In the first half of this year, the Bitcoin ecosystem has been particularly prominent, and Babylon has established itself as a leader with its “staking and earning” solution. Within just three hours of its launch, it attracted over 10,000 users who staked 1,000 BTC. So, will Babylon spark a BTCFi Summer? This article will analyze how Babylon works, its core technologies, ecological landscape, and its challenges.
Before delving into Babylon’s specific workings, let’s first discuss its financing and team background. In May, Babylon announced the completion of a new funding round, raising $70 million, led by the well-known venture capital firm Paradigm. Participation came from Polychain Capital, HashKey Capital, Mantle, HackVC, and others. This round brought Babylon’s valuation to $900 million, with a total funding amount of $96 million.
The Babylon team consists of consensus protocol researchers from Stanford’s Tse Lab and experienced Layer 1 blockchain developers from around the world.
According to its white paper, Babylon is a cross-chain staking protocol: the staked external assets remain on their original chains. Still, they are locked in a staking contract designated for the preferred validators of the secured chain. The staked assets can only be slashed when a validator commits a slashing offense.
This enables Bitcoin holders to stake their Bitcoin trustlessly without bridging it to a PoS chain while providing comprehensive slashing security guarantees for the chain. The protocol supports rapid unstacking to maximize liquidity for Bitcoin holders. Additionally, it is designed as a modular plugin that can be utilized with various PoS consensus algorithms, providing foundational components for building restacking protocols.
Source: Babylon White Paper
Babylon believes all existing PoS chains secure their networks through native assets maintained in the chain’s ledger. For example, PoS Ethereum is secured by ETH, Cosmos Hub by ATOM, and Binance Chain by BNB. However, relying solely on native tokens limits the economic security of PoS chains, as the market capitalization of those native tokens caps it. By utilizing remote crypto assets for staking, rather than relying solely on native assets or treating them as a supplement, the overall staking market capitalization can be increased, thereby enhancing the chain’s security.
Timestamping: Due to the lengthy confirmation times for Bitcoin transactions, securely recording these timestamps on the Bitcoin chain is slow. Therefore, Bitcoin timestamps effectively provide long-term security against prolonged attacks. In contrast, Bitcoin staking enhances the economic security of PoS chains, protecting them from short-term attacks. Additionally, as previously mentioned, Bitcoin timestamps are an important component of the Babylon protocol, facilitating synchronization between the PoS chain and Bitcoin.
Babylon achieves rapid redemption through the Bitcoin timestamp protocol, maximizing Bitcoin liquidity. This feature distinguishes the Babylon protocol among various staking solutions. The redemption time for Bitcoin is approximately one day. Although this duration may seem lengthy compared to Bitcoin’s block time of every ten minutes, it is significantly faster than the seven-day challenge period for Optimism Rollups, the roughly ten-day redemption period for Ethereum, and the twenty-one-day redemption times seen in many PoS networks within the Cosmos ecosystem.
Schnorr Signature and time-lock technology: Babylon is not a custodial solution; users’ assets are locked in addresses controlled by them through “time-lock” and “Schnorr Signature” mechanisms. This means that users retain full control over their assets without relying on a third party for management. While this operational approach limits user freedom, it provides enhanced security. Specifically, a time-lock is a mechanism that prevents funds from being accessed or transferred during a predefined period, thereby increasing security. Schnorr Signature is an advanced digital signature scheme that improves transaction privacy and efficiency, allowing users more flexibility in controlling their assets during transactions.
Bitcoin covenant emulator: This is a daemon operated by each member of the covenant committee of the Bitcoin staking protocol (currently, the identities of the committee members and the number of signatures have not been officially disclosed). The role of the covenant committee is to protect the Proof of Stake (PoS) system from attacks by Bitcoin stakers and validators. It achieves this by representing itself as an M-out-of-N multi-signature, co-signing Bitcoin transactions with the Bitcoin stakers. This mechanism ensures funds are forcibly burned if users reveal their private keys.
From the perspective of Babylon’s staking process and core technologies, while the protocol strives to reduce attack risks and enhance security through various technical means, its security, degree of decentralization, resistance to censorship, and scalability remain weak. The safety of “user Bitcoin” is influenced by factors such as the consensus mechanism of the Babylon network, the security of staking and redemption contracts, the authority and number of multi-signatures, the identities and numbers of the restriction terms committee and final provider node committee, and the security status of the IBC relay nodes. Furthermore, the security of PoS chains primarily relies on their security mechanisms rather than the Bitcoin network or the Babylon protocol itself.
