Chainfeeds Introduction:
It has been nearly a month since the launch of the Babylon mainnet, but the expected BTCFi market response is not as enthusiastic as expected. So, what problems were exposed during the first phase of Babylon's pledge process? Is Babylon's sustainable interest-bearing narrative logic valid? Is Babylon's expected market impact overestimated? Crypto researcher Haotian gave his own opinion.
Source:
https://x.com/tmel0211/status/1836274574713065668
Article author:
Haotian
Viewpoint:
Haotian: "Babylon's innovative core is to adopt the Self-Costodian self-custody method, which allows users' BTC assets to be locked in the Bitcoin mainnet in the form of script contracts, while being able to output "security consensus services" on many BTC layer2s and then obtain rich benefits provided by other extension chains." At this stage, only the first half of this sentence is valid. The second half of this sentence can only be regarded as an immature "pie". Because in order to transform Babylon's security consensus into services and generate income, the following prerequisites are required: first, there must be a large number of users, including Validators nodes with a large proportion of voting rights, who pledge BTC in Babylon and deploy it in the Bitcoin mainnet protocol; second, a large number of LST assets must be aggregated and strong liquidity must be generated to form the basis for the growth of ecological users, TVL, etc.; third, there must be a large number of new layer2 POS chains "purchasing" the security consensus services provided by Babylon and providing sustainable Yield income. At present, the Babylon protocol has only opened limited staking of 1,000 BTC in the first phase, which can only be regarded as an experimental launch stage, but it has exposed many problems, which makes it challenging to meet the above three prerequisites at the same time. For example: the staking process and the interaction with the Babylon protocol will generate high "transaction fee losses"; the native BTC deposited by Babylon and the Wrapped version of BTC that can be circulated in its ecosystem are not limited to 1:1. These institutional Validators pledge a number of BTC in Babylon, but the actual liquidity of the Wrapped version of BTC they aggregate is far greater than the amount of BTC they have pledged. This means that although the Babylon protocol can ensure the security of native BTC assets pledged on the Bitcoin mainnet, Babylon cannot guarantee the liquidity risk and absolute trust of various Wrapped versions of BTC circulating on the aggregation platform. How can the Babylon "shared security" service paradigm generate sustainable yields? In my opinion, it is not enough to rely solely on the market that relies on the Babylon social security consensus incentive evolution, and another force is needed to expand the POS chain demand pool. If a newly constructed POS chain is to be connected to the Babylon ecosystem, Babylon must first generate AVS services from a complete network of node validators. At this stage, perhaps because the mainnet protocol was launched too early, Babylon does not have mature commercial services. The market's expectations for Babylon seem to be to actively participate in the competition for pledge voting rights, then aggregate liquidity to engage in a points war, and finally share the spillover dividends by expanding the overall Babylon liquidity market pie. This may be feasible, but relying on stacking market expectations to promote ecological development would be too "passive."
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