It has been nearly a month since the decentralized protocol Babylon mainnet was launched, but the response from the BTCFi market has not been as enthusiastic as expected. What problems were exposed during Babylon’s first phase of staking? Is the logic of sustainable interest generation tenable? Are market expectations for Babylon overvalued? Below is an in-depth analysis from independent researcher Haotian.
Babylon’s innovations and challenges
Innovation core: self-hosting model and security consensus service
Haotian said that the innovation of Babylon is to adopt a self-custody model, which allows users to lock BTC assets in the Bitcoin main network in the form of script contracts, and at the same time output "security consensus services" on multiple BTC layer 2, thereby obtaining access to other extended chains. income. Under this model, users can maintain full control over BTC under self-custody without the need for a third-party custody platform.
However, this innovation is currently only true for the "self-hosted" part. Although Babylon's encryption algorithm architecture does allow users to realize the possibility of additional income while holding BTC, the second half of "transforming security consensus into services and generating income" is still an immature concept and needs to meet multiple requirements. Prerequisites.
Three major prerequisites: users, liquidity, and service demand
Haotian believes that in order to "transform security consensus into services and generate revenue", three conditions need to be met:
1. A large number of users and verification nodes: There must be a large number of users and verification nodes with large voting rights to pledge BTC in the Babylon protocol.
2. Strong liquidity and LST asset aggregation: It is necessary to aggregate a large number of LST assets and form strong liquidity to support the users of the ecosystem and the total lock-up volume (TVL).
3. Procurement needs of new layer 2 PoS chains: A large number of new PoS chains are required to purchase Babylon’s security consensus services and provide sustainable benefits.
Issues exposed in the first phase of staking
Problem 1: High transaction fees and losses
Haotian said that Babylon only opened the pledge of 1,000 BTC in the first phase, which is an experimental launch stage, but has already exposed the problem of high transaction fees. Transaction fees during the staking process have soared, including the FOMO effect, post-staking unlocking and withdrawal operation fees, which have greatly increased the costs for participants. Taking the first phase of staking as an example, participants need to conduct a large number of transactions within a limited time, resulting in a significant increase in miner fees. It is understood that the mining fee ratio even exceeds 5%.
Question 2: Liquidity risk of Wrapped version of BTC
The Babylon protocol does not directly provide a 1:1 circulating Wrapped version of BTC. The current Wrapped BTC in the ecosystem is provided by nodes participating in the pledge. For these nodes, such as Solv Protocol, Bedrock DeFi, etc., the liquidity of the pledged native BTC and its aggregated Wrapped version of BTC is not completely matched, which means that liquidity risks still exist and need to be maintained by the credibility of each aggregation platform. .
The future of Babylon: How can shared security achieve sustainable gains?
Challenges and Strategies for Sustainable Income
Can Babylon’s “shared safety” service generate sustainable revenue? Haotian believes that relying solely on Babylon’s market incentives is insufficient, and other forces are needed to expand the demand pool of the PoS chain. Currently, Babylon's security services in the PoS chain are not yet mature and lack commercial service output. The market’s expectations for Babylon focus on competition such as staking voting and aggregation of liquidity, and revenue sharing mainly through the expansion of the ecological market. This model has great uncertainty.
Comparative case: Goat Network’s modular security consensus
Different from Babylon, Goat Network uses ZK technology to provide modular component services for the layer2 chain, including zkVM execution layer, shared communication layer and decentralized Sequencer. Goat Network not only locks user BTC and generates 1:1 Wrapped BTC, but also enriches the possibility of earning interest through decentralized mining and revenue design. This model provides a more solid technical security consensus for the PoS chain and has better replicability.
Market expectations: overestimated or misunderstood?
Babylon's innovation lies in quickly aggregating liquidity in the BTC market and forming an ecological effect. The core lies in the scale and efficiency of its liquid capital. However, to expand the scale effect of the PoS chain and realize the commercialization of security consensus, it still needs to be combined with ZK technology and modular services. Whether Babylon is overvalued or misunderstood remains to be further tested by the market.
This article: Babylon mainnet has been online for nearly a month, but the market response is not as good as expected: What is the future of BTCFi? First appeared in Chain News ABMedia.