Author: Jaehyun Ha
Translation: Blockchain in Vernacular
summary
Currently, Bitcoin holders and PoS chains each face problems. Bitcoin holders struggle to effectively utilize their assets (i.e., generate yield), while PoS chains face security-related issues such as bootstrapping, low liveness resilience, and long collateral unlocking cycles.
As a two-sided market, Babylon acts as a bridge to help secure the PoS chain by staking Bitcoin . Babylon's remote staking protocol provides strong security guarantees for both the consumer chain (PoS chain) and the provider Bitcoin holders through its novel implementation, combining timestamp protocols, final state gadgets, and bond contracts.
Due to its modular design, Babylon's Bitcoin collateral protocol can be applied in various consensus protocols used by consumer chains. Any blockchain network that wishes to leverage the security and liquidity of Bitcoin on top of its protocol can benefit from Babylon. Some promising use cases include DeFi , forkless Layer 2 Rollup upgrades, and oracles .
1. Introduction
Bitcoin assets are sitting idle, while PoS chains need capital. Why not unleash their combined potential?
Often referred to as "digital gold," Bitcoin is the world's most valuable and secure cryptocurrency. Its strength lies in its core goal as a decentralized peer-to-peer digital currency that prioritizes simplicity and security. Bitcoin's scripting language is intentionally limited and cannot perform complex calculations or create loops, which greatly reduces the risk of vulnerabilities and attacks. The legitimacy of the Bitcoin ledger is guaranteed by the Proof of Work (PoW) protocol, which requires miners to invest huge computing power so that attackers cannot easily destroy the chain. This unwavering pursuit of simplicity and security is why Bitcoin is revered as digital gold.
However, these advantages of Bitcoin come with limitations in programmability and usability. Unlike the new generation of proof-of-stake ( PoS ) blockchains, Bitcoin is difficult to use for yield-generating activities such as staking . As a result, Bitcoin holders (HODLers in the crypto community) have little room to maneuver other than relying on the appreciation of its spot value. In today's financial landscape, simply holding an asset often provides additional opportunities to generate more income through reinvestment. Therefore, it is a pity that such a large-cap digital asset has been largely underutilized in this regard.
At this point, we also have to mention the PoS chain. The PoS mechanism is adopted by newer blockchains such as Ethereum 2.0 and Solana, requiring validators to lock their cryptocurrency (i.e., stake ), which may be slashed if malicious behavior is detected . The more tokens staked, the higher the cryptoeconomic security of the chain. Unlike Bitcoin, PoS provides more opportunities to participate in revenue activities. Individuals can benefit by simply staking tokens on the chain as validators, and can also increase the value of assets by providing liquidity (LP) or DeFi borrowing. In addition, PoS is energy-efficient because it does not require validators to maintain consensus security through mining. Given these advantages, the mainstream has shifted from PoW to PoS in the past few years.
However, despite its advantages, the fundamental limitations of the PoS protocol lead to some security and user experience degradation. One of the most obvious problems is the startup problem. Emerging PoS blockchains (such as Cosmos Zones) have difficulty attracting sufficient capital for staking due to low token valuations, resulting in weak security and difficulty attracting high-value decentralized application projects. In addition, due to the limitations of the PoS protocol itself, there are some additional security issues, such as lack of sufficient resistance to irreducible long-range attacks and low activity resilience in the absence of an external source of trust.
In short, Bitcoin has huge capital but lacks ways to utilize these assets; PoS chains provide abundant ways to utilize assets, but they require sufficient capital and external sources of trust to ensure security. Combining these insights, Bitcoin and PoS chains can form a perfect complement. So why not create a protocol to unleash their joint potential?
This is the core idea of Babylon's Bitcoin staking protocol: using Bitcoin assets to provide security for the PoS chain while creating returns for Bitcoin holders. This sounds very cool, but at the same time, there are many challenges in building a "good Bitcoin staking protocol" with strong security guarantees. In this report, we will explore the elements of building a "good Bitcoin staking protocol", the challenges in implementation, and how Babylon solves these problems through technological advances.
