The two hottest narrative directions of the Bitcoin ecosystem in 2024 are expanding Bitcoin’s programmability and staking to earn interest. Bitcoin’s scalability solutions are still in the stage of flourishing and exploring, but the “big and small kings” have already been distinguished in the narrative of staking to earn interest.
Babylon has become the mainstream in the Bitcoin staking interest narrative by virtue of its features such as self-custody of user assets, sharing Bitcoin security for PoS chains and obtaining staking income. In the first phase of staking on the mainnet launched by Babylon on August 22, the upper limit of 1,000 BTC was reached in just 7 blocks, and the network gas fee soared to thousands of satoshis/bytes.
The popularity of the Babylon ecosystem has also spawned many liquidity pledge protocols built around Babylon.
Especially for retail investors, these liquidity staking agreements not only facilitate their participation in Babylon staking, but also further release BTC liquidity based on Babylon, providing users with more sources of income.
What is Babylon
Babylon is a protocol that aims to leverage the security of Bitcoin to provide security for other PoS chains. Babylon can provide secure, cross-chain-free, and custody-free native staking solutions for PoS chains including BTC layer2, and promote cross-chain interoperability. It is often compared to Eigenlayer of the Ethereum ecosystem.
Babylon's core working principle
Remote staking: Utilize Bitcoin’s UTXO model and script system to achieve staking, confiscation, and rewards for Bitcoin.
Timestamp Server: Provides an immutable timestamp for events by recording the events of the PoS chain on the Bitcoin blockchain.
Three-layer architecture: Bitcoin as the bottom layer, Babylon as the middle layer, and PoS chain as the upper layer. Babylon is responsible for recording the checkpoints of the PoS chain to Bitcoin.
Babylon Advantages
Enhance PoS chain security: Leverage the security of Bitcoin to improve the PoS chain’s ability to resist attacks.
Shorten the staking cycle: shorten the staking cycle of the PoS chain through Bitcoin’s timestamp mechanism.
Promote cross-chain interoperability: Enable seamless communication and data sharing between different blockchains.
Bring new vitality to the Bitcoin ecosystem: Activate dormant Bitcoin and bring new application scenarios to the Bitcoin ecosystem.
Team situation:
The Babylon team consists of researchers from Stanford University, experienced developers, and experienced business consultants. One of the co-founders, David Tse, is an MIT alumnus who later became a professor at the School of Engineering at Stanford University and the University of Chicago. He has been elected to the National Academy of Engineering.
CTO Mingchao (Fisher) Yu was a postdoctoral researcher at the University of Southern California from 2017 to 2018, and was subsequently employed by Dolby Laboratories as a senior research engineer and principal engineer from 2018 to 2022.
Financing:
Babylon previously announced that it had raised a total of US$26 million in funding, with investors including Binance, OKX, ABCDE, Polychain Capital, Hack VC, Framework Ventures, Polygon Ventures and IOSG Ventures.
Babylon has successfully raised $70 million in its latest round of funding. The latest investment was led by Paradigm, with participation from Ventures, Hack VC, Polychain Capital, Bullish, and MANTLE. The newly acquired funds will accelerate Babylon's mission to achieve a secure and decentralized economy based on Bitcoin.
What’s next for Babylon’s ecosystem?
The launch of Babylon will definitely stimulate and catalyze the BTC layer2 market, which has been sluggish for a long time. It has two main impacts:
1) It allows many projects that originally combined CeFi to "upgrade" their technology, eliminate the criticized centralization problem, and make the slogan of asset interest generation easier to gain market trust.
2) It can bring direct commercial vitality to many BTC second-layer POS chains. On the one hand, BTC interest will accelerate the TVL accumulation speed of some POS chains, allowing the TVL points war to continue. On the other hand, in addition to BTC interest, there will also be a variety of gameplay such as LSD, LRT platform + DeFI combination interest.
The potential Babylon+ platform points subsidy war will also bring continued heat to the BTCFi track, which will be comparable to the Restaking craze brought by Eigenlayer.
Thoughts on the Bitcoin re-staking track
Back to the re-staking track that Babylon is in, first of all, the blockchain mainly shares security consensus in a modular way. The modular blockchain provides infrastructure for other blockchains by "renting" the security, decentralization and value consensus of high-quality public chains such as Bitcoin and Ethereum, thereby improving the performance and efficiency of the blockchain. There are currently three main solutions:
Ethereum-based solutions:
Advantages: high security, strong legitimacy, and can directly utilize Ethereum ecological resources.
Disadvantages: Throughput and cost may be low, not suitable for all types of application chains.
New DA layer solutions (such as Celestia):
Pros: Good performance, low cost, aims to provide security and decentralization comparable to Ethereum.
Disadvantages: Security and decentralization still need time to be verified, lack of legitimacy, and may be rejected by the Ethereum community.
Proof of Stake (POS) shared security solutions (such as Babylon, EigenLayer):
Advantages: It inherits the legitimacy and security of Bitcoin or Ethereum, provides more practical value to its assets, and is highly flexible.
Disadvantages: Relatively new, long-term performance remains to be seen.
Summary and Outlook
The Babylon protocol provides a powerful tool for the coordinated development of Bitcoin and PoS chains. Its success not only sets a new benchmark for the development of blockchain technology, but also provides more possibilities for the future development of Bitcoin and an important starting point for the recovery and development of the market. As more projects with deep technical backgrounds join this market, the future development of the BTC ecosystem will be richer and more diverse. The Babylon protocol is expected to play a key role in this process, leading the first wave of the BTCFi interest-bearing boom and bringing new growth opportunities to the BTC Layer2 market.
