Author: Revc, Jinse Finance
Babylon platform announced that its Bitcoin staking mainnet has been officially launched. In the first phase, the platform set a staking limit of 1,000 Bitcoins, which has now been fully reached. According to platform data, more than 12,700 users have participated in staking, with a total staking value of more than 1,000 Bitcoins.
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 realize the staking, confiscation and reward of Bitcoin.
- Timestamp server: By recording events of the PoS chain on the Bitcoin blockchain, it provides an immutable timestamp for these events.
- 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: Utilize the security of Bitcoin to improve the PoS chain's ability to resist attacks.
- Shorten the staking cycle: Through Bitcoin’s timestamp mechanism, the staking cycle of the PoS chain is shortened.
- 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.
BTCFi Ecosystem Overview
At present, the Bitcoin ecosystem has entered the stage of large-scale infrastructure construction, and all parties are rushing to enter the BTCFi track. After all, this track has assets worth nearly 1.5 trillion US dollars to be activated. The following is an inventory of the top BTCFi projects:
BounceBit
BounceBit combines CeFi and DeFi to provide a more flexible way to earn income for Bitcoin. Through liquidity custody and re-staking, users can earn income on multiple chains.
Core features:
- CeFi+DeFi combination: Deposit Bitcoin into the CeFi platform and participate in the DeFi protocol at the same time to obtain double benefits.
- Liquidity Custody: Provides liquidity custody services, allowing users to redeem assets at any time.
- Re-staking: Allows users to re-stake staked Bitcoin in other protocols to obtain more returns.
- Technical Design: BounceBit ensures the security of cross-chain assets and reduces the risk of hacker attacks through multiple security mechanisms including validator consensus, Mainnet Digital’s escrow service, and Ceffu’s MirrorX technology.
Solv Protocol
Solv Protocol has created a full-chain yield Bitcoin asset, SolvBTC, to bring Bitcoin liquidity to various DeFi protocols.
Core features:
- SolvBTC: A derivative asset representing staked Bitcoin that can be used on multiple chains.
- Decentralized asset management: Ensure asset security through smart contracts and multi-signatures.
- Cross-chain interoperability: Supports using SolvBTC on multiple blockchains.
- Technical design: Various liquidity resources and investment opportunities are concentrated on one platform, and users can achieve automated investment by setting trading strategy Vault.
Yala
Yala aims to build a multi-chain stablecoin ecosystem that leverages Bitcoin’s liquidity.
Core features:
- Multi-chain stablecoin: Provides a Bitcoin-based stablecoin that can be used on multiple chains.
- DeFi ecosystem: Provide DeFi services such as lending and staking.
- Modular architecture: Flexible and scalable, supporting custom modules.
At present, all parties have adopted more centralized approaches in terms of security solutions, namely CeFi and multi-signature, in an attempt to maximize the activation of value flow on the Bitcoin chain. Although on-chain verification methods such as UTXO are decentralized to ensure security, they lack a complete smart contract system on Bitcoin, making it difficult to stimulate value flow. On-chain verification is mostly used in the re-staking track.
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 legality, 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 has high flexibility.
- Disadvantages: Relatively new, long-term performance remains to be seen.
Babylon adopts the core concept of proof of stake (POS), which uses the asset value of Bitcoin or Ethereum to create a shared security service. The advantage is that it inherits legitimacy and security while providing more practical value for the main chain assets and providing higher flexibility. However, this also triggers a series of thoughts:
In the Ethereum network, the security responsibility of general stakers is greater than that of non-stakers, because the staked ETH participates in consensus maintenance, and the ETH in circulation is actually the beneficiary of network security, and they also pay the opportunity cost of staking. Therefore, from the perspective of shared security, the proof-of-stake sharing scheme is currently lower than the basic scheme of Ethereum, unless the assets of the proof-of-stake scheme are assets such as stETH, because stETH corresponds to the ETH involved in verification in the Ethereum network. Roughly speaking, if the Ethereum network is secure, other PoS networks that use stETH for staking are also secure.
The security sharing logic of Babylon's PoW+PoS solution is not perfect. First of all, the main personnel of the Bitcoin network's security maintenance system are miners. Although miners are also driven by the value of BTC tokens, Bitcoin holders pledged in the Babylon protocol do not directly and actively maintain the security of the Bitcoin network, nor do they directly transmit the security of the Bitcoin network to the Pos network connected to the Babylon network. Here we can think about whether the beneficiaries of security can also pass on security guarantees to others. In other words, the security of the entire PoS network is low-correlated with the Bitcoin network and strongly correlated with Bitcoin pledgers, so we have to think about whether shared security is shared at the asset level (more like a guarantee) or at the network level.
BTC pledgers or holders do not actively maintain the security of Bitcoin and PoS networks. From the design of the first phase of Babylon, the Bitcoin network is more like passively receiving data from the PoS network. In fact, the overall security depends more on the Babylon PoS network itself.
From a quantitative perspective, the 1,000 bitcoins in the first phase account for a very small share of the current circulation of bitcoins. Economically, the current PoS chain does not share the security of the Bitcoin network. The security of shared assets and the security of the network where the shared assets are located are two different concepts, which deserves further discussion.
In addition, technically, how does the PoS timestamp coordinate with the timestamp of the Bitcoin network block? The Bitcoin network block time is in minutes, and there is a certain uncertainty in the block time and transaction confirmation, while the finality of the PoS network transaction confirmation is in seconds, which immediately raises a problem of block coordination between PoS and PoW.
summary
The Bitcoin network is the most valuable decentralized network. Many BTCFi projects, including Babylon, have the potential to make the Bitcoin network the cornerstone of the entire crypto industry and bring new possibilities to the Bitcoin ecosystem.
During the development process, in addition to focusing on the inheritance of decentralized attributes, because the BTCFi project involves a huge amount of funds, it is also necessary to attach great importance to the security of protocols and smart contracts.