Figure 1: Complementarity between Bitcoin and PoS chains
2. Problem Statement of PoS Chain
In this section, we will dive into the issues surrounding PoS chains and Bitcoin and present a clear problem statement. We first address the three inherent security limitations of the PoS protocol and then discuss the difficulties of incorporating Bitcoin into yield-generating activities.
1) Problem Statement 1: Startup Problem
The startup problem of PoS chain refers to the difficulty of attracting capital and validators due to inherent security issues after the new chain is launched. When the PoS chain is first launched, its native token is usually of low value and low market capitalization, which makes the network vulnerable to various attacks, thereby compromising the integrity of the PoS protocol.
The low value of tokens allows individuals or groups to purchase a large number of tokens relatively cheaply, which may lead to the centralization of staking . This centralization increases the possibility of security attacks, such as reviewing transactions or rolling back the chain . In addition, since the maximum penalty faced by attackers is limited to their staked tokens (the value of tokens is lower in newly launched networks), attackers may believe that potential losses are acceptable, and they may still engage in malicious behavior even if their staked tokens are cut due to violations of the protocol.
These risks, combined with the lack of a proven record of security and reliability on new PoS chains, often deter potential validators from committing capital. They may be concerned about potential losses if the network fails or is attacked. To mitigate this, PoS chains often adopt strategies such as offering high initial staking rewards or establishing partnerships with well-known entities to drive validator participation. However, these methods can lead to high inflation rates and centralization of staking power, which, while potentially increasing chain usage in the short term, may have negative consequences in the long run.
2) Problem Statement 2: Low Activity Elasticity Problem
The liveness resilience problem faced by the PoS protocol refers to the ability of the protocol to continue to confirm transactions in the face of malicious validators. Different PoS protocols show different levels of resilience in the face of malicious behavior. For example, protocols such as Snow White and Ouroboros have high liveness resilience and can tolerate up to 1/2 of the malicious validators.
However, protocols like Tendermint and Gasper, even with accountable security, cannot guarantee liveness when the proportion of malicious validators exceeds 1/3. Accountable security means that the protocol can not only maintain the consistency of the on-chain state, but also identify and punish validators who misbehave through a slashing mechanism (see the following section for details). This 1/3 limit is derived from the Byzantine Fault Tolerance (BFT) model, which is the foundation of the security of these protocols. According to BFT theory, the premise for maintaining security and liveness is to have more than two-thirds of honest validators. When more than one-third of the validators are malicious, they can prevent the formation of this super majority by voting for conflicting blocks or refusing to vote, thereby effectively delaying the progress of the protocol and making it impossible for the protocol to move forward.
3) Problem Statement 3: The problem of long pledge unbinding period
Even in PoS chains with accountable security, the most critical issue is still the long unbinding period of the pledge. Contrary to the advantage of PoS chains - blocks can be confirmed within seconds or minutes - the unbinding of pledges usually takes days to weeks. This long unbinding period reduces the user experience because the stakers cannot participate in the PoS protocol during this period, their staked assets are locked, and they cannot receive staking rewards. This not only causes the stakers to lose potential benefits, but also reduces the overall liquidity in the PoS system.
Figure 2: Staking unbinding period of PoS chain
(1. According to the calculations by the authors of the paper Bitcoin-Enhanced Proof-of-Stake Security: Possibilities and Impossibilities (Oakland '23), using the weak subjectivity analysis model proposed by D. Park and A. Asgaonkar, the average holding of 32 ETH by 130K validators was calculated for the target number of validators in PoS Ethereum.)
So, despite the inconvenience of the unbinding period, why do most PoS chains still maintain a long unbinding period? The answer is that PoS chains need to prevent late corruption attacks (i.e. long-range attacks). To fully understand this, it is necessary to have a certain understanding of some terms, such as fork selection rules and weak subjectivity. Let's explore these concepts in more detail.