The Babylon ecosystem is extensive, establishing partnerships with Bitcoin Layer 2 solutions, DeFi platforms, liquidity re-staking protocols, wallets, the Cosmos ecosystem, and rollup service providers. These collaborations will support Babylon robustly, with notable projects including Sei, Injective, Cosmos Hub, Osmosis, and Flash Protocol.
According to official announcements, Babylon has partnered with over 60 Cosmos application chains. This ecosystem encompasses more than 94 application chains with a total market capitalization of $75 billion, and IBC (Inter-Blockchain Communication) will be implemented following the launch of the Babylon mainnet.
Babylon Ecosystem Diagram (Source: X, April 27, 2024)
The cooperative staking and re-staking protocols include Bedrock, Solv, Lorenzo, PumpBTC, Chakra, and Pstake. Bedrock, which accounts for 29.78% of Babylon’s Total Value Locked (TVL) (with 297.8 BTC staked), is a multi-asset liquidity staking protocol founded by the PoS node service provider RockX. It supports liquidity staking services for Ethereum (uniETH), Bitcoin (uniBTC), and IOTeX (uniIOTX) chains.
Bedrock allows users to stake wrapped Bitcoin (wBTC) into Babylon, offering two staking options: First, users can stake wBTC on the Ethereum network, with a third party transferring the equivalent amount of BTC to Babylon for staking. Second, users can easily exchange wBTC for BTC and stake directly on Babylon. Staking rewards are calculated in uniBTC, and FBTC is currently supported for staking.
Source: Official Website
Solv is a decentralized liquidity facility that staked approximately 150 BTC during the first phase of Babylon. In July, Solv announced a partnership with Babylon to launch the liquidity-staking token solvBTC.BBN. This token allows Bitcoin asset users on Ethereum, BSC, and Arbitrum to participate in Babylon staking by minting SolvBTC.BBN and earn reward points.
Source: Official Website
Lorenzo is a platform for issuing, trading, and settling Bitcoin liquidity staking tokens based on Babylon. During the first phase of Babylon, it staked approximately 129 BTC. Users can stake BTC or BTCB on the Lorenzo platform to receive liquidity principal tokens (LPT) stBTC on a 1:1 basis. Staking rewards will be settled in yield accumulation tokens (YAT), allowing users to receive native rewards from Babylon staking and staking point rewards from Lorenzo.
Source: Official Website
One month after the launch of the Babylon mainnet, the first phase of staking 1,000 BTC has been completed. While some have praised attracting over 10,000 participants within just three hours, driving gas fees up to over 1,000 satoshis/byte, others feel that the results are lackluster given the current low sentiment in the cryptocurrency market. During this period, the Bitcoin ecosystem has quieted down, making Babylon’s accomplishments on the mainnet worthy of celebration, especially since they involve “real BTC.”
However, looking at the staking process, the BTC being staked in Babylon primarily originates from staking services such as Solv, Bedrock, and PumpBTC, raising questions about whether it can spark a “BTCFi Summer.” The future will depend on whether participants are willing to continue staking BTC on these nodes, which must also provide competitive rewards to enhance liquidity across the ecosystem. While the ecosystem is vast, it lacks genuine innovation and appears to focus more on capturing positions for airdrops and points.
Additionally, rising gas fees have increased costs for stakers, and although some nodes have introduced gas subsidies, this is not a sustainable solution.
Furthermore, it remains uncertain whether the native BTC deposited into Babylon will fully anchor the Wrapped version circulating within its ecosystem. Babylon does not offer wBTC; its availability relies on these nodes. Although Babylon can ensure the security of native BTC assets on the Bitcoin mainnet, there are still liquidity risks associated with various Wrapped versions circulating on aggregation platforms, and mere dependence on Babylon’s absolute trust is insufficient.
In summary, while Babylon’s performance on the mainnet is commendable, its future development and success face significant challenges. The reliance on staking processes, increased gas fees, and liquidity risks associated with Wrapped BTC may all impact the sustainability of the ecosystem. Therefore, breakthroughs in incentive mechanisms, ecological innovation, and user participation are essential for achieving true prosperity and development of BTCFi.
In the first half of this year, the Bitcoin ecosystem has been particularly prominent, and Babylon has established itself as a leader with its “staking and earning” solution. Within just three hours of its launch, it attracted over 10,000 users who staked 1,000 BTC. So, will Babylon spark a BTCFi Summer? This article will analyze how Babylon works, its core technologies, ecological landscape, and its challenges.
Before delving into Babylon’s specific workings, let’s first discuss its financing and team background. In May, Babylon announced the completion of a new funding round, raising $70 million, led by the well-known venture capital firm Paradigm. Participation came from Polychain Capital, HashKey Capital, Mantle, HackVC, and others. This round brought Babylon’s valuation to $900 million, with a total funding amount of $96 million.
The Babylon team consists of consensus protocol researchers from Stanford’s Tse Lab and experienced Layer 1 blockchain developers from around the world.
According to its white paper, Babylon is a cross-chain staking protocol: the staked external assets remain on their original chains. Still, they are locked in a staking contract designated for the preferred validators of the secured chain. The staked assets can only be slashed when a validator commits a slashing offense.
This enables Bitcoin holders to stake their Bitcoin trustlessly without bridging it to a PoS chain while providing comprehensive slashing security guarantees for the chain. The protocol supports rapid unstacking to maximize liquidity for Bitcoin holders. Additionally, it is designed as a modular plugin that can be utilized with various PoS consensus algorithms, providing foundational components for building restacking protocols.
Source: Babylon White Paper
Babylon believes all existing PoS chains secure their networks through native assets maintained in the chain’s ledger. For example, PoS Ethereum is secured by ETH, Cosmos Hub by ATOM, and Binance Chain by BNB. However, relying solely on native tokens limits the economic security of PoS chains, as the market capitalization of those native tokens caps it. By utilizing remote crypto assets for staking, rather than relying solely on native assets or treating them as a supplement, the overall staking market capitalization can be increased, thereby enhancing the chain’s security.
Timestamping: Due to the lengthy confirmation times for Bitcoin transactions, securely recording these timestamps on the Bitcoin chain is slow. Therefore, Bitcoin timestamps effectively provide long-term security against prolonged attacks. In contrast, Bitcoin staking enhances the economic security of PoS chains, protecting them from short-term attacks. Additionally, as previously mentioned, Bitcoin timestamps are an important component of the Babylon protocol, facilitating synchronization between the PoS chain and Bitcoin.
Babylon achieves rapid redemption through the Bitcoin timestamp protocol, maximizing Bitcoin liquidity. This feature distinguishes the Babylon protocol among various staking solutions. The redemption time for Bitcoin is approximately one day. Although this duration may seem lengthy compared to Bitcoin’s block time of every ten minutes, it is significantly faster than the seven-day challenge period for Optimism Rollups, the roughly ten-day redemption period for Ethereum, and the twenty-one-day redemption times seen in many PoS networks within the Cosmos ecosystem.
Schnorr Signature and time-lock technology: Babylon is not a custodial solution; users’ assets are locked in addresses controlled by them through “time-lock” and “Schnorr Signature” mechanisms. This means that users retain full control over their assets without relying on a third party for management. While this operational approach limits user freedom, it provides enhanced security. Specifically, a time-lock is a mechanism that prevents funds from being accessed or transferred during a predefined period, thereby increasing security. Schnorr Signature is an advanced digital signature scheme that improves transaction privacy and efficiency, allowing users more flexibility in controlling their assets during transactions.
Bitcoin covenant emulator: This is a daemon operated by each member of the covenant committee of the Bitcoin staking protocol (currently, the identities of the committee members and the number of signatures have not been officially disclosed). The role of the covenant committee is to protect the Proof of Stake (PoS) system from attacks by Bitcoin stakers and validators. It achieves this by representing itself as an M-out-of-N multi-signature, co-signing Bitcoin transactions with the Bitcoin stakers. This mechanism ensures funds are forcibly burned if users reveal their private keys.
From the perspective of Babylon’s staking process and core technologies, while the protocol strives to reduce attack risks and enhance security through various technical means, its security, degree of decentralization, resistance to censorship, and scalability remain weak. The safety of “user Bitcoin” is influenced by factors such as the consensus mechanism of the Babylon network, the security of staking and redemption contracts, the authority and number of multi-signatures, the identities and numbers of the restriction terms committee and final provider node committee, and the security status of the IBC relay nodes. Furthermore, the security of PoS chains primarily relies on their security mechanisms rather than the Bitcoin network or the Babylon protocol itself.
The Babylon ecosystem is extensive, establishing partnerships with Bitcoin Layer 2 solutions, DeFi platforms, liquidity re-staking protocols, wallets, the Cosmos ecosystem, and rollup service providers. These collaborations will support Babylon robustly, with notable projects including Sei, Injective, Cosmos Hub, Osmosis, and Flash Protocol.
According to official announcements, Babylon has partnered with over 60 Cosmos application chains. This ecosystem encompasses more than 94 application chains with a total market capitalization of $75 billion, and IBC (Inter-Blockchain Communication) will be implemented following the launch of the Babylon mainnet.
Babylon Ecosystem Diagram (Source: X, April 27, 2024)
The cooperative staking and re-staking protocols include Bedrock, Solv, Lorenzo, PumpBTC, Chakra, and Pstake. Bedrock, which accounts for 29.78% of Babylon’s Total Value Locked (TVL) (with 297.8 BTC staked), is a multi-asset liquidity staking protocol founded by the PoS node service provider RockX. It supports liquidity staking services for Ethereum (uniETH), Bitcoin (uniBTC), and IOTeX (uniIOTX) chains.
Bedrock allows users to stake wrapped Bitcoin (wBTC) into Babylon, offering two staking options: First, users can stake wBTC on the Ethereum network, with a third party transferring the equivalent amount of BTC to Babylon for staking. Second, users can easily exchange wBTC for BTC and stake directly on Babylon. Staking rewards are calculated in uniBTC, and FBTC is currently supported for staking.
Source: Official Website
Solv is a decentralized liquidity facility that staked approximately 150 BTC during the first phase of Babylon. In July, Solv announced a partnership with Babylon to launch the liquidity-staking token solvBTC.BBN. This token allows Bitcoin asset users on Ethereum, BSC, and Arbitrum to participate in Babylon staking by minting SolvBTC.BBN and earn reward points.
Source: Official Website
Lorenzo is a platform for issuing, trading, and settling Bitcoin liquidity staking tokens based on Babylon. During the first phase of Babylon, it staked approximately 129 BTC. Users can stake BTC or BTCB on the Lorenzo platform to receive liquidity principal tokens (LPT) stBTC on a 1:1 basis. Staking rewards will be settled in yield accumulation tokens (YAT), allowing users to receive native rewards from Babylon staking and staking point rewards from Lorenzo.
Source: Official Website
One month after the launch of the Babylon mainnet, the first phase of staking 1,000 BTC has been completed. While some have praised attracting over 10,000 participants within just three hours, driving gas fees up to over 1,000 satoshis/byte, others feel that the results are lackluster given the current low sentiment in the cryptocurrency market. During this period, the Bitcoin ecosystem has quieted down, making Babylon’s accomplishments on the mainnet worthy of celebration, especially since they involve “real BTC.”
However, looking at the staking process, the BTC being staked in Babylon primarily originates from staking services such as Solv, Bedrock, and PumpBTC, raising questions about whether it can spark a “BTCFi Summer.” The future will depend on whether participants are willing to continue staking BTC on these nodes, which must also provide competitive rewards to enhance liquidity across the ecosystem. While the ecosystem is vast, it lacks genuine innovation and appears to focus more on capturing positions for airdrops and points.
Additionally, rising gas fees have increased costs for stakers, and although some nodes have introduced gas subsidies, this is not a sustainable solution.
Furthermore, it remains uncertain whether the native BTC deposited into Babylon will fully anchor the Wrapped version circulating within its ecosystem. Babylon does not offer wBTC; its availability relies on these nodes. Although Babylon can ensure the security of native BTC assets on the Bitcoin mainnet, there are still liquidity risks associated with various Wrapped versions circulating on aggregation platforms, and mere dependence on Babylon’s absolute trust is insufficient.
In summary, while Babylon’s performance on the mainnet is commendable, its future development and success face significant challenges. The reliance on staking processes, increased gas fees, and liquidity risks associated with Wrapped BTC may all impact the sustainability of the ecosystem. Therefore, breakthroughs in incentive mechanisms, ecological innovation, and user participation are essential for achieving true prosperity and development of BTCFi.