Babylon's first phase of successful staking technology and strategy. Summary: Cobo GlobalRBabylon mainnet launch day, Cobo based on Babylon's BTC Staking API successfully assisted customers to stake more than 742 BTC, accounting for more than 74% of the total staked. This outstanding achievement highlights the stability and reliability of Cobo's technical solutions, as well as the project's efficient staking strategy. In order to further explore the successful experience of Babylon's first phase, on August 29, Cobo and Foresight News specially invited guests from Bedrock, Solv Protocol, Lerenzo Protocol and PumpBTC to review the technology and strategy together and discuss the winning strategy for the second phase of staking. The following is Cobo's summary of the core views of the guests for reference by Cobo users and readers. Summary of key points: The core value of BTCFi lies in completely changing the liquidity status of Bitcoin. It will transform Bitcoin from an extremely low-liquidity asset (currently more than 90% of it is illiquid except for exchanges) to a mostly tradable and interest-bearing active asset. This potential to unlock Bitcoin liquidity is the most exciting aspect of BTCFi. The staking process faces many technical challenges, especially in a high-concurrency environment. As a key infrastructure of the Babylon ecosystem, Cobo provides a number of core technical supports based on the Babylon BTC Staking API: secure custody based on MPC, flexible UTXO splitting, staking transaction pre-signature, batch broadcasting, and a dedicated unBonding API. With these technical advantages, Cobo successfully assisted its customers to stand out in the first round of staking competition, staking 742 BTC, accounting for more than 70%. Technology is only one factor for success. For large investors or project parties, it is also necessary to formulate effective strategies to achieve the best staking effect with limited funds, such as considering asset allocation and risk diversification, and formulating the optimal configuration plan based on market expectations and actual conditions. At the same time, carefully set parameters such as gas fees to seek a balance between attracting user participation and ensuring project profitability. Analysis of the list of pledgers shows that retail investors dominate, with a minimum pledge amount of only 500 sats, which means that small holders have a strong demand for participation. Given that the costs of independent staking may exceed the benefits, it is crucial to provide entry-level wealth management products for retail investors.Building an aggregation service like Lido will allow BTC holders of all sizes to participate in the staking ecosystem and DeFi opportunities efficiently and obtain stable returns. For ordinary retail investors, it is a better choice to deposit BTC into the LRT project fund pool or convert it into ERC20 assets for operation. These methods help to diversify risks, reduce costs, and avoid high gas fee sunk costs. For users with DeFi or financial experience and a clear understanding of asset pricing, you can consider more medium- and high-risk strategies to increase returns. Intermediate strategies include using the lending market and leverage of platforms such as Compound. Advanced strategies involve complex products such as leveraged staking and interest rate swaps in the BTC ecosystem. These methods may bring higher returns, but the risks increase accordingly. Security is the primary consideration during the staking process. Through comprehensive testing and adoption of Cobo's MPC technology through the test network, the implementation of whitelists and security protection measures can effectively protect the security of user assets and ensure that funds are only transferred to designated addresses. At the same time, considering that BTC price fluctuations may cause concerns about fund lock-up, it is also crucial for the project party to provide flexible withdrawal capabilities. How to view the view that it is difficult for the Bitcoin network to achieve DeFi Shenyu: To understand the development trend of Bitcoin ecological protocols, we can learn from the development experience of Ethereum's DeFi ecosystem. Looking at the top protocols on Ethereum: the first is Lido, a Liquid Staking protocol; the second is Eigenlayer, a Restaking protocol; the top ten also include ether.fi, RocketPool (RETH) and Binance's ETH staking products. This shows that the TVL (total locked volume) in the Ethereum ecosystem is mainly concentrated in Staking and Restaking protocols. As an asset with a larger market value, Bitcoin has long faced a core problem for its holders: it is difficult to achieve low-risk or risk-free returns. In the past, Bitcoin holders could only stake Bitcoin and then lend other assets (such as Ethereum or stablecoins) to earn returns, and then use these borrowed assets to earn returns. The emergence of Babylon is a major breakthrough. It is the first time in history that Bitcoin can be staked on its own network in a low-risk or risk-free manner and generate returns while keeping the wallet address locked.Looking back at the development of Ethereum, we can foresee that protocols like Babylon are likely to become the largest TVL provider in the Bitcoin network. Therefore, we are very optimistic about the future development of the Babylon protocol and believe that it will bring a new source of income to the Bitcoin ecosystem. Ryan Chow: Shift in the focus of innovation: The last cycle was mainly dominated by algorithmic innovation. We have seen the emergence of AMM models, PMM models, and various lending models, and these algorithmic innovations can detonate the market. In 2020, Ethereum's EVM environment was the most mature, so most algorithmic innovations were carried out on Ethereum by default. Two