Diving into the Babylon Ecosystem: Sharing BTC Security and BTC Staking

BTC is the safest and most decentralized asset in the world. Babylon has unlocked $1.2 trillion worth of Bitcoin through BTC staking to share security. With the explosive growth of Ethereum staking and the development of the BTC ecosystem, Babylon will continue to grow.
One of the main sources of security for blockchain is capital transfer through stakable assets such as ETH. Creating an asset that can achieve this goal in practice is difficult, expensive, and very rare.
EigenLayer uses secure stakable assets like ETH to protect the security of other blockchains without using a large token distribution mechanism. In just five months, EigenLayer has attracted over $13 billion TVL, indicating that ETH is an ideal security choice.
If this shared security model is ideal for ETH, why not do the same for a more ideal and secure asset like Bitcoin? Babylon is now sharing over $1.2 trillion worth of security value with other networks to earn BTC staking rewards.
Babylon has received $18 million in funding from top investors.
The Babylon team includes advisors Sreeram Kannan and Zaki, and David Tse, the head of Stanford University’s Tse Engineering Lab. The lab published a research report on Ethereum PoS vulnerabilities in 2021.
Babylon is a security aggregation layer between any PoS chain and Bitcoin, supporting BTC staking. The staked BTC remains stored on the Bitcoin network, while Babylon uses its internal protocol to convert staked assets and delegate the security of Bitcoin to other networks.
In exchange, BTC stakers can earn rewards from the native tokens of consumer blockchains. This provides idle BTC holders with the ability to maintain the value of their assets while earning returns in another asset.
Babylon’s architecture is shown in the image below.
Babylon uses a time-locked self-custody treasury, where BTC holders stake their assets on the Bitcoin blockchain for a certain period of time. Only the BTC holders’ private keys can retrieve the assets.
Babylon’s timestamp protocol allows PoS blockchains to publish arbitrary data and communicate with the Bitcoin network, retrieving timestamps that can be used to synchronize the security obtained through BTC staking across various networks on the Bitcoin blockchain.
Blockchains publish the hash values of any “important” transactions (such as staking, unstaking, double-spending, and reviewing transactions) on the Bitcoin network, and Babylon aggregates the hash values of all blockchains that choose this service.
However, if Bitcoin scripts are so limited, how can penalties be enforced? Babylon’s clever design requires BTC stakers to use their private keys to lock, unlock, and penalize their staked assets. Considering that the main attack against blockchains is double-spending attacks, such a design is very useful.
If a BTC staker’s private key is used to sign two blocks simultaneously, the private key is compromised and the BTC is sent to a burn address. This is achieved through Extractable One-Time Signatures (EOTS), a signature supported by Bitcoin through Schnorr signatures.
Why Cosmos and IBC? Babylon can aggregate and communicate messages and arbitrary data between Bitcoin and other blockchains through IBC. By default, IBC-compatible chains can send important transaction and timestamp data from one chain to another.
Using IBC, Babylon can aggregate checkpoints of important transactions from any IBC-compatible chains and store them on the Bitcoin network using encryption. Integration is simple, just enable the IBC connection with Babylon and have validators run lightweight modules.
How does PoW improve PoS security? PoS security is more subjective and depends on the consensus reached among validators through social consensus in the event of an attack. The security does not change unless the number of stakers changes.
PoW security is more objective and grows over time as hash power accumulates. As more blocks are mined, transactions become more secure.
In the testnet, Babylon has over 100,000 BTC stakers and has established at least 45 partnerships, second only to EigenLayer’s 13+ AVSs, which is impressive. These partnerships come from Cosmos chains, decentralized AI projects, Bitcoin rollups, and more.
Babylon has the potential to:
1. According to DefiLlama, the current size of the unilateral BTC yield market is over $10 billion, with $4 billion in positive yields. Yields typically range from 0.01% to 1.25% and require trust in certain versions of bridged BTC or wrapped BTC. Babylon offers self-custody BTC staking with lower trust assumptions compared to the above choices, and PoS blockchain staking yields range from 2.36% to 17%, significantly higher than regular BTC yields in many cases.
2. Babylon has a competitive advantage as the interest rate for BTC is lower than ETH and almost all other crypto assets. Using BTC as a security asset for consumer chains can pay less for the same economic security (operating costs).
3. Ethereum currently has over $104 billion staked, less than 30% of its current circulating supply, supporting a vibrant LST economy with over $54 billion TVL. There are systems like EigenLayer with a TVL value of nearly $14 billion.
The TVL for the LRT ecosystem supported by Ethereum is $10 billion. With the value of BTC exceeding $1.2 trillion, less than 10% of its circulating supply needs to be staked through Babylon to compete with the Ethereum staking ecosystem.
4. If PoS chains use BTC for economic security due to the existing demand and value of BTC, their security budget will be lower. Some chains spend over $40 million per year on their own economic security.
The money saved can be used for the growth of their network’s users and applications, making their applications and tokens more valuable.
5. Babylon offers a practical Bitcoin scaling solution. As the demand for Bitcoin increases, the Bitcoin ecosystem and its adjacent L2, sidechain, and bridging ecosystems are experiencing rapid growth. However, many scaling solutions have limited functionality without network upgrades or decentralized third parties.
Babylon is able to leverage and extend the utility of Bitcoin without network upgrades or decentralized third parties, while still maintaining the momentum of the Bitcoin ecosystem.
6. Ethereum and Cosmos are moving towards similar solutions to address the same problem but in different directions.
Ethereum already has a secure hub and is the most decentralized and economically secure PoS blockchain. To scale, Ethereum relies on rollups that share security with Ethereum. The problem with this ecosystem is the interoperability and composability between isolated rollups.
Cosmos, on the other hand, solves this problem from the opposite direction. The ecosystem already has a fixed interoperability framework (IBC) and a framework for scaling through application-specific chains (Cosmos SDK). However, the problem is the lack of a valuable and widely shared secure hub.
Babylon can share Bitcoin’s economic security with the Cosmos ecosystem through IBC, potentially allowing it to compete with the Ethereum ecosystem.
Babylon faces some potential challenges:
First is the number of BTC holders transitioning to stakers. A large portion of BTC held by BTC holders is idle, with 25% of the BTC supply idle for over 5 years and 67% idle for over 1 year.
Another challenge is that IBC is a prerequisite for Bitcoin staking or timestamping protocols. This limits Babylon’s TAM to the 91 Cosmos Zones. However, projects like Picasso and Landslide Network are expanding IBC to other chains.
In conclusion, Babylon aims to achieve the success of EigenLayer but with the higher market cap security of BTC instead of ETH. Unlocking a new primitive for BTC staking makes it easier for other chains to obtain economic security and Bitcoin security, as well as providing returns for idle BTC. These factors can catalyze the current trajectory of Bitcoin. EigenLayer shared the $427 billion security of Ethereum, with a potential valuation of $3 billion to $15 billion. It can be said with certainty that Babylon, with its shared $1.4 trillion security of Bitcoin, will be a formidable force.