1. What is Babylon?

There have been a lot of introductions about Babylon, and many large organizations and media have analyzed it, so I will not introduce its process and principles in detail here. I will try to describe what Babylon is in the most concise language.

Babylon is a project that uses a "self-limiting" solution to achieve "trustless staking" of BTC. The "staking certificate" is used for the "security layer of the POS chain" to obtain "revenue".

Here are a few terms to explain:

1. Self-limitation: This means that Babylon limits itself in a "zero-trust" manner, does not use multi-signature and other methods as the basic design, and continues to develop the "Bitcoin Timestamp" protocol, making it one of the foundations of the project.

2. Decentralized staking: There are two concepts involved here. One is decentralization. Babylon is not a custody solution and cannot control users’ assets. Users’ assets are locked in an address controlled by the user through “time-lock” and “Schnorr Signature” (of course, the operation is restricted). There is no need to trust a third party. The other is staking. To be precise, I prefer to use “locking” because the real situation is that BTC is locked in the main network, but “staking” is considered from the perspective of usage and is easier to understand.

3. Pledge certificate: This is easy to understand. The pledge event is processed into a certificate through technical means, so that it can be used in different places. The point of explanation is that it is not that BTC is transferred to the target chain for pledge, but the certificate is used as the confirmation of the pledge.

4. Security layer of POS chain: As we know, the security of POS chain mainly depends on the pledged funds. The more funds there are, the safer it is in principle. Many chains will use the chain's own token as collateral, which actually contains unsafe factors. If the price of the currency falls, the security of the chain will decrease. The lower the security, the more likely it is to cause unsafe incidents, which will cause the token to continue to fall, resulting in a "death spiral". The introduction of the best crypto assets such as BTC as a security layer will greatly enhance the security of the POS chain.

5. Income: Yes, Babylon is a project that earns income, and the income comes from the "reward" for providing security for the POS chain. It should be pointed out that Babylon is not a project for activating BTC Defi, and the pledged BTC cannot directly participate in Defi. However, the income or points generated can be used to participate in Defi through certain means, which is another matter, so don't confuse it.

2. What is the significance of Babylon?

1. Activate BTC

This is what I think is one of the most important meanings of Babylon. I said in the previous article that the problem that the current BTC ecosystem urgently needs to solve is "how to activate those BTCs that are unwilling to move."

BTC currently has a market value of 1.3 trillion US dollars. Except for the coins in CEX, most of them are either in a "hibernation" state or in a "pseudo-hibernation" state, lying in the account. No matter how strong the wind blows, I will remain unmoved!

The reason for this phenomenon is rooted in the consistent concept of BTC holders, “not your key, not your coin”. No matter how good a project is, as long as it makes them lose control of their BTC, they would rather let the account gather dust than participate. Because they know that many projects are designed to “steal” their BTC.

The pursuit of "extreme security" by holders is naturally different from that of ETH holders. At the same time, due to the limited scripting capabilities of the BTC mainnet, it is impossible to effectively use smart contracts to conduct "secure cross-chain". Therefore, the utilization rate of BTC has been very low, and staking projects based on multi-signatures (including optimized solutions) have also been widely criticized.

The emergence of Babylon can break this deadlock. Although Babylon is not perfect and still cannot bring huge liquidity to BTC-Eco, it can slowly activate the idea of ​​these BTC holders to use BTC and gradually cultivate this habit. Anyway, BTC is also kept in the account and does not move. If you can keep the control and make money without losing it, why not do it? !

This seemingly small step may be a big step forward in the development of the BTC ecosystem!

2. Build a security layer module for the Crypto world

There are many public chain systems in the crypto world, but everyone needs a "security layer" as a guarantee of chain security. EVM system, COSMOS system, etc. Most of them are based on the POS consensus mechanism, which requires sufficient high-quality funds as the foundation to ensure security.

From a modular perspective, Babylon can be developed into a "universal module component": a security layer module. It is widely used in various POS chains, introducing BTC as a security guarantee for these chains.

BTC holders get more profit opportunities, and each chain gets more security, which is a win-win situation for both parties!

3. What is the prospect of Babylon?

1. Three chains in one, bright prospects

The reason why I say this is that Babylon’s “technical and narrative background” is really excellent:

1) COSMOS Chain: Babylon is rooted in Cosmos, and the concept of "security sharing" also comes from Cosmos, using Cosmos's IBC inter-chain communication. For the Cosmos chain, it is inevitable to embrace the security brought by Babylon, and it will also bring new vitality to the Cosmos system.

2) BTC chain: Babylon’s positioning target is the BTC chain. As mentioned above, Babylon can gradually activate the use of BTC in the BTC network. When holders gradually adapt to this way of making money, it will become a habit and they will be more closely integrated with Babylon.

3) ETH chain: Babylon’s concept is in the same vein as Eigenlayer, but due to the difference in the BTC network, Babylon has achieved self-custody, surpassing Eigenlayer in this regard. If you regard ETH as a test chain for BTC, then Eigenlayer can even be considered an experimental product of Babylon in some dimensions (this is just my opinion, please note the premise). Moreover, for EVM-based chains, it is not impossible to introduce assets such as BTC that are superior to ETH in terms of "quality".

2. Valuation and Basis

When talking about prospects, we have to mention the valuation of the project; when calculating the valuation, we have to find a comparison. Here are a few simple hypothetical comparisons (not rigorous):

1)TVL

Currently, Eigenlayer's TVL is 14.7 billion US dollars, and ETH's market value is about 350 billion US dollars, accounting for 4.2%; the current BTC market value is about 1.3 trillion US dollars. If the proportion is the same, Babylon's possible TVL in the future can reach 50 billion US dollars (what is the concept of 50 billion US dollars? According to the current situation, TVL will surpass USDC's market value and be second only to SOL). Even if the proportion is not that high, we only count half of it, which is more than 20 billion US dollars of TVL, and it should be noted that the assets locked here are all the best quality assets.

2) FDV

Let's compare it with Eigenlayer. Eigenlayer received $100 million in funding from a16z in its B round on February 22, 2024. I will tentatively measure this project based on $5-10 billion. I think Babylon's future FDV will not be lower than Eigenlayer.

If we use TVL for comparison, Arb's TVL is 15 billion, and FDV is about 10 billion. According to the previous analysis, Babylon's future TVL will most likely not be lower than Arb, so its valuation will theoretically not be lower than Arb, that is, 10 billion US dollars. Of course, you may say that Arb is a public chain, and Babylon is actually also a chain, and Arb seeks development and profits internally, while Babylon seeks development and profits externally. The business logic is different, but the expectations seem to be better.

Therefore, in my non-rigorous deduction, Babylon FDV will be worth at least 10 billion US dollars in the future.

4. What are the opportunities for participation in Babylon?

Given the current progress of Babylon, I think there are three main ways for ordinary people to participate:

1. Participate in Bitcoin Staking Pioneer Pass secondary trading

This is the reward for the Testnet-3 test network, a total of 98,651, which can currently only be purchased through the trading market:

https://www.okx.com/zh-hant/web3/marketplace/nft/collection/polygon/bitcoin-staking-pioneer-pass

This raises a question: How to measure the value and odds of this NFT?

My personal opinion is that the purpose of buying NFTs is to bet on the probability of airdrops. Therefore, you can roughly estimate the probability p of airdrops, the estimated proportion r of airdrops, and the project's valuation FDV, and then use the following formula to calculate.

NFT-value=FDV*p*r/98651

2. Participate in Babylon Testnet - 4

Babylon Testnet-3 will be closed soon, and Testnet-4 will be opened soon. However, I think there will probably be no rewards for Testnet-4, and the mainnet may be launched soon, so we need to pay further attention to relevant information.

3. Earn more BTC and wait for the project to be launched on the mainnet before participating

Accumulating more BTC is definitely the right path, and then you can enjoy making money without doing anything!