Babylon: A Project Revolutionizing Bitcoin Staking

Babylon is a project established in 2022, spearheaded by David Tse, a professor at Stanford University who is well-known as an expert in the field of information theory. The project aims to introduce the innovative concept of Bitcoin staking, leveraging Proof-of-Stake(PoS) blockchain networks while simultaneously enhancing the security of Decentralized Apps (dApps). Bitcoin, which operates on the Proof-of-Work(PoW) consensus algorithm, is considered safer from a security standpoint compared to other blockchain networks based on Proof-of-Stake(PoS). Although its security has already been validated for more than decades, Bitcoin’s ecosystem maintenance requires substantial computing power to generate blocks, and the process of block generation is relatively time consuming that were known as drawbacks. With those, Bitcoin has primarily been utilized as a “digital gold”, serving merely as a store of value only. However, with the launch of Babylon, Bitcoin can now retain its liquidity while also being utilized as a staking asset across various blockchain ecosystems.

In this article, we will explore #Babylon project, which has created new opportunities for generating value based on Bitcoin, and examine how it is reshaping the blockchain ecosystem.

Babylon's Core Protocols

• #Timestamping Protocol: It utilizes the Bitcoin blockchain to ensure the integrity and finality of data from other blockchains. Thanks to the robust security of the PoW(Proof-of-Work) consensus algorithm, any data recorded on the Bitcoin blockchain becomes immutable. With thousands of nodes maintaining the network globally, it cannot be tampered with or centralized, and Bitcoin's over 10 years of stable operation further underscores its reliability. Thus, the Bitcoin blockchain serves as an "immutable timestamp" that periodically stores and protects critical data from PoS blockchains.

How It Works

1. Checkpoint Creation: Specific block data from another blockchain (e.g., PoS blockchain) is summarized into a checkpoint.
2. Timestamping on the Bitcoin Blockchain: This checkpoint is recorded on the Bitcoin blockchain via the Babylon Chain.
3. Data Preservation: The immutability and security of Bitcoin ensure the data is permanently preserved on the blockchain.

• #Availability Protocol: It aims to maximize the utility of Bitcoin's limited block storage space by prioritizing its use for critical tasks, such as validation processes on other PoS blockchains. This ensures that all transactions and stored data on the blockchain are publicly accessible and verifiable. Through this approach, the protocol guarantees that Data Reliability (Stored data cannot be deleted or hidden), Verifiability (Anyone can inspect the data to ensure the network is functioning correctly) and Decentralization (Data is accessible and confirmable across multiple nodes, maintaining the network’s decentralized nature)

How It Works

1. Data Availability Verification: Babylon Chain verifies whether the block data of a PoS chain has been published on-chain.
2. Security Reinforcement via Bitcoin: The Bitcoin blockchain is used to indirectly guarantee the availability of the block data.
3. Violation Detection: If a validator fails to properly publish data, it is treated as a data availability violation, and penalties (e.g., slashing) may be imposed.

• #Staking Protocol: It is a mechanism that enhances the security of PoS blockchains by utilizing Bitcoin as a staking asset. This innovative protocol links Bitcoin's economic value to PoS chains, enabling users to earn staking rewards. Simply put, Bitcoin holders can participate in Babylon Blockchain's validation processes and receive rewards for their contributions. Moreover, while traditional PoS systems typically require around three weeks to unlock staked assets, Babylon leverages the security of the Bitcoin network to significantly reduce this period to approximately five hours.

How It Works

1. Bitcoin Staking: Users stake their Bitcoin on the Babylon Chain.
2. Enhancing PoS Chain Security: The staked Bitcoin is utilized in the PoS chain’s validation mechanism, improving the network’s security.
3. Staking Rewards: Participants in staking receive rewards from the PoS network.
4. Liquidity Preservation: Ownership of Bitcoin is retained, and its on-chain liquidity remains intact.

How Babylon Works

1. Bitcoin Staking Process

a. Users stake Bitcoin through Babylon Chain’s smart contracts.

b. The staked Bitcoin serves as security collateral for validator nodes in PoS chains.

c. During this process, ownership of the Bitcoin remains with the user, and the Bitcoin continues to exist on-chain.

2. Interaction with PoS Chains

a. Babylon Chain utilizes the IBC (Inter-Blockchain Communication) protocol to connect with PoS ecosystems like Cosmos.

b. This allows staked Bitcoin assets to contribute to the validation mechanisms of various PoS networks.

3. Staking Rewards

a. Users who stake Bitcoin receive proportional staking rewards provided by the PoS network.

b. This offers an additional opportunity for generating returns beyond merely holding Bitcoin.

4.?Slashing (Penalty) Prevention Mechanism

a. Babylon Chain supports slashing (collateral deduction) measures in PoS chains if validators act maliciously or violate rules.

b. While Bitcoin assets contribute to security validation through Babylon Chain, the protocol simultaneously ensures the protection of user assets.

Babylon Project Updates

On August 22, 2024, the Babylon Project announced the launch of Phase 1 of the Bitcoin Staking Mainnet. Within just 90 minutes of the announcement, a surge of users looking to stake Bitcoin through Babylon caused Bitcoin’s average transaction fee to skyrocket from approximately $8 to $132. This fee increase persisted until the staking capacity limit (TVL) of 1,000 BTC was fully reached. After the limit was met, transaction fees dropped back to below $1. This event highlighted the overwhelming market interest in Bitcoin staking.

Simultaneously, investors have also shown significant interest in the Babylon Project. In December 2023, the project secured $18 million in funding. In February 2024, BinanceLabs also invested in Babylon, though the amount remains undisclosed. Furthermore, in May 2024, Babylon successfully raised an impressive $70 million in a funding round led by the crypto-focused investment firm Paradigm.

Currently, Bitcoin staked in Babylon is rewarded through a point-based system rather than direct BTC rewards. However, it has been confirmed that in the future, these points will serve as the basis for rewards in BTC. Additionally, the Babylon PoS chain is expected to launch in the first half of 2025, enabling integration with other PoS networks. Following this, in Phase 3, the project plans to support multi-staking compatibility across different PoS networks.

Babylon Ecosystem

Bitcoin staking concept introduced by Babylon has opened up new possibilities within the Bitcoin ecosystem, inspiring various blockchain projects to quickly launch services utilizing this innovation. For instance, the Bitcoin DeFi project #Zest Protocol has introduced Bitcoin staking service called #BTCz based on Babylon. Through this service, Bitcoin holders can directly stake their Bitcoin on the Stacks blockchain without relying on third-party validation and earn rewards. Additionally, the #AltLayer project has utilized Babylon’s Bitcoin staking functionality to build a decentralized validation layer. This enhances the security and interoperability of Layer 2 solutions like rollup infrastructure and supports the introduction of new incentive mechanisms.

The staking platform #Figment has recently partnered with Babylon to collaborate on the launch of the Bitcoin staking mainnet. Babylon provides a platform where Bitcoin holders can contribute to network security and earn rewards through direct staking on the Bitcoin blockchain. Figment has been actively participating as a finality provider since Babylon’s testnet phase and has now joined as a key partner for the mainnet launch. Through this partnership, Figment offers secure and reliable staking services for users interested in Bitcoin staking, while also contributing to the security of various consumer chains connected to the Babylon network. Furthermore, Figment collaborates with Babylon to conduct research on Bitcoin staking and provides relevant information to users.

Those collaborations play a critical role in expanding the Bitcoin ecosystem and developing new use cases. It not only provides Bitcoin holders with opportunities to generate additional revenue but also strengthens the security of various blockchain networks. Finally, #D’CENT and #Wepin wallet, which support the core philosophy of decentralization in blockchain, aim to contribute to the development of the blockchain ecosystem by integrating these services.

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