main variables in this cycle: a) Asset innovation: Compared with algorithmic innovation, asset innovation is more intuitive for users and more popular with retail investors. We can see that projects that have performed well in this cycle, such as Ethena and ONDO, have made innovative applications at the asset level, bringing new opportunities to DeFi and the entire industry. Under this trend, assets like Bitcoin can generate innovative demand for income, and the market performance must be better and more popular. b) Breakthrough in the Bitcoin ecosystem: Bitcoin lacked such capabilities before. Whether it is Bitcoin as a joint margin two years ago, or infrastructure innovations such as Staking and Babylon that appeared this year, Bitcoin has brought the possibility of generating income. In addition, it should be added that the Bitcoin halving is a major impact on large Bitcoin holders and the entire ecosystem. The emergence of new technologies such as Runes and Inscriptions has given users of the entire ecosystem a new experience. These three elements combined have made Bitcoin Staking, interest-bearing, or the entire BTCFi a very hot topic in this cycle. Matt Ye: The core of BTCFi lies in how to release Bitcoin's liquidity and use this liquidity to create value. We can refer to successful projects in the Ethereum ecosystem, such as Lido, EigenLayer, AAVE, Uniswap, and Curve. The fundamental principle of these projects is to lease the liquidity of asset holders to specific projects or protocols to obtain income. For example, Lido generates interest by leasing users' ETH to the Ethereum network and provides users with income certificates.EigenLayer leases liquidity to its own protocol, and users earn income from it. The logic of lending protocols and liquidity pools is similar. In essence, they all lease liquidity to DeFi products, tools or infrastructure to generate income. If Bitcoin wants to develop a prosperous ecosystem similar to Ethereum and form a stable and continuous interest-bearing market, the key is to transform Bitcoin into a highly liquid and market-efficient asset. This process requires multiple links to be completed in coordination: First, custodians such as Cobo provide secure Bitcoin custody and lock-up through MPC technology and map the corresponding assets. This is an important first step. Second, we need to develop business logic that can effectively use this liquidity to generate interest. In this regard, Babylon provides a wealth of downstream interest-bearing scenarios. Third, we need to establish an efficient liquidity leasing market and determine the best location to build this market. The real opportunity for BTCFi is to transform Bitcoin from an extremely low-liquidity asset (more than 90% of it is illiquid, except for the part traded on centralized exchanges) to an asset where most of the liquidity is released and tradable, and these tradable liquidity can also generate interest. This transformation is the most exciting aspect of BTCFi. Zhulin Chen: Bitcoin's status as digital gold has been widely recognized. Now the question we face is: how to make Bitcoin better than gold? As we all know, gold cannot generate interest, but requires storage fees and cannot generate income. Bitcoin used to be similar to gold, but now based on Babylon's technology, we can lease the economic security of Bitcoin to other services. This is the first time that Bitcoin can generate income, and it has two important characteristics: no market risk and long-term stable interest rates. This makes Bitcoin more advantageous than gold and a better asset. Looking back at the concept of BTCFi, between 2019 and 2020, Ethereum tried to release the liquidity of BTC, and many Bitcoin tokens like WBTC and other chains appeared. This is mainly because Bitcoin itself lacks a smart contract execution layer. However, we observe that WBTC has relatively low liquidity on Ethereum and is mainly used as collateral.With the emergence of LSD (Liquid Staking Derivatives), the three-piece set of DeFi has gradually taken shape. This means that WBTC must be transformed into an interest-bearing asset to truly activate the circulation of the entire financial market. Of course, this is a brand new market, and all parties are making new attempts. In this context, Bedrock is more focused on ensuring the reliability and wide acceptance of the interest-bearing assets themselves. PumpBTC: The main change in this round of BTCFi is to transform Bitcoin from a low-liquidity state to a high-liquidity state. In the past, many projects have tried to build L2 solutions on BTC. The original idea of ​​the Babylon project was to implement slash rules based on Staking to solve the problem of long-range attacks. But as they developed, they realized that it was not enough to just record the state checkpoints of other chains on the BTC chain because the BTC chain itself had limited performance. Therefore, Babylon introduced the concept of an intermediate layer as an independent Cosmos chain to implement a time step aggregate layer. This layer helps compress and package the states of other chains before recording them on the BTC chain. This has evolved Babylon from a simple timestamp service to a Cosmos chain independent of BTC. However, the core question remains: where should high-performance, interest-bearing BTC be implemented? Where should users participate? Where should more DeFi protocols be combined? How to help users achieve higher interest-bearing capabilities? These are the key issues we need to explore. As a middleware and Cosmos chain, Babylon mainly implements timestamp functions and is relatively independent of the BTC ecosystem. PumpBTC regards Babylon as a transit station rather than a terminal. In the future, other Restaking protocols may appear in the BTC ecosystem, just like the various Restaking