Suppose Bob wants to join and participate as a node in a decentralized blockchain protocol that has been running for a long time. In this kind of blockchain, there is no central server that distributes the legitimate chain to each client. Instead, each node will propagate its version of the chain that it believes to be legitimate to other nodes, and each client decides which chain to follow based on the consensus rules. So how does Bob know which chain he should follow? The answer is actually very simple - he just needs to choose the chain with the largest computational workload, which is often called "Nakamoto consensus" or "longest chain rule".
Even if Bob receives 100 different chains, he does not need to worry. He can independently verify the legitimacy of these chains by recalculating the hash values on these chains (because the hash value and random number of each block are recorded on the chain), and then choose the chain he wants to follow by comparing their workloads.
Figure 3: Can Bob (the new node) tell which is the canonical chain? — Bitcoin
However, if Bob wants to join a Proof of Stake ( PoS ) chain, things get a little more complicated. Similar to the previous scenario, if Bob receives multiple conflicting chains, how does he choose the right one?
In a PoS chain, consensus is reached differently than in a Proof of Work (PoW) chain. PoS chains reach consensus through validators, who are selected based on the amount of cryptocurrency they hold ( the staked assets) and are willing to use as collateral. Validators propose and vote on blocks , and the validity of the chain is determined by the collective agreement of these validators.
Taking Ethereum 2.0 as an example, validators will be rewarded for following and voting for the chain with the highest cumulative weight based on recent votes (i.e., choosing the canonical chain). If validators cast contradictory votes, they will face penalties (slashing) and part of the staked assets will be confiscated. Under this mechanism, validators are encouraged to follow the canonical chain and stay consistent with the network. In theory, these rules should prevent serious forks from occurring from the beginning - if someone attempts a security attack, they will only harm their own interests.
In fact, when we look at Ethereum’s reorg depth data, we find that depths above 1 are very rare (i.e. serious forks almost never occur).
Despite these rules, PoS chains still face a significant threat, which is a late-stage corruption attack. In this attack, an attacker obtains the private keys of historical validators who have participated in consensus. By doing so, the attacker has the potential to wreak havoc on the network by forking from the Genesis Block and rewriting the entire history of the blockchain. We just mentioned that this attack should be ineffective because PoS systems have a slashing mechanism. So, how could this happen?
This attack is possible because the attacker cannot be punished through the slashing mechanism because the validators’ stakes are already unlocked. In this case, the attacker can obtain the private keys of old validators who have already unlocked their stakes through purchase or, worse, hacking. Using these private keys, they can easily create a fake chain (Figure 4) because the PoS system does not require a lot of computational work to generate the blockchain. In addition, since the block timestamps of the canonical chain are public, the attacker can simply copy these timestamps on their chain to make it look more legitimate.
Figure 4: Can Bob (the new node) tell which is the canonical chain? —PoS chain
When Bob newly joins this PoS chain, he faces a major challenge: how to distinguish which chain is the canonical chain. From his perspective, both chains appear to be legitimate because they are both signed by legitimate validators, have consistent timestamps, and show regular validator rotation. In this case, Bob can only rely on external trust sources (such as block browsers, node operator groups) to discern the correct chain. By consulting these external sources to find a reliable checkpoint, the so-called weak subjectivity point, Bob can start syncing the chain from that point and docking with other nodes.
Weak subjectivity is the key reason why PoS chains often have longer unstaking periods. Since weak subjectivity points ultimately rely on social consensus from external sources of trust, and this consensus usually takes time to form, perhaps through channels such as Discord or Telegram . Therefore, PoS chains have to enforce these extended unstaking periods. The authors of the paper "Bitcoin Enhanced PoS Security: Possibilities and Impossibilities" (Babylon's foundational paper) claim that without the help of external sources of trust, it is theoretically impossible for a PoS chain to completely prevent late corruption attacks (i.e., the security of the slashing mechanism).
