# Staking hBTC

After minting [**hBTC**](/core-products/hbtc.md)—whether via native Bitcoin deposits or EVM-based onboarding—users must stake it to begin earning yield. This staking process converts hBTC into [**shBTC**](/core-products/shbtc.md), the yield-bearing token that reflects accrued returns from Hilbert Group’s BTC-denominated strategies.

The **shBTC staking mechanism** allows users to transform their hBTC holdings into a yield-bearing position by interacting with a standardised and composable on-chain architecture. At the core of this system is an implementation of the [**ERC-4626 Tokenized Vault**](https://ethereum.org/en/developers/docs/standards/tokens/erc-4626/) standard, which governs deposits, shares, and yield distribution in a transparent and interoperable way.

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**Technical Overview**

* **Vault Standard**: ERC-4626
* **Underlying Asset**: hBTC (ERC-20)
* **Vault Token**: shBTC (ERC-20, yield-bearing)
* **Mechanism**: hBTC is deposited into the vault; users receive shBTC proportional to their share of the vault.
* **Redemption**: When shBTC is redeemed, users receive their original hBTC plus accrued yield.
* **Accounting**: Internal vault accounting tracks `totalAssets`, `totalSupply`, and `previewRedeem()` logic as per ERC-4626 specifications.

This standard ensures consistent behavior across DeFi protocols, enabling:

* Accurate tracking of user share value
* Seamless integration with aggregators and DeFi vault managers
* Transferability and use of shBTC in other smart contracts while retaining exposure to yield

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**Staking Process (Flow)**

The staking process converts passive hBTC into active, yield-generating shBTC. The process can be broken down as follows:

1. **hBTC Minting**\
   Users deposit BTC via supported custodians or EVM-compatible bridges, minting hBTC at a 1:1 ratio.
2. **Vault Deposit**\
   The user deposits hBTC into the **shBTC Vault**, triggering an ERC-4626-compliant `deposit()` function.
3. **shBTC Issuance**\
   In return, the contract issues an equivalent amount of **shBTC**, representing the user’s share in the vault.
4. **Yield Accrual**\
   As the underlying BTC is deployed into yield-generating strategies by Hilbert Group, the vault’s total assets increase. The value of each shBTC token increases proportionally.
5. **Redemption**\
   Upon calling `redeem()` or `withdraw()`, users return shBTC and receive their hBTC plus accrued yield over the staking period (net of any protocol-defined fees, if applicable).

***

**Yield Mechanics and Risk Considerations**

* **Source of Yield**: Yield is sourced from institutional-grade BTC strategies executed by **Hilbert Group AB**, including delta-neutral arbitrage, basis trades, and off-chain lending.
* **Accrual**: Yield accrues in the vault and is reflected in the appreciation of shBTC’s redeemable value per token over time.
* **Risk Profile**: Strategies are designed to be delta-neutral; however, yield is not guaranteed.
  * In low-volatility or stressed market conditions, returns may fall to zero or become negative.
  * In such events, Syntetika’s [**Reserve Fund**](/operational-and-product-design/reserve-fund.md) is designed to intervene to maintain solvency and uphold redemptions.


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