While re-staking protocols were the biggest winners of Q1 2024 with a massive 1,068% increase in TVL, liquid staking continues to dominate the DeFi landscape with almost $56 billion in TVL

This is well ahead of other segments, such as Lending ($33.91b), Bridges ($25.67b), and DEXs ($22.01b).

Notably, liquid staking’s share of TVL grew almost 30% over the past three months, or more than 73% QoQ.

TLDR:

• Babylon Chain allows BTC holders to stake their Bitcoin, enhancing PoS network security while maintaining control over their assets.
• Babylon Chain mirrors EigenLayer’s approach by extending security through staking, specifically designed for Bitcoin’s ecosystem.
• Due to Bitcoin’s lack of smart contract support, Babylon Chain employs a trust-minimized, self-custodial staking architecture.
• Babylon Chain is projected to grow by 2,047% in TVL over 232 days, potentially adding $1.3 billion to its value.
• With its rapid adoption, Babylon Chain could become a leading player in the blockchain space, supporting the development of new applications on its platform.

Babylon Chain is pioneering a groundbreaking innovation in the cryptocurrency space — Bitcoin Staking

EigenLayer has gained prominence in the Ethereum ecosystem by allowing ETH and Liquid Staking Token holders to re-stake their assets, enhancing security across various applications while offering additional rewards. Similarly, Babylon Chain introduces Bitcoin staking, enabling BTC holders to secure PoS networks and earn rewards without relinquishing control of their assets. However, due to Bitcoin’s lack of smart contract support, Babylon’s architecture and applications differ from EigenLayer’s, reflecting the unique requirements of the Bitcoin ecossystem.

Babylon Chain infrastructure source: rockx.com

Babylon Chain - highlights

Babylon Chain is designed as a versatile suite of protocols aimed at extending Bitcoin’s security to other blockchain networks, particularly those operating on Proof of Stake (PoS) mechanisms. At its foundation, Babylon includes two essential protocols:

1. Bitcoin Staking Protocol: This protocol enables Bitcoin holders to stake their assets in a way that minimizes trust and allows for self-custody, providing economic security to decentralized systems, especially PoS networks. It achieves this without requiring third-party custody or the need to bridge assets to another blockchain. This setup ensures that PoS networks benefit from the stability of Bitcoin’s value, while Bitcoin holders can earn staking rewards, all while retaining full control over their assets.
2. Security Enforcement in PoS Protocols: To uphold security and accountability, Babylon ensures that PoS blocks and their associated signatures are witnessed by at least one honest validator before a client disconnects. This mechanism allows honest validators to identify and prove any safety violations, thus maintaining the network’s integrity by promptly addressing and penalizing any malicious behavior.

The Trillion Dollar Crown: Bitcoin’s Liquidity Dominance

Current market conditions

Bitcoin’s dominance has surged relative to Ethereum’s (ETH) market cap, reaching a 40-month high with a dominance of 78.5% and continues to represent more than half of the market cap of the entire crypto ecosystem. This shift highlights a stronger investor preference for Bitcoin, while Ethereum has yet to garner the same level of interest.

This upward trend in Bitcoin’s dominance began in late 2022, driven by growing speculation around a Bitcoin (BTC) ETF. Following the ETF’s approval, it has seen substantial inflows. However, speculation about an ETH ETF and its potential approval has not reversed this trend. The limited demand is evident in the low figures reported for the ETH ETF.

Historically, significant events like the ICO boom and the 2021 market peak have influenced these dynamics. ETH will likely need a similarly impactful event to shift this trajectory.

Source: Cryptoquant

Bitcoin smash Ethereum on-chain metrics

The chart hammers home Bitcoin’s steady grip on the top spot in active addresses, with BTC consistently leaving Ethereum in the dust as time rolls on. Even with a few bumps along the way, Bitcoin’s network activity has stayed solid, especially with that big spike around 2017, and has since cruised at a high, stable level.

This long-term growth and rock-solid stability in active addresses show off Bitcoin’s strong and loyal user base, keeping those transactions flowing and cementing its place as the number one crypto. On the flip side, while Ethereum’s been making gains, its active addresses are way more volatile, swinging with trends like ICOs and DeFi booms.

This clear difference just underlines Bitcoin’s consistent dominance in user engagement and network stability, reinforcing its status as the backbone of the crypto space.

BTC vs ETH active addresses. Source: glassnode

When analyzing BTC, inflow volumes are particularly pronounced during key market events, such as the 2017 bull run and the 2020-2021 market surge. These spikes in activity underscore Bitcoin’s dominant market capitalization and superior liquidity, making it the preferred asset during periods of heightened market movement. The scale and frequency of these inflows into Bitcoin reflect its role as the primary store of value within the cryptocurrency ecosystem, especially during times of speculative trading and market exuberance.