4) Problem statement for Bitcoin holders
Bitcoin's market capitalization ranks first among all existing cryptocurrency assets (approximately $1.2 trillion as of August 2024) and accounts for more than 56% of the entire crypto market, making it the leading blockchain in the industry. As a blockchain, Bitcoin performs well in terms of decentralization and security, although its scalability is slightly lacking. In terms of decentralization, unlike emerging PoS chains, Bitcoin's tokens are not distributed in large quantities to early investors or foundation members, but are held by globally distributed miners through its long operating history (although this also has the problem of miner centralization, it is better than new PoS chains). In terms of security, due to its proof-of-work-based nature, chain reorganization is almost economically infeasible. Multiple studies have shown that it is extremely costly to use Bitcoin's overlay network and network layer to split its network, making Bitcoin significantly superior to other chains in terms of security.
Despite Bitcoin’s solid performance as a blockchain, Bitcoin holders face some dissatisfaction. Unlike other mainstream PoS-based blockchains such as Ethereum and Solana, opportunities to participate in yield-generating activities are very limited, and most assets are idle. In order to participate in yield-generating activities such as DeFi lending, Bitcoin holders usually need to bridge their Bitcoin to other chains and turn it into wrapped Bitcoin (wBTC). However, wBTC is mainly used as collateral, and since collateral assets are generally less volatile, the returns on holding or lending are also often lower than other assets. In fact, on DeFi platforms such as Aave, Compound, and Blockchain.com, the annualized yield (APY) of wBTC is usually less than 1%, making it difficult to obtain significant returns. Even so, as of August 2024, the market value of wBTC remains at around $9 billion, accounting for about 0.77% of the Bitcoin market value, which means that most Bitcoin assets are still idle.
5) Summary
The problem for PoS chains and Bitcoin holders can be summarized as follows:
The three major problems of PoS chain :
A. PoS chain bootstrapping problem: When a new chain is launched, due to the low token value and market capitalization, it may lead to the concentration of staking power and lack of sufficient deterrence to prevent malicious activities, making the network vulnerable to attacks and hindering validator participation.
B. Low activity resilience problem: A PoS protocol with accountable security can only guarantee the activity of the protocol when less than one-third of the validators are malicious.
C. Long staking release period problem: The PoS chain relies on external trust sources to prevent later corruption attacks, and these trust sources take time to reach social consensus, resulting in a longer release period.
Problems faced by Bitcoin holders : Bitcoin holders have limited opportunities to participate in yield-generating activities, typically requiring DeFi activities through wBTC, but their returns are low - typically less than 1% annually, leaving most Bitcoin assets idle.
3. Realize “a high-quality Bitcoin staking protocol”
Looking back at the problem statement discussed earlier, we can say that PoS chains require capital and external security, while Bitcoin requires a good environment to generate returns. The simplest way to solve both problems is to create a Bitcoin staking protocol.
1) How to define “a good Bitcoin staking protocol”?
So, how do we implement such a Bitcoin pledge protocol? A simple way is to use cross-chain bridges: Bitcoin holders send their Bitcoin to the Bitcoin address of a trusted third-party bridge operator for locking, and then use the issued wBTC as a pledged asset in the PoS chain.
However, this approach does not constitute “a good Bitcoin staking protocol”. One notable drawback is that when Bitcoin holders want to redeem their wrapped Bitcoins back to real Bitcoins, they have to rely on a third party to make the transfer. This concern has been further exacerbated by the recent surge in cross-chain bridge vulnerabilities (Cross-chain Bridge Vulnerabilities: More Risks You Don’t Know, Jaehyun Ha, June 3, 2024), which has made Bitcoin holders skeptical about this protocol.
The same is true for PoS chains. The basic security issues of PoS chains mentioned in the previous problem statement remain unsolved. For example, this simple approach cannot defend against late corruption attacks, nor can it solve the problem of long staking release periods (because the staking release process still relies on external trust assumptions).
