How do you punish bad actors on a chain with zero smart contracts?
The most fascinating piece of Babylon’s architecture isn't just the staking itself—it's how they engineered a slashing mechanism directly on Bitcoin's base layer.
Without relying on smart contracts, Babylon uses its Extractable One-Time Signature (EOTS) system, which is built upon Bitcoin's Schnorr signatures, to enable slashing. It acts as an elegant mathematical trap for Finality Providers.
If a provider behaves maliciously and signs two different blocks at the same height (double signing), their private key becomes extractable from these combined signatures. This effectively leaks their key, allowing anyone to execute a slashing transaction on Bitcoin that burns a fraction of the staked funds.
However, there is a critical nuance to this design: it currently relies on a Covenant Committee to help facilitate these transactions. This committee is intended as an interim solution until Bitcoin introduces native covenant features, such as via proposals like BIP-119, at which point the off-chain enforcement mechanism can be replaced with fully on-chain logic.
Are we comfortable relying on this interim committee structure, or is the cryptoeconomic security of EOTS enough to keep validators in line until native Bitcoin covenants arrive?
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