds the Bitcoin, how is it secured, what are the withdrawal procedures, who controls signing authority, and what happens under distress conditions. The best setups use multi-sig, regulated custodians, transparent attestation, and clean operational segregation.
Liquidity.
How fast can the position be unwound without price impact or counterparty friction. Spot liquidity, ETF liquidity, and futures liquidity all matter because withdrawal speed determines survival probability during sharp drawdowns.
Tenor.
The time commitment. Overnight liquidity, weekly rolling, and monthly lockups all carry different risk regimes. Institutions should map tenor to their treasury needs: operating cash, reserve cash, or long term treasury buckets.
2. Derivatives Exposure
Many products hide volatility risk behind language like enhanced yield, risk neutral, or delta hedged. Your job is to ask what derivatives exposures actually sit beneath the surface.
Examples of exposures that matter:
- short volatility via covered calls
- long volatility embedded in structured notes
- spread risk between spot and futures
- leverage through margin or rehypothecation
- dependence on a single clearing venue
- liquidity mismatch between collateral and payoff
If you cannot clearly explain where the yield comes from, the product fails the derivatives evaluation.
3. Independent Scorecard for Evaluation
A transparent scorecard prevents emotional decision making. This scorecard is designed for repeatability and institutional alignment.
1. Custody security score (0 to 5).
Does the setup have multi-sig, regulated custody, independent attestation, and clear operational controls.
2. Liquidity accessibility score (0 to 5).
Can you exit within 24 hours at fair value. Is the venue battle tested. Are there known withdrawal bottlenecks.
3. Tenor flexibility score (0 to 5).
Does the product allow flexible redemption windows that match an institutional treasury cycle.
4. Derivatives transparency score (0 to 5).
Is it clear which exposures generate the yield. Are the Greeks visible. Is leverage explicitly disclosed.
5. Counterparty stack score (0 to 5).
How many layers of risk exist between you and the underlying asset. Centralized venues, brokers, clearing partners, rehypothecation chains.
6. Yield sustainability score (0 to 5).
Is the yield structural, or does it depend on market conditions that vanish under stress.
Add them up. A score below 18 is not suitable for institutional treasury. A score above 22 is strong. Anything 25 and above is exceptional.
How to Use This Framework
Apply this scorecard across every Bitcoin yield provider, from ETF basis strategies to structured derivative products to centralized crypto lenders. The point is not to pick the highest number. The point is to reveal hidden dependencies before they turn into forced liquidations.
Bitcoin yield is not magic. It is a combination of custody quality, market structure inefficiencies, and responsible derivatives exposure. When you evaluate it with discipline, you avoid the blow ups that defined the last cycle.