Based on these considerations, a Bitcoin staking protocol that relies solely on bridging cannot be called a high-quality Bitcoin staking protocol. A high-quality Bitcoin staking protocol must be able to provide strong security for Bitcoin holders and PoS chains. So, what key security features are needed to build such a high-quality Bitcoin staking protocol?
2) Security features of high-quality Bitcoin staking protocols:
The first is slashable security . To defend against security attacks such as late corruption attacks, Bitcoin stakers who violate the protocol must face slashing penalties before unstacking.
The second is staker security . If Bitcoin stakers follow the PoS protocol honestly, they should be able to withdraw funds or unstake at any time. This requires the system to be resistant to withdrawal censorship and support trustless unstaking.
Finally, there is staker liquidity . Given the long release period in the current PoS protocol due to the need for social consensus, a fast and secure release process is necessary without going through such a lengthy procedure.
3) How does Babylon implement such a high-quality Bitcoin staking protocol?
Babylon implements "a premium Bitcoin staking protocol" through remote staking. Remote staking means that assets on one blockchain (i.e., the provider chain) are used to secure another blockchain (i.e., the consumer chain) without the assets leaving the provider chain. In Babylon's framework, Bitcoin acts as a provider chain to enhance the security of the PoS consumer chain. The core of Babylon's creation of a premium Bitcoin remote staking protocol lies in the integration of the following three key components: timestamp protocol, finality device, and staking contract.
Figure 5: Babylon’s remote staking protocol
The timestamp protocol (Figure 6) is essential to ensure data consistency between the Bitcoin blockchain and the PoS chain during the Bitcoin staking process. In simple terms, it is a process that uses the Bitcoin network as a timestamp server (i.e., an external source of trust) to checkpoint updates to the PoS chain. This involves recording the hash of the PoS consumer chain block onto the Bitcoin blockchain, along with a confirmation signature from the validator.
The main purpose of this timestamping protocol is to improve slashable security and liquidity for stakers . As mentioned in the previous section, every PoS chain must rely on an external source of trust to mitigate the risk of late corruption attacks (i.e., punishing the attacker before he unlocks the stake). Here, Babylon chose the most secure blockchain, Bitcoin, as its external source of trust. Once the checkpoint of a PoS chain is deeply embedded in the Bitcoin blockchain (i.e., 6 blocks deep), it becomes probabilistically irreversible. This ensures that a later attack chain checkpoint recorded on Bitcoin will be considered fraudulent and simply ignored, thus easily mitigating late corruption attacks. In other words, if the attacker launches an attack before unlocking the stake, they will be punished. If they have already unlocked the stake, there is still no problem, because their attack attempt will be easily identified and blocked by the Bitcoin timestamping protocol.
Figure 6: Timestamp protocol
In addition to enhancing defense against security attacks, Babylon's protocol also helps reduce the latency of stake unlocking. Unlike existing solutions that rely on social consensus, in Babylon's timestamp protocol, the PoS block containing the unlock request only needs to be recorded in the Bitcoin blockchain before any conflicting checkpoints and confirmed deep enough in the Bitcoin chain (6 blocks) to approve the unlock request. Since this process takes hours instead of weeks, the unlocking latency is greatly reduced.
In addition, the timestamp protocol also requires that the timestamp of the provider chain block be recorded in the consumer chain block to help clients track changes in the validator set at any time. As the validator set continues to evolve due to staking and unlocking activities, the timestamp data allows validators and clients to verify the validity of the current validator set.
Finality Gadget is another key component in Babylon's design, which introduces an additional finality layer to the consensus process of the consumer chain. In a standard PoS chain, a block is considered final after it has received enough validator votes, but this process can be attacked if the majority of validators act maliciously. The finality gadget addresses this vulnerability by requiring each validator to sign only one block at each height with dual identity authentication (DAPS).
If a validator attempts to sign multiple conflicting blocks, their private keys will be extracted and exposed, causing their staked assets to be automatically slashed. This mechanism ensures that once a block is finalized using the finality component, it cannot be revoked without severe consequences for the validators involved. By ensuring that only one block at each height can become finalized, the finality component provides a strong deterrent against double signing during the staking process.
Bond Contracts are the last key component to achieve Bitcoin staking, which ensures secure Bitcoin staking without relying on complex smart contracts . Babylon's design recognizes that Bitcoin, as a provider chain, does not support Turing-complete smart contracts, which limits the complexity of operations that can be performed directly on the Bitcoin blockchain. To address this limitation, Babylon uses an innovative bond contract mechanism that uses Bitcoin's existing scripting capabilities (especially multi-signature and time locks).
The pledge contract first requires the validator to lock some of its Bitcoin as a deposit in the pledge contract on the Bitcoin blockchain for a period determined by the number of Bitcoin blocks . During this period, the validator must perform its duties on the consumer chain, such as participating in the consensus mechanism or validating transactions. The locked Bitcoin acts as collateral, ensuring that the validator has an economic incentive to act honestly and responsibly. This simple locking mechanism ensures that Bitcoin cannot be spent until a certain number of Bitcoin blocks have passed, providing a safe exit option for the pledger. Even if everything fails, as long as the Bitcoin network continues to operate, the pledger can always get their Bitcoin back after the time lock period ends (i.e., pledger security).
To enforce slashing penalties, the staking contract utilizes Bitcoin's covenants, which restrict when and how locked funds can be spent. If a validator fails to fulfill their duties or their keys are compromised, a slashing transaction can be initiated. This slashing transaction sends the locked bitcoins to an unspendable address, effectively destroying the funds. This is achieved through a covenant executed in Bitcoin script using the OP_CHECKTEMPLATEVERIFY opcode, which specifies an unspendable output address. This unspendable output is usually an OP_RETURN output, making it impossible for the validator or anyone else to recapture the slashed funds.
The contract mechanism is essential to perform slashing, but until Bitcoin Script supports contracts natively, a simulated approach is used. The simulation involves a contract committee consisting of multiple members. The pledge contract is structured as a multi-signature scheme, requiring the signatures of both the validator and the contract committee to spend the deposit before the validator's duties are completed. The committee pre-signs the slashing transaction when creating the pledge contract, ensuring that anyone can execute the transaction if the validator's key is compromised. This simulated contract relies on the existence of a good faith assumption that at least one committee member remains honest and keeps their signing key, ensuring that the slashing transaction can be executed when needed.
In practice, simulated contracts using multi-signature schemes such as MuSig2 ensure that contracts remain lightweight and space-efficient on the Bitcoin blockchain. The MuSig2 scheme allows a committee to generate a single aggregate signature consisting of participating members, which can be used to authorize transactions. However, if someone on the committee is unresponsive or refuses to participate, partial signatures can be published to the chain, allowing the community to identify and exclude uncooperative members. This approach ensures that the slashing mechanism remains robust even in the absence of full support for contracts in Bitcoin Script, thus forming a strong deterrent to dishonest behavior by validators.
4) Babylon: Remote staking with economic security
Figure 7: Overview of the Babylon Bitcoin Staking Protocol
Next, let’s explore how Babylon’s Bitcoin staking protocol operates as a two-sided market, building on the technical foundations discussed previously.
For Bitcoin holders, they can participate in yield-generating activities through the Babylon protocol. As explained earlier, each Bitcoin holder can lock their BTC through a self-hosted staking contract. This information is passed to the Babylon node through a separate program called Vigilante reporter . Within the Babylon node, the BTC staking module acts as a bookkeeper and is responsible for verifying and activating staking requests for BTC. Once this initial staking process is completed, the next step is for Bitcoin holders to choose a finality provider to delegate their voting rights to. Delegating voting rights means granting the right to participate in the finality component to an entity called a finality provider. In return, Bitcoin holders receive yield rewards from the PoS chain of their choice and pay a percentage of the commission to the finality provider (in the first phase of the Babylon mainnet, this percentage is between 3% and 10% of the yield points).
