The Babylon project was established in February 2023 and launched on the mainnet on August 22. Within hours of launch, the amount of Bitcoin staked exceeded 1,000 BTC, causing transaction fees to soar 120 times. This article will detail the operation, development, potential and problems of the protocol.
What is Babylon?
The biggest feature of the Babylon protocol is that it allows Bitcoin holders to use the "Proof of Stake" (PoS) mechanism to earn income by staking Bitcoin without giving up custody rights. Users can lock Bitcoin on the Bitcoin network and rent its security to other PoS chains, helping these chains get up and running quickly.
Project Goal
Babylon is developing a Bitcoin staking protocol that aims to leverage the security of the Bitcoin network to provide shared economic security to other PoS chains, thereby reducing the time and cost for these chains to build trusted networks.
To achieve this goal, Babylon has established a blockchain network compatible with Cosmos IBC, connecting the Bitcoin blockchain with an IBC-compatible PoS chain and providing a Bitcoin-based timestamp service. Through "remote staking", users can lock assets on the Bitcoin chain and earn income on the Babylon chain.
In addition, Babylon uses Bitcoin contracts to simulate pledge, redemption and reduction functions, and ensures the safe redemption of Bitcoin through a timestamp protocol. The protocol also establishes a platform that allows the construction of Bitcoin re-pledge protocols on its network to expand application scenarios.
How it works
The Babylon protocol enhances the security of the PoS chain through three core functions: Bitcoin's timestamp service, block space, and asset value. These elements form the core of the Babylon security sharing protocol, which improves the security and efficiency of various PoS networks. The following is a detailed introduction to these protocols and how they work.
1. Bitcoin Staking Protocol
Bitcoin holders can use Babylon's Bitcoin staking protocol to protect these protocols on PoS chains, app chains, and applications, and earn rewards by staking and re-staking BTC. Unlike traditional staking methods, the Babylon protocol does not require bridging, wrapping, or relying on a third party to custody the staked Bitcoin.
The protocol has two main functions:
First, it enhances the security of PoS chains and applications through Bitcoin staking;
Second, it incentivizes Bitcoin holders to participate in its security model through rewards.
The Babylon protocol claims that Bitcoin deposited in its system is "as safe as possible." As long as participants use the protocol properly and do not attack the PoS chain, the staked Bitcoin will remain safe and can be withdrawn. The protocol uses Bitcoin timestamp technology to ensure that the asset unbinding process is safe and fast without the need for social consensus.
Overall, Babylon’s BTC staking protocol is designed as a modular plugin that aims to expand the utility of Bitcoin beyond just being a store of value or medium of exchange.
2. Bitcoin Timestamp Protocol
The Bitcoin Timestamp Protocol is a key component of the Babylon protocol, which leverages the security of Bitcoin as a timestamp server by marking other blockchain events to the Bitcoin network. This allows all data submitted to Babylon to receive a Bitcoin timestamp.
This protocol plays an important role in improving the integrity and security of the PoS network, especially in preventing remote attacks. Bitcoin timestamps can display the timestamp of the attack fork as later, thereby preventing the forked chain from being selected.
At the same time, the protocol supports the staking protocol by establishing synchronization between Bitcoin and PoS blockchains, avoiding reliance on social consensus because Bitcoin timestamps are objective and reliable.
In addition, the timestamp protocol promotes cross-chain security, quickly unlocks rights, reduces security costs, improves composable trust, and supports the bootstrapping of new chains. The protocol achieves the above goals by combining the short-term security of PoS chains with the long-term security of Bitcoin.
3. Bitcoin Data Availability Protocol
The Bitcoin Data Availability Protocol makes full use of Bitcoin's limited block space to provide important functions, such as providing a censorship-resistant layer for PoS chains. Bitcoin’s block space is known for its superior security and censorship resistance, which is critical to protecting the decentralized ecosystem.
The protocol ensures that critical data is always available and secure, further improving the reliability and credibility of the PoS chain.
Development History
The following are the major developments of the Babylon project:
January 2022: Babylon is established
February 2023: The Babylon project is established and the Twitter account is activated.
May 22, 2023: Babylon announced the completion of an $8.8 million seed round of financing, led by IDG and Breyer Capital.
December 7, 2023: Babylon announced the completion of an $18 million Series A financing round, led by Polychain Capital and Hack VC.
February 28, 2024: Babylon testnet is launched, and the test token Signet BTC (SBTC) is available for collection. Its functions include Bitcoin timestamp protocol and staking protocol. As of March 1, the cumulative number of staking participants reached 100,000.
April 27, 2024: Babylon announced cooperation with more than 60 Cosmos application chains, including Ethereum RAAS provider AltLayer, Bitcoin L2 protocol Lorenzo Protocol, Bison Labs, Nubit, etc.
May 17, 2024: Babylon establishes cooperation with multiple wallet service providers, Bitcoin L2, Defi protocols, Rollup service providers, etc.
May 28, 2024: Babylon testnet-4 is launched.
May 30, 2024: Babylon announced the completion of a $70 million financing round, led by Paradigm and with the participation of 30 institutions.
August 22, 2024: Babylon’s first phase mainnet is launched.
Investors:
Project Potential
Since 2023, Ethereum liquidity staking protocols such as Lido and EigenLayer have attracted a lot of funds. EigenLayer uses the security and decentralization of ETH to provide security for other PoS chains, avoiding the high inflation pressure of building a protocol from scratch.
In just 5 months, EigenLayer's locked value (TVL) has exceeded US$13 billion, and the valuation of its governance token $EIGEN is estimated to be between US$3 billion and US$15 billion.
The market value of Bitcoin is about 1.4 trillion US dollars, three times that of Ethereum. If the Babylon protocol can successfully apply the EigenLayer model to Bitcoin, it will release trillion-dollar liquidity and create a new market.
In general, the Babylon protocol solves the problems of low Bitcoin financial management returns, few application scenarios, and difficulty in expanding system security. It covers multiple areas such as Bitcoin ecology, programmability, Layer2, and staking. Whether it can continue to develop is worthy of our attention.
Future Challenges
Similar to ETH's liquidity pledge agreement, Babylon expects the amount of Bitcoin pledged to continue to increase in the early stage of its launch. However, if there is a lack of sufficient pledge demand, the yield will decline, reducing the willingness of Bitcoin holders to participate, leading to the development of the project being hindered or even declining.
The sustainable development of Babylon depends on the balance between the amount of Bitcoin pledged and the rate of return, which depends on the increase in the number of POS consumer chains and their development.
Babylon website: https://babylonlabs.io/
Babylon Twitter: https://x.com/babylonlabs_io
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