The Babylon platform has announced the official launch of its Bitcoin staking mainnet. In the first phase, the platform set a staking cap of 1,000 BTC, which has already been fully reached. According to platform data, over 12,700 users have participated in staking, with the total staked value exceeding 1,000 BTC.

What is Babylon

Babylon is a protocol designed to leverage Bitcoin’s security to provide protection for other PoS chains. Babylon offers a secure, cross-chain-free, and non-custodial native staking solution for PoS chains, including BTC Layer 2, while promoting cross-chain interoperability. It is often compared to Eigenlayer in the Ethereum ecosystem.

The core working principle of Babylon

• Remote Staking: By utilizing Bitcoin’s UTXO model and scripting system, it enables staking, slashing, and rewards on Bitcoin.
• Timestamp Server: Events from PoS chains are recorded on the Bitcoin blockchain, providing immutable timestamps for these events.
• Three-Layer Architecture: Bitcoin serves as the foundational layer, Babylon acts as the middle layer, and PoS chains operate as the top layer. Babylon is responsible for recording PoS chain checkpoints onto Bitcoin.

Advantages of Babylon

• Enhancing PoS Chain Security: Leveraging Bitcoin’s security to increase the resistance of PoS chains against attacks.
• Shortening Staking Periods: Utilizing Bitcoin’s timestamp mechanism to reduce the staking periods of PoS chains.
• Promoting Cross-Chain Interoperability: Enabling seamless communication and data sharing between different blockchains.
• Bringing New Vitality to the Bitcoin Ecosystem: Activating dormant Bitcoin and introducing new use cases to the Bitcoin ecosystem.

BTCFi Ecosystem Overview

The Bitcoin ecosystem has now entered a major infrastructure phase, with various players rushing into the BTCFi space, as this sector holds nearly $1.5 trillion worth of assets waiting to be activated. Below is an overview of leading BTCFi projects:

BounceBit

BounceBit integrates CeFi and DeFi, offering more flexible yield options for Bitcoin. Through liquidity custody and re-staking, users can earn returns across multiple chains.

Core functions:

• CeFi + DeFi Combination: Deposit Bitcoin into a CeFi platform while simultaneously participating in DeFi protocols to earn dual yields.
• Liquidity Custody: Provides liquidity custody services, allowing users to redeem their assets at any time.
• Re-Staking: Enables users to re-stake their already staked Bitcoin into other protocols to earn additional rewards.
• Technical Design: BounceBit ensures the security of cross-chain assets through multiple security mechanisms, including validator consensus, Mainnet Digital’s custody services, and Ceffu’s MirrorX technology, reducing the risk of hacker attacks.

Solv Protocol

Solv Protocol has created an all-chain yield Bitcoin asset called SolvBTC, bringing Bitcoin liquidity into various DeFi protocols.

Core Features:

• SolvBTC: A derivative asset representing staked Bitcoin, usable across multiple chains.
• Decentralized Asset Management: Ensures asset security through smart contracts and multi-signature mechanisms.
• Cross-Chain Interoperability: Supports the use of SolvBTC across various blockchains.
• Technical Design: Aggregates liquidity resources and investment opportunities onto a single platform, allowing users to automate investments by setting up trading strategy Vaults.

Yala aims to build a multi-chain stablecoin ecosystem leveraging Bitcoin’s liquidity.

Core Features:

• Multi-Chain Stablecoin: Offers Bitcoin-based stablecoins that can be used across various chains.
• DeFi Ecosystem: Provides DeFi services such as lending and staking.
• Modular Architecture: Flexible and scalable, supporting custom modules.

Currently, many protocols use centralized security solutions, such as CeFi and multi-signature, to maximize value flow on the Bitcoin chain. Although on-chain verification methods like UTXO provide decentralization and security, Bitcoin’s lack of a comprehensive smart contract system limits value flow, making on-chain verification more common in re-staking scenarios.

Reflections on Bitcoin Re-Staking

Returning to the re-staking sector where Babylon operates, blockchains primarily share security consensus through modular approaches. Modular blockchains provide infrastructure for other blockchains by “leasing” the security, decentralization, and value consensus of high-quality public chains like Bitcoin and Ethereum, thereby improving blockchain performance and efficiency. Currently, there are three main types of solutions:

Ethereum-Based Solutions:

• Advantages: High security, strong legality, and direct access to Ethereum ecosystem resources.
• Disadvantages: Throughput and cost may be lower, and it may not be suitable for all types of application chains.

New DA Layer Solutions (e.g., Celestia):

• Advantages: Good performance, low cost, and aims to provide security and decentralization features comparable to Ethereum.
• Disadvantages: Security and decentralization features still need time to be validated, lacks legitimacy, and may face rejection from the Ethereum community.

Proof-of-Stake (PoS) Shared Security Solutions (e.g., Babylon, EigenLayer):

• Advantages: Inherits the legitimacy and security of Bitcoin or Ethereum, providing more practical value for its assets and offering high flexibility.
• Disadvantages: Relatively new, and long-term performance still needs to be observed.

Babylon employs a Proof-of-Stake (PoS) core concept, using the value of Bitcoin or Ethereum assets to create shared security services. The advantages include inheriting legitimacy and security while providing more practical value for main chain assets and offering greater flexibility. However, this raises several considerations:

In the Ethereum network, stakers generally bear more security responsibility than non-stakers because staked ETH participates in consensus maintenance, whereas circulating ETH benefits from network security but incurs the opportunity cost of staking. From a shared security perspective, PoS shared security solutions are currently inferior to Ethereum’s base solutions, unless the PoS assets are stETH or similar, as stETH corresponds to staked ETH in the Ethereum network, implying that if Ethereum’s network is secure, other PoS networks using stETH for staking are also secure.

Babylon’s PoW+PoS solution has an incomplete security sharing logic. Bitcoin network security is primarily maintained by miners. Although miners are driven by the value of BTC tokens, Bitcoin holders who stake in the Babylon protocol do not directly maintain Bitcoin network security, nor do they directly transfer Bitcoin network security to the PoS networks connected through Babylon. This raises the question of whether security beneficiaries can also transfer security guarantees to others. Essentially, the security of the PoS network is less related to the Bitcoin network and more closely tied to Bitcoin stakers. Therefore, we need to consider whether shared security is asset-based (more like a guarantee) or network-based.

In Babylon’s first-stage design, Bitcoin holders or stakers do not actively maintain the security of Bitcoin and PoS networks. The Bitcoin network appears more passive, receiving data from PoS networks, and overall security largely depends on Babylon’s PoS network itself.

From a quantitative perspective, the initial 1,000 Bitcoin represents a very small fraction of Bitcoin’s existing circulation. Economically, PoS chains currently do not share the security of the Bitcoin network, and the security of shared assets versus the security of the network hosting those assets are two distinct concepts that warrant further exploration.

Additionally, from a technical standpoint, the coordination between PoS timestamps and Bitcoin network block timestamps presents a challenge. Bitcoin’s block time is on a minute scale, with some uncertainty in block times and transaction confirmations, while PoS networks achieve transaction finality on a second scale. This introduces a coordination issue between PoS and PoW block times.

Summary

The Bitcoin network is the most valuable decentralized network. With numerous BTCFi projects, including Babylon, there is potential for the Bitcoin network to become the foundational layer of the entire crypto industry, bringing new possibilities to the Bitcoin ecosystem.

During development, it is crucial to focus not only on inheriting decentralization attributes but also on the security of protocols and smart contracts, given the significant financial volumes involved in BTCFi projects.

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