On the other hand, each PoS chain can pay staking benefits to Bitcoin holders by participating in the Babylon protocol to obtain enhanced security guarantees. In addition to generating and validating blocks according to their own PoS protocol, they also deploy finality provider modules and sign finality signatures on finality components. By doing so, the validators of the PoS chain will publish their blockchain data to the BabylonChain through the Inter-Chain Communication Protocol (IBC), and these data will be recorded on the Bitcoin chain through the checkpoint module of the Babylon node. Under Babylon's remote staking protocol, the whole process is guaranteed by economic security: once a security violation occurs in the PoS chain, at least one-third of the Bitcoin staking funds will be cut (the censorship in the PoS chain cannot prevent this mechanism either).
4. Babylon Ecosystem
Babylon's modular design enables it to adapt to the consensus protocols used by various consumer chains. By integrating Babylon's Bitcoin staking protocol, these consumer chains can leverage the security and liquidity of Bitcoin and address the limitations of relying solely on native tokens for staking. Potential application scenarios for this approach include DeFi, Layer 2 Rollups, and oracles.
1) DeFi
An important part of the Babylon ecosystem is the support of Liquid Staking Tokens (LSTs), which provide Bitcoin holders with the opportunity to maintain liquidity while staking BTC. Projects like Bedrock, Nomic, and Solv have developed their own LSTs on the Babylon protocol - uniBTC, stBTC, and SolvBTC. Users can stake BTC to Babylon through these services and earn additional returns through staking at the same time.
The Babylon ecosystem also includes several projects aimed at enhancing the role of Bitcoin in the DeFi space. For example, the Lorenzo protocol is integrated with Babylon to build a scalable Bitcoin application layer that promotes the use of Bitcoin assets in data storage and network security. Another ecosystem participant, Persistence One, focuses on maximizing returns and security through liquid staking and repeated staking, using Babylon to enhance its staking capital and security.
2) Layer 2 Rollups
Another important aspect of the Babylon ecosystem is the support for forkless Rollups. The biggest bottleneck facing Rollups at present is the sorter problem, and users have to rely on centralized sorters to submit L2 blocks to L1. However, this reliance introduces significant security risks, especially the threat of fork attacks, where the sorter may submit different versions of blocks to users and L1, allowing double spending and other malicious activities. Existing mechanisms such as ZK proofs and dispute periods are not enough to completely prevent such attacks. If users need fast finality, they can only trust centralized sorters, which reintroduces the risk of theft and censorship.
Here, Babylon solves the sorter problem by using Bitcoin pledge as collateral and proposes a forkless Rollups solution (Figure 7). The sorter uses Bitcoin as collateral and adds a final signature to each L2 block. If the sorter publishes a conflicting block, the secret key can be extracted from the final signature, resulting in the sorter's collateral funds being cut. This mechanism is executed by the Rollup smart contract on L1, which verifies the final signature before accepting the L2 block, thereby economically disincentivizing malicious behavior.
Additionally, the protocol decentralizes the role of the sorter by introducing a committee of finality providers who validate every L2 block. Finality providers are also slashed if they sign on a conflicting block, ensuring at least a third of honest finality providers prevents forks and invalid blocks. This decentralized validation process provides strong security guarantees without significantly increasing latency, making it ideal for high-risk applications that require fast finality. Projects like AltLayer, Chakra, Merlin, and B² Network are currently trying to integrate Babylon to secure their Rollups.
Figure 8: Babylon’s forkless rollups
In addition, Babylon is currently expanding its ecosystem through more collaborations aimed at improving security, accessibility, and research capabilities. Projects like Glacier Network, Automata Network, Yala, and Hana Network have integrated Babylon to strengthen their security protocols, improve the validator network, and enable seamless Bitcoin staking on various platforms.
In Case You Missed It: The Phased Launch of Babylon Bitcoin Staking Mainnet
The launch of the Babylon mainnet is divided into three main phases, and the first phase of the update will start on August 22, 2024. In this initial phase, although the process of Bitcoin staking is established, it has not yet been activated, that is, staking rewards are not yet available. This phase is mainly a preparation phase, allowing Bitcoin holders or stakers to lock their Bitcoin and delegate their PoS voting rights to the selected finality provider by submitting a staking transaction to the Bitcoin network.
Stakers can lock their Bitcoin for up to 64,000 Bitcoin blocks (about 15 months), and can also flexibly unlock their stakes on demand, but must go through a mandatory unlocking period of 1,008 Bitcoin blocks (about 7 days) before withdrawal. The initial total stake cap for the first phase is set at 1,000 Bitcoins, with a minimum stake of 0.005 BTC and a maximum stake of 0.05 BTC for a single stake transaction. Stakers are accepted on a first-come, first-served (FCFS) basis, and once the cap is reached, there is no queue system to handle overflow stakes.
It is important to note that there are no slashing mechanisms and staking rewards in Phase 1. Stakers will not lose their staked Bitcoin due to network penalties, as there is no need to sign a consent form for PoS slashing. In place of traditional staking rewards, there is a points system. Stakers receive points based on their active staking, with 3,125 points allocated per Bitcoin block, which are distributed proportionally to active staking during the initial staking cap period, with both stakers and their finality providers receiving a portion. This points system serves as a measure of staking activity and may be adjusted as Phase 1 progresses, but these points have no monetary value and cannot be traded, sold, or redeemed for any form of currency or asset.
After the launch of Phase 1, two more updates are planned. Phase 2 marks the activation of the Babylon PoS chain, where the finality providers of Phase 1 begin to participate in the chain consensus, determine the finality of blocks, and enable the Bitcoin Timestamp Protocol for cross-chain time synchronization. In Phase 3, the Babylon Bitcoin Staking Protocol will allow Bitcoin holders to stake the same Bitcoin in multiple PoS systems at the same time, thereby obtaining multiple staking rewards.
5. Conclusion
BabylonChain is a breakthrough solution that addresses the challenges faced by Bitcoin holders and Proof of Stake (PoS) blockchains. By leveraging the security and liquidity of Bitcoin, BabylonChain creates a unique market that enables idle Bitcoin capital to be used to enhance the security of PoS networks. This synergy not only unlocks revenue opportunities for Bitcoin holders, but also provides a strong security layer for PoS chains, especially in addressing issues such as startup, low activity resilience, and long staking unlocking periods.
BabylonChain's approach to remote Bitcoin staking is unique for its innovative use of timestamp protocols, finality devices, and pledge contracts. Together, these elements ensure that the protocol maintains high security standards, providing slashing security, staker security, and staker liquidity. The timestamp protocol significantly reduces the risks associated with late-stage corruption attacks and shortens the pledge unlocking period by anchoring the checkpoints of the PoS chain to the Bitcoin blockchain. The finality device further strengthens the consensus process and prevents malicious behavior by validators by enforcing the finality of only one block per height. At the same time, the pledge contract leverages Bitcoin's inherent capabilities to ensure the security and liquidity of the staked assets without relying on complex smart contracts.
In addition to ensuring the security of the PoS chain, BabylonChain's modular design also paves the way for a variety of applications in the blockchain ecosystem, including decentralized finance ( DeFi ), Layer 2 Rollups, and oracles . By integrating Bitcoin staking, these applications can benefit from enhanced security and liquidity, driving innovation while addressing some of the most pressing vulnerabilities in existing blockchain architectures.
In summary, BabylonChain represents an advancement in blockchain technology, bridging the gap between Bitcoin’s unparalleled security and the dynamic earning opportunities of PoS networks. Its implementation not only enhances Bitcoin’s utility, but also provides a security layer for the wider blockchain ecosystem, positioning BabylonChain as an important infrastructure for the future of decentralized finance and beyond.
Link to this article: https://www.hellobtc.com/kp/du/09/5400.html
Source: https://www.prestolabs.io/research/babylonchain-two-birds-with-one-stone