In comparison, Ethereum’s inflow volumes, although significant, are more moderate and tend to be concentrated during specific phases of network expansion, like the 2017 ICO boom and the 2021 DeFi surge. These periods saw increased activity on the Ethereum network as new projects and decentralized finance applications attracted capital. However, the inflow volumes during these events, while impactful, do not match the sheer magnitude seen with Bitcoin. This difference highlights Bitcoin’s more consistent appeal to a broader range of investors and its position as a more liquid and stable asset, especially during periods of market volatility.

BTC vs ETH exchange inflow volumes. Source:glassnode

Have you realised how much liquidity is just lying dormant in Bitcoin?

On the one hand, we’ve seen how DeFi protocols on Ethereum, especially in liquid staking and restacking, have been game-changers for the network’s growth and security. Now, we’re witnessing something similar unfold on the Bitcoin blockchain. Despite running on PoW, Babylon is opening the door for investors to unlock opportunities in the Bitcoin ecosystem and start earning yield on their BTC.

Sector Market cap Global Crypto $2.17T DeFi $76B Liquid Staking $2.46B Bitcoin $1.2T Ethereum $311,55B

Last update 27 of August 2024. Source: Coinmarketcap

In the chart below, we can see that long-term Bitcoin hodlers still make up over 70% of the supply and the current levels are quite low due to the market’s condition, which means many of these hodlers are likely keen on earning some yield on their passive stash—much like what’s already happening on the Ethereum network. The big difference here is the market cap, which is roughly three times bigger, creating room for even more opportunities.

In the past 30 days, Long Term Holders supply increased by 262,000 BTC. They now control 14.82 million BTC, which accounts for 75% of the total supply. Source: cryptoquant

All DeFi protocols are built on Ethereum blockchain, but it is about to change with Babylon Chain.

The first testnet on the network was successful, which allowed us to anticipate the potential outcome of the mainnet, which also turned out to be successful.

The table below shows some metrics from the first hours after the protocol was launched on the network.

Metrics Value Number of Participants Around 12,700 BTC Pledged (Total) 1,000 BTC Time to Reach Pledge Limit More than 3 hours Maximum Pledge Per Participant 0.05 BTC Minimum Pledge Per Participant 0.005 BTC Average Transaction Fee During Pledge Exceeded 1,000 satoshis/byte Median Transaction Fee in USDT Over 130 USDT (around 0.002 BTC) Total TVL Accumulated in 3 Hours Approximately $60 million (1,000 BTC) Total Funding $96 million Valuation (latest funding round) $800 million Exclusive Reward Points per Bitcoin Block 3,125 points per BTC block Investors Paradigm, Polychain, HashKey Capital, IOSG Ventures, Amber Group, Galaxy Digital, Binance Labs, Hack VC, OKX Ventures, ABCDE Capital

Babylon Chain is EigenLayer, but for the Bitcoin blockchain 🙌🏼

Eigenlayer become a game changer in the Ethereum blockchain on LRTs. The growth of the protocol was impressive, as it managed to reach the same market value as the DeFi sector in a very short time, even before the last peak.

Chart showing the evolution of TVL in DeFi and the EigenLayer protocol. Source: Defilama

But what do both protocols have in common?

Both protocols provide yield for investors. Besides that, Babylon chain is a pioneering project that enhances the security of Proof-of-Stake (PoS) blockchains by allowing Bitcoin hodlers to generate yield from their otherwise inactive Bitcoins. This approach strengthens the economic security of PoS chains and decentralized applications (dApps) by leveraging Bitcoin’s value to support and secure these networks.

Development Activity

Protocols Commits Devs Stars Forks Branches Eigenlayer 2060 30 595 317 122 Babylon 700 33 231 159 147

Babylon chain only launched its project on the network a week ago, yet the level of interest in the project is already very similar to that of the EigenLayer protocol. This is a positive sign, as in this early stage, the project is attracting more interest than Eigen itself. Source: babylon.labs

Promising LRT and LST Protocols on Bitcoin 🧮

Total Value Locked (TVL) on pStake, Solv and StakeStone: $1.51B

Protocols breakdown

• pSTAKE Finance
  • TVL: $2.94M
  • Weight: 0,19%
• Earning Bitcoin yields should be straightforward, secure, and low-risk. With four years of experience in liquid staking and expertly designed yield strategies, pSTAKE Finance enables both individuals and institutions to make the most of their BTC in the BTCfi ecosystem.
  pSTAKE Finance is a Bitcoin yield and liquid staking protocol supported by Binance Labs.
  Through pSTAKE Finance, users can liquid-stake their BTC to earn rewards from Babylon’s Trustless BTC staking.
  Also, the protocol offers a mechanism of yield-generating Bitcoin token (yBTC) which provides auto-compounded BTC returns, similar to the cToken model like wstETH. This mechanism will be achieved through various yield strategies operating in the background, starting with BTC Liquid Staking on Babylon.

Source:kucoin.com

Future features - pSTAKE v2 Launch 🚀

<aside> 🗣 Recently, pStake launched a points program (SatDrop) in August and will soon release a new feature. pStake is about to introduce yBTC, allowing you to effortlessly deposit your BTC into pStake and receive a liquid token that not only retains your Bitcoin’s value but also opens up a world of opportunities in the DeFi space.

• Solv
  • TVL: $1.048B ($187M restaked)
  • Weight: 69,19%

Solv is another alternative for Liquid Staking Token for Bitcoin, which leverages Babylon’s innovative approach to share Bitcoin’s economic security with PoS chains. SolvBTC Babylon is designed for the upcoming Babylon mainnet launch. In less than four months since the launch of SolvBTC, more than 19,000 Bitcoin have been staked on Solv, surpassing BTC holdings on some entire chains & Bitcoin ETFs. (chart below)

Data from 30 April 2024. Source: Solv.docs

In essence, pSTAKE and Solv serve different niches within the crypto space: pSTAKE is a specialized protocol for Bitcoin staking and yield generation, while Solv offers broader DeFi solutions.

• StakeStone (will launch Bitcoin staking soon)
  • TVL: $440M (Locked in Ethereum blockchain)
  • Weight: 29,09%
• StakeStone is an omnichain liquidity infrastructure that is building STONE / STONEBTC, which serves as liquid ETH / BTC powered by an adaptive staking network. Meanwhile, it establishes a multi-chain liquidity market based on STONE, the liquid ETH, which provides users of STONE with more use cases and yield opportunities. \
  Although this protocol doesn’t currently offer Bitcoin staking, it’s planned to be introduced soon. At present, they are still in the testnet phase, so there isn’t much data available to work with. However, considering the protocol’s success on the Ethereum network, expectations are similarly high for the Bitcoin staking feature.
• Bedrock
  • TVL: $23.85M
  • Weight: 1,54%

Bedrock is a multi-asset liquid restaking protocol, supported by a non-custodial solution developed in collaboration with RockX, a well-established blockchain infrastructure company with deep expertise in crypto staking.

When a wBTC token is deposited into Bedrock, an actual BTC token will be staked to the Babylon network in real-time. This process can occur through one of two approaches currently in development:

1. Proxy Staking: a proxy mechanism can be used, where wBTC tokens are staked on the Ethereum network, and a corresponding amount of BTC tokens are staked on the Babylon network by a trusted party. This approach allows for flexibility and interoperability between the two networks.
2. Direct Conversion: Alternatively, wBTC tokens are instantly redeemed into BTC tokens, which are then staked directly onto the Babylon network. This approach ensures seamless and immediate conversion and staking, without involving the centralised custodial wallet.

Both approaches aim to facilitate the smooth transition of assets between the Ethereum and Babylon networks, enabling efficient and secure staking operations.

Source: Bedrock

During the testnet phase or early stages of a mainnet launch, many blockchain protocols often incentivize early adopters with airdrops and other rewards. This approach serves two key purposes: it boosts the protocol’s value by attracting initial users and forming a dedicated community, while also providing added benefits to the network’s participants. Early adopters typically receive airdrops, tokens, or other forms of compensation, potentially increasing their returns as the network expands. These incentives are crucial for the early decentralization of the network, ensuring a broad token distribution and encouraging diverse user engagement. As a result, the ecosystem becomes more robust and resilient, offering users not only the chance to participate in the network but also the opportunity to gain financial benefits and contribute to the early success of a new application or Layer 2 solution built on an existing blockchain.

Source: Defilama

These three protocols collectively represent around $1.5B in value locked on the network. However, given their current maturity stage, there’s still plenty of room to grow and expand the liquid staking scene on Bitcoin. This shows that we’re only scratching the surface of what’s possible in this space.

The Future is bright

Looking forward, we crunched the growth rates on the network and compared them with Eigen’s, normalizing the returns. The results were fire, showing that the protocol has massive room to grow, and the odds of it blowing up with exponential growth are super high.

Forecast growth trajectory for Babylon Chain, with a focus on key indicators such as the Compound Annual Growth Rate (CAGR). This method captures the project’s expected rate of return, smoothing out market volatility to provide a clear picture of its compounded growth over time.

The chart illustrates the projected Total Value Locked (TVL) across DeFi, EigenLayer, and Babylon Chain, measured in billions of dollars, with the TVL value for each layer calculated as the difference between the layers. DeFi, represented by the blue layer, shows steady growth, reaching about $1 billion, while EigenLayer, in orange, adds significantly to the total, contributing roughly $2 billion. Babylon Chain, represented by the green layer, exhibits rapid growth in the later stages, ultimately pushing the total TVL beyond $6 billion.

Specifically, Babylon Chain is projected to grow by approximately 2,047% over 232 days, translating to a substantial increase of $1.3 billion in TVL, suggesting that Babylon Chain could emerge as a leading player, surpassing both DeFi and EigenLayer in TVL, reflecting increased adoption and confidence in its innovations.

Disclaimer：

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