introduction
As a pioneering technology of blockchain, Bitcoin has been mainly regarded as a kind of digital gold with strong value storage function since its birth in 2008. Although Bitcoin has become the most trusted digital asset with its powerful consensus mechanism and unalterable ledger, its application scenarios have been limited to value storage and limited payment functions. Although Bitcoin's PoW mechanism ensures a high degree of decentralization and security, it also leads to a large amount of idle capital and energy consumption.
As blockchain networks such as Ethereum have taken the lead in adopting the PoS mechanism to maintain network security and generate income by staking cryptocurrencies, this model has shown great potential and advantages. Staking has become an important part of the blockchain ecosystem. The concept of Bitcoin staking and re-staking was born in this context.
Imagine if Bitcoin is not just digital wealth sleeping in a cold wallet, but can be activated and participate in the construction of more blockchain networks through staking, providing security for these networks while bringing considerable returns. The introduction of the BTC staking concept not only provides new income opportunities for Bitcoin holders, but also brings more capital efficiency and security to the entire blockchain ecosystem.
This article will explore the Bitcoin staking track in depth, including its background, technical details, representative projects, opportunities and risks analysis, and future development prospects. Let us unveil the mystery of Bitcoin staking and explore the unlimited potential behind it.
1. The need for Bitcoin staking
Bitcoin was born in 2008 as a peer-to-peer electronic cash system, with the Proof of Work (PoW) mechanism at its core. PoW ensures the security and decentralization of the network by having miners solve complex mathematical problems to verify transactions and generate new blocks. However, the PoW mechanism brings huge energy consumption and high mining machine costs, which to some extent limits the capital utilization efficiency of Bitcoin.
With the introduction of the Proof of Stake (PoS) mechanism on platforms such as Ethereum, the PoS mechanism verifies transactions and generates new blocks by staking cryptocurrencies, which saves energy and improves capital efficiency. The successful application of the PoS mechanism has made staking an important part of the blockchain ecosystem.
However, as the largest cryptocurrency, most of Bitcoin's assets have been idle for a long time and lack effective ways to use them. According to the research of the Babylon team, most of the world's approximately $600 billion in Bitcoin assets are underutilized. If these idle Bitcoin assets can be effectively utilized, they will bring huge security and capital benefits to the blockchain ecosystem.
The core idea of Bitcoin staking is that Bitcoin can be pledged through certain mechanisms to be used as security for other PoS networks. For example, in the Babylon project, pledgers can pledge the pledged Bitcoin to multiple PoS networks, thereby obtaining staking income from multiple networks at the same time. This mechanism not only improves the capital utilization of Bitcoin, but also provides diversified security for different blockchain networks.
2. The difference between Bitcoin staking and Ethereum staking
Staking and Restaking in the ETH ecosystem have always been popular tracks, contributing the vast majority of locked positions for DeFi projects. In contrast, due to the lack of smart contract functions in BTC, Bitcoin staking has encountered technical bottlenecks. With the continuous innovation of technology, Bitcoin staking is gradually overcoming these obstacles, but there are still significant differences between Bitcoin staking and Ethereum staking in terms of mechanism, technical implementation, security and application scenarios.
2.1 Comparison of staking mechanisms
Ethereum successfully switched to the Proof of Stake (PoS) mechanism in 2022, where stakers lock ETH in the network and run verification nodes to verify transactions and generate new blocks. Validators can not only receive block rewards, but also earn income from transaction fees. During the verification process, stakers must follow the network protocol, and if violations occur, such as double signing or malicious behavior, the staked ETH will be confiscated. This mechanism is designed to ensure the honesty of validators and the security of the network through economic incentives and punishment mechanisms.
Bitcoin staking is mainly achieved through cross-chain technology and staking mechanisms. A typical example of Bitcoin staking is the Babylon project. Unlike Ethereum's PoS mechanism, Bitcoin staking is not part of its mainnet, but is achieved through external protocols and platforms. In the Babylon project, stakers lock Bitcoin in a specific contract to provide security support for other PoS networks through cross-chain protocols.
2.2 Differences in technical implementation
The core of Ethereum staking is smart contracts and verification nodes. Stakers need to lock ETH in smart contracts on the Ethereum mainnet, which are responsible for managing operations such as staking, verification, and confiscation. The advantage of smart contracts lies in their automation and transparency. All operations are executed by code, reducing the risk of human intervention.
Bitcoin staking relies on cryptography and cross-chain protocols. Projects such as Babylon have achieved non-custodial Bitcoin staking through EOTS technology. Under this mechanism, the staked Bitcoin will not leave the mainnet, but will be locked through a specific protocol. The advantage of this method is that it does not need to rely on third-party custody, thereby reducing trust risks. If the validator does something malicious, the Babylon protocol can confiscate the staked Bitcoin by disclosing the validator's private key.
2.3 Security Comparison
The security of Ethereum staking mainly depends on the reliability of smart contracts and the honesty of verification nodes. For example, Ethereum 2.0 maintains the security of the network by confiscating the ETH of malicious validators. However, the security of smart contracts also faces challenges, and code vulnerabilities and hacker attacks may lead to the loss of pledged funds.
The security of Bitcoin staking relies more on cryptography and the security of the Bitcoin mainnet. Through EOTS technology and cross-chain protocols, Bitcoin staking can achieve a trustless staking process, reducing third-party risks. At the same time, the PoW mechanism of the Bitcoin mainnet itself is highly secure, ensuring the security of pledged Bitcoin.
2.4 Application Scenarios and Ecosystem
By staking ETH, users can participate in the network governance of Ethereum 2.0 and vote on network upgrades and improvement plans. Ethereum staking and re-staking certificates LST and LRT can also be further applied to DeFi ecosystems such as liquidity mining, lending and governance, and users can obtain multiple benefits.
The main application scenario of Bitcoin staking is to provide security support for other PoS networks. For example, users can stake Bitcoin on the Babylon platform to provide security for multiple PoS networks such as Cosmos and Polkadot. In this way, Bitcoin staking not only improves its own capital utilization, but also enhances the security of other blockchain networks. At present, the Bitcoin ecosystem is still relatively limited, lacking the application and income methods of the DeFi ecosystem.
3. Representative projects in the Bitcoin staking track
BounceBit
The BounceBit project is one of the pioneers in the Bitcoin staking track. It aims to stake Bitcoin to different PoS (Proof of Stake) networks through cross-chain technology to provide additional security support for these networks. BounceBit is a Layer 1 PoS chain developed based on the Cosmos SDK and supports EVM compatibility. Validators can record and verify transactions on the network by staking BB or BBTC and receive transaction fees as staking rewards.
The uniqueness of BounceBit lies in its integration of CeFi and DeFi models. While users can obtain CeFi income, they can also stake BTC on the BounceBit chain to obtain node operation rewards and opportunity income from participating in on-chain applications.
Babylon
Babylon is another important Bitcoin staking project, which uses a non-custodial staking solution and realizes the native asset staking of Bitcoin layer 1 through EOTS (Extractable One-Time Signature) technology. Bitcoins pledged by Babylon will not leave the mainnet, and the entire staking process is run entirely in a cryptographic manner. Babylon's Bitcoin timestamp protocol uses Bitcoin's timestamp technology to enhance the security of the PoS protocol by sending the hash value of the PoS block and its validator signature to the Bitcoin blockchain.
Babylon's Bitcoin staking protocol is designed as a modular plug-in that can be used for multiple PoS consensus algorithms. Through this protocol, Babylon is able to pass the security of Bitcoin to multiple PoS chains (such as Cosmos, Binance Smart Chain, Polkadot, Polygon, etc.), thereby creating a more powerful and unified ecosystem.
Solv
Solv Protocol has launched SolvBTC, a groundbreaking full-chain yield Bitcoin asset, while creating an efficient BTCFi ecosystem. Solv serves as a unified liquidity portal, integrating various liquidity resources and investment opportunities onto one platform. Users can easily find and manage their investments through Solv Protocol, transforming idle underlying assets into interest-bearing assets, and promoting cross-protocol, cross-ecological combinations.
SolvBTC is fully integrated with DeFi and CeFi projects in various ecosystems, enabling users to explore new growth paths and maximize returns. Solv Guard custom-designs a system with unique operating mechanisms and specialized authority ranges based on the trading strategies of each Vault. Solv also works with on-chain custodians such as Ceffu and Copper to ensure the security of off-exchange fund settlements.
Lorenzo
The Lorenzo project is based on Babylon and has launched liquidity tokens (LPT and YAT), which realizes the liquidity and income accumulation of Bitcoin. Lorenzo uses the pledge agent mechanism to pledge Bitcoin to Babylon and generate liquidity tokens at the same time. Users can use these tokens in different DeFi projects to obtain additional income.
LPT (Liquidity Principal Token) represents the staked Bitcoin principal, while YAT (Yield Accumulation Token) represents the accumulated earnings from re-staking transactions. Users can buy, sell and manage these tokens on the Lorenzo platform to maximize their investment returns.
Lombard
The Lombard project adopts a decentralized staking process, where user funds are directly staked to Babylon instead of relying on a third-party custodian. Lombard manages the staking process through a decentralized Consortium, ensuring the transparency and security of the staking.
On the Lombard platform, users can stake Bitcoin to the Consortium address. Once Bitcoin is deposited, Consortium will verify the transaction and stake Bitcoin to Babylon. Users will receive LBTC tokens as liquidity tokens for their staked Bitcoin. LBTC tokens can be used in cross-chain and DeFi applications, enabling users to efficiently utilize their Bitcoin assets on different blockchain platforms.
Other staking projects
In addition to the above projects, there are many staking projects emerging in the Bitcoin staking track. For example, projects such as Pell Network and Chakra provide users with diversified staking and re-staking services through different technical architectures and staking mechanisms. Pell Network focuses on creating a decentralized staking network to maximize the benefits of staking Bitcoin through cross-chain technology. Chakra uses zero-knowledge proof technology to ensure the privacy and security of the staking process. The common goal of these projects is to improve the capital efficiency of Bitcoin, expand the application scenarios of Bitcoin in the blockchain ecosystem, and further promote the development of the Bitcoin staking track.
4. Analysis of opportunities in the Bitcoin staking track
The Bitcoin staking mechanism has injected new vitality into the blockchain ecosystem and brought unprecedented opportunities. However, along with these opportunities come risks that cannot be ignored. This article will conduct an in-depth analysis from the aspects of market opportunities, technical risks, security risks and regulatory risks.
4.1 Economic benefits and capital efficiency improvement
The Bitcoin staking mechanism provides a new way for Bitcoin holders to earn income. Traditionally, Bitcoin holders mainly earn income by waiting for Bitcoin to appreciate. However, this method is risky and has a long income cycle. By staking Bitcoin, holders can obtain stable staking income while ensuring the safety of their assets. This not only improves the capital efficiency of Bitcoin, but also enhances the attractiveness of Bitcoin as a financial asset.
For example, through projects such as Babylon or BounceBit, Bitcoin holders can stake Bitcoin in multiple PoS networks and obtain the staking income of these networks. This multiple income mechanism not only increases the user's income channels, but also promotes the widespread application of Bitcoin in the blockchain ecosystem.
4.2 Impact on the blockchain ecosystem
Bitcoin staking provides a strong security guarantee for other blockchain networks. Many emerging PoS blockchain networks face the problem of insufficient security due to their small initial economic scale and difficulty in attracting sufficient capital for staking. By introducing Bitcoin staking, these networks can take advantage of Bitcoin's strong consensus and huge capital to enhance their own security and promote the healthy development of the ecosystem.
In addition, Bitcoin staking has also promoted the prosperity and development of DeFi (decentralized finance). As an important application of blockchain technology, DeFi provides financial services such as lending, trading, and liquidity mining in a decentralized manner. Bitcoin staking provides DeFi with abundant liquidity and strong security, allowing more users to participate in the DeFi ecosystem and enjoy the convenience and benefits brought by decentralized finance.
4.3 Technological innovation and market expansion
The introduction of Bitcoin pledge and re-pledge mechanisms has promoted the innovation of blockchain technology and the expansion of the market. For example, the Babylon project has achieved non-custodial pledge through EOTS technology, and the BounceBit project has achieved multi-network support for Bitcoin pledge through cross-chain technology. These technological innovations have not only improved the capital utilization of Bitcoin, but also injected new vitality into the blockchain ecosystem.
As the market's acceptance of the Bitcoin pledge mechanism increases, more users and developers will participate in this track in the future. This will further promote the application and development of the Bitcoin pledge mechanism and create more market opportunities.
5. Risk analysis of Bitcoin staking track
5.1 Technical Risks
The Bitcoin staking mechanism relies on complex cryptography, cross-chain technology, and smart contracts. Any technical loopholes or errors may lead to the loss of pledged funds. For example, code loopholes in smart contracts may be exploited by hackers, resulting in the theft of users' pledged funds. In order to reduce technical risks, the project party needs to conduct strict code audits and tests to ensure the security and reliability of the staking mechanism.
5.2 Security Risks
Although the Bitcoin pledge mechanism provides multiple security guarantees, there are still certain security risks. For example, during cross-chain operations, users’ pledged Bitcoins need to be transferred to other networks through cross-chain protocols, which may face the risk of network attacks and data leaks. In order to reduce security risks, project parties need to adopt advanced security technologies, such as multi-signatures, EOTS, etc., to ensure the security of pledged funds.
5.3 Systemic Risk
In the process of Bitcoin staking and re-staking, the same asset may be pledged and re-staking multiple times, thereby amplifying potential returns and risks. For example, users pledge Bitcoin on the Babylon platform to earn returns, and then pledge these returns on the Lorenzo platform to obtain more returns. Although this chain pledge mechanism can maximize returns, once a problem occurs in one link, the entire pledge chain may be affected, leading to systemic risks.
5.4 Transparency and Trust Issues
Since Bitcoin staking involves multiple platforms and protocols, it is difficult for users to fully understand and grasp the specific circumstances of each link. This opacity may trigger a crisis of confidence among users and reduce their trust in the staking platform. For example, it is difficult for users to track returns and risks in real time during the staking process, which may cause doubts about the operation of the staking platform, thus affecting their willingness to participate.
6. Conclusion and Outlook
The future of Bitcoin staking lies in the integration of multi-chain ecosystems. Through interoperability with other blockchain networks, the Bitcoin staking mechanism can play a role in a wider ecosystem and truly unlock the potential of digital gold. For example, the Babylon project creates a more powerful and unified ecosystem by transferring the security of Bitcoin to multiple PoS chains.
In the future, more staking platforms will achieve interoperability with other blockchain networks through cross-chain technology, improving the application scenarios and market coverage of Bitcoin staking. Bitcoin staking will provide DeFi with abundant liquidity and strong security, driving the prosperity of the DeFi ecosystem. In the future, the Bitcoin staking mechanism will be further integrated into the DeFi ecosystem, providing users with more financial services and profit opportunities. However, due to the limitations of Bitcoin network functions, the security and orthodoxy of native Bitcoin cross-chain, Bitcoin staking still has a long way to go compared with the huge ecosystem of Ethereum staking narrative.