products that already exist in ecosystems such as Solana. Our goal is to help users convert native BTC in a low-performance state into a high-performance state that is more suitable for a wide range of usage scenarios. We hope to be able to use tools to improve the interest-bearing ability of BTC. Our focus is to create better Restaking and interest-bearing opportunities for BTC that is already in a low-energy state (such as WBTC, BTCB, etc.). This is the ultimate transformation. Babylon is just one stop in this process, and there will be many more stops in the future.Our mission is to better empower users and help them complete the transition from low-energy to high-energy BTC. In general, our goal is to create an ecosystem that enables BTC to realize its potential as a highly liquid, high-yield asset, while providing users with diverse DeFi participation opportunities. Babylon's first round of staking experience, experience, challenges and success factors Shenyu: In the first phase, I personally invested dozens of BTC and successfully grabbed all of them. The total amount of this phase is very small, only 1,000 BTC. The first feeling is that the competition is fierce, and we see that the gas fee is also very high. Some project parties and users basically raised the gas fee to one or two thousand regardless of cost. In the first few blocks, the competition was very fierce. Our underlying layer uses Cobo's MPC custody solution. Because we have participated in some on-chain inscriptions and runes before, we have accumulated some experience and lessons. So we prepared a batch of signatures very early. After splitting the UTXO, we prepared multiple levels of gas fees for each transaction, ranging from 100 to 1,000. In this way, transactions with appropriate gas fees can be selected and sent out according to demand and calculation model. In this process, we also dynamically broadcast transactions with different gas fee tiers according to the real-time gas fee situation of the network. Just in the second and third blocks, the gas fee was appropriately reduced to a certain level, and our transactions were also confirmed. In this process, we used the MPC pre-signature mechanism provided by Cobo to prepare a good gas fee gradient for each transaction. At the same time, a large number of transactions can actually be selectively broadcast, rather than initiating transactions and signing after opening, which would be too late because the time window is relatively short. A large number of transactions need to be prepared in advance. Zhulin Chen: Babylon staking has attracted a large number of users, but the upper limit of 1,000 BTC limits participation. Our goal is to help as many users as possible successfully stake. The final result is satisfactory: we received 400 BTC, successfully staked more than 200 BTC, and the gas fee remained below 1,000, achieving the expected goal. The competition was fierce 3-4 days before the start of staking. We summarized several key points for success: batch splitting, pre-signature, and RBF functions are crucial, and these tools greatly reduce the number of manually signed transactions;Despite the tools, our team and colleagues at Cobo still have to work late nights; security is the primary concern. Faced with the new Babylon protocol and staking process, we conducted comprehensive testing on the testnet a month in advance, including implementing whitelists and security measures to ensure that funds can only be transferred to Babylon addresses; with five years of on-chain trading experience, we are fully prepared for the timeliness and efficiency of transaction broadcasts. We adopted a rational strategy to select a reasonable gas fee range in each block to complete the pledge, rather than blindly using the highest gas fee. Matt Ye: How to achieve the best pledge effect with limited funds faces two challenges? Technical challenges The pledge process is not simply sending UTXOs and signatures one by one. First, we need to split BTC into small UTXOs of 0.05 according to Babylon's parameters and add gas fees. Through Cobo's API, we can perform pledge pre-signatures. This is a huge task in itself. At the final broadcast, we also need the underlying Staking API to work properly, both to ensure security and to ensure complete functionality. In this regard, Cobo provides great support as a custodian. Strategic ChallengesThe bigger challenge lies in the project strategy. We need to determine the target and acceptable cost of the first phase of staking. As a liquidity staking platform, we have a responsibility to our users, customers, community and Babylon ecosystem to stake as many BTC as possible. At the same time, as a founding team with limited funds, we need to weigh costs and benefits. Although we have the ability to pay $1 million or $2 million, we need to consider whether it is worth spending such a high cost to stake more BTC. After a long discussion, we decided to set a target total number of stakes, but not necessarily 250 BTC. We need to give customers a satisfactory answer, and at the same time set a cost cap for ourselves. This cap may be lower than everyone thinks. Based on these considerations, we studied the tiering and batching schemes of gas fees, as well as when and which blocks to stake. We designed two or three dozen schemes, and automatically deployed strategies to stake UTXO on the chain based on the actual gas fees and gradients.Our strategy was very successful. In the first block, we staked more than 125 BTC, and most UTXOs were completed at this time. Our average staking cost was much lower than the floor price of high gas fee blocks (more than 1000 Sats), helping users achieve a staking rate of more than 50% while controlling costs. Looking back on this experience, we think it was a good strategy. We not only fulfilled our responsibilities to the Babylon ecosystem and customers, but also achieved a high output ratio at the lowest cost. We are studying the staking strategy for the next phase, considering factors such as Babylon's parameter settings, market expectations and demand. We realize that the root cause of fierce competition in gas fees lies in the high expectations of all parties for the amount of stake, which may lead to irrational behavior in the market. Therefore, we will reasonably consider community commitment, team economic capabilities, and try to take into account the irrational factors of the market, and adopt dynamic strategies to cover at least 80-90% of the market situation. PumpBTC: In terms of technology, the core is the underlying API. Without the mature products and complete technical support provided by Cobo, it would be difficult for our team to implement a safe and efficient split logic. This means that all algorithmic strategies for grabbing quotas will not be possible. Cobo's technological accumulation is crucial to us, and its reliability and effectiveness are self-evident. At the strategic level, whether it is investment or grabbing quotas, it is essentially a trade-off between costs and benefits. We conducted a comprehensive evaluation within a limited budget in the early stage and set a relatively conservative goal: as long as we can enter the top three, we will be considered successful, and we are not obsessed with competing for the first or second place. We believe that reaching the third place is already a satisfactory result. Judging from the results, our performance exceeded expectations, and we won the fourth place at a lower cost than expected, and the gap with the third place was very small. Considering our initial goals and actual investment, we are very satisfied with this result. We are conducting in-depth research for the upcoming second phase. We believe that the successful experience of the first round is still applicable: as long as there is reliable underlying technical support such as Cobo API, we can further optimize our algorithms on this basis.What we need to focus on is how to balance the input cost and ranking goals. Nevertheless, our overall strategy and logical framework will remain consistent with the first phase, but there will be some adjustments in the details to adapt to the new market environment. Operational suggestions for Bitcoin retail investors Shenyu: For ordinary holders, the best option is to put BTC into the pools of various LRT project parties, or exchange it for other ERC20 assets, such as FBTC, WBTC, etc., and then perform nesting operations. Because the quota of Babylon is still limited at present, the probability of retail investors directly participating in the grab is not high. There are two main reasons: one is that there is a high competition cost; the other is that all project parties have made technical preparations, and it is basically unrealistic to grab manually, usually in a state of five grabbing one. Therefore, if you want to participate, especially in the early stage before the limit is opened, you can actually only use some other methods and channels. Doing so can spread some costs, and at the same time, it will not have a high gas loss. Because of the pledge like Babylon, even if you don’t grab it, your cost is also a sunk cost. So for retail investors, I think this is a better solution. For large investors, what may need to be considered is the asset allocation and risk diversification, which requires some matching according to different expectations and situations. Zhulin Chen: Entry-level risk-free strategy BTCFi is welcoming new opportunities. Users should first consider the risk-free LST and LRT markets, which is similar to the strategy of participating in Lido in the early stage. Because these products do not involve BTC trading or lending, the risk is lower. Intermediate risk strategy - If you pursue higher returns in the lending market, you can consider the lending market. For example, Compound will soon support uniBTC and PumpBTC, allowing users to use leverage to increase returns. Advanced risk strategy - complex products go a step further, and users can choose complex strategies. For example, the Pendle project allows the use of YT (yield tokens) to obtain higher returns. We may soon release new announcements related to this, including potential interest rate swap markets. In addition to Babylon, re-staking protocols such as EigenLayer are also worth paying attention to. uniBTC may support these protocols to achieve a "double mining" effect. In general, it is recommended not to participate in more than three steps in the chain to control risks.Users need to choose the right strategy combination according to their own risk tolerance. Ryan Chow: The importance of simplified entry For retail investors, the most important thing is to simplify the entry. When participating in various BTCFi related products, if the path is too long, it will greatly increase the difficulty of operation, understanding and cost of users. With each additional step, these costs may increase by 10 times. Therefore, it is crucial to reduce the entry cost of users. We currently have nearly 400,000 Bitcoin staking users, mainly because our entry is simple enough and solves this problem well. The value of product diversity Product diversity is important. Various Bitcoin investment opportunities have emerged in the market, including CeDeFi's BTC income products. Different users have different needs, so diversified choices are important, such as Core and Bouncebit. Products are also very good. Despite this, our market testing shows that Babylon's income products are the most popular. These Bitcoin opportunities have different adaptation needs for different users. So, how to solve the user's adaptability problem as diversely as possible and meet their diverse needs for Bitcoin? This is crucial to the development of BTCFi. Market reaction and user choice I am personally most optimistic about Babylon's income. We conducted a lot of market tests and asked users to give answers. The test results showed that Ethena raised 2,500 bitcoins in a week. In contrast, Babylon, which is open only four times a month for two minutes each time, has received more pledges. This shows that the market has a certain consensus on returns. Among many products, if there are 2-3 particularly popular ones, it means that these products are more in line with user needs. The market's choice is clear. The importance of infrastructure In this process, companies like Cobo play an important role in asset custody, security operations, and permission settings. We have cooperated with Cobo on yield products such as GMX, Ethena, and Babylon. This highlights the importance of infrastructure in providing user returns. Matt Ye: By analyzing the list of pledgers, we found that retail investors dominate, with a minimum pledge of only 500 sats. This means that for these small retail investors, the cost of independent staking may exceed the benefits.Therefore, our platform aggregates users' BTC, allowing all BTC holders, regardless of size, to participate in the staking ecosystem and DeFi opportunities. This model is similar to the service provided by Lido for small ETH holders, allowing retail investors to obtain robust BTC staking returns. We not only provide a simple staking entry, but also develop more complex and diversified financial instruments. Despite the large demand for passive financial management, we focus more on advanced products. For example, our leveraged staking products have users using 8-9 times leverage. The main difference between Babylon and Ethereum is that you can stake multiple assets, not just ETH. Projects such as EigenLayer can also stake multiple assets in theory, but Babylon's ecosystem is more mature and prosperous. Many existing PoS systems can be directly integrated with Babylon, which greatly accelerates the expansion of the ecosystem. In fact, there are already many PoS projects waiting for Babylon to go online to join the BTC security staking network. In the future, we plan to develop an interest rate trading market. As Babylon opens up more PoS options, the income structure of different staking methods will show significant differences. We are planning this market in advance, allowing interest and assets to be traded freely. We hope that different users can meet different choices and preferences on the platform, obtain different interest structures, and trade interest rates on our platform. Our target customers tend to be users with DeFi or financial experience and a clear understanding of asset pricing. This reflects our focus on the needs of advanced users and our emphasis on complex financial products. PumpBTC: For ordinary users, the core considerations for staking BTC are security and liquidity. Once the BTC price fluctuates, users worry about losses caused by locked funds. In the current market environment, liquidity is crucial, and the lack of withdrawal capabilities will hinder users from participating in other investment opportunities. LST projects should strive to provide better liquidity while ensuring security. Our PumpBTC withdrawal function will be launched simultaneously with Babylon to directly solve the user's liquidity needs. This feature eliminates the main psychological barrier for users. In terms of security, our underlying integrated custody solution is superior to personal use of cold wallets, providing users with a higher level of asset protection.We also focus on providing diversified investment opportunities. Through innovative gameplay such as dual mining, users can not only obtain liquidity, but also participate in potential high-yield airdrop activities to meet different risk preferences. Looking ahead, new gameplay such as LST-based lending and leveraged trading will continue to emerge. With our advantages in flexibility, security and diversification, we are confident that the BTCFi field will usher in a booming development in the second half of the year and bring more value to users. Project Introduction and Its Role in the BTCFi Ecosystem Cobo is a professional digital asset custody technology solution provider. Due to the limited functionality of Bitcoin's scripting language, a large number of BTC assets need to be mapped from the main network to various second-layer networks. In this process, Cobo provides a co-management solution based on multi-party computing (MPC). The solution stores assets in the MPC wallet and then performs cross-chain mapping, realizing efficient and secure cross-chain asset transfer. Bedrock has five years of node service experience and is committed to creating the safest and most recognized liquid staking token (LST) service in the Babylon ecosystem. Bedrock's uniBTC product provides comprehensive slash risk protection and brings considerable benefits to users through professional operation and innovative development. Solv Protocol is the largest BTC Staking platform in the entire network, managing diversified staking of more than 20,000 Bitcoins. Solv has prepared more than 3,000 Bitcoins of BTC to be invested in Babylon, and successfully grabbed 250 places in the last period. It is expected that more than 10,000 Bitcoins will be invested in Babylon in the next 2-3 periods. Lorenzo Protocol is a liquidity staking platform based on Babylon, focusing on the generation, settlement and trading of Bitcoin interest-bearing notes. Lorenzo works closely with Babylon to provide users with diversified options, allowing them to put Bitcoin liquidity on different PoS chains and obtain corresponding interest notes. Lorenzo also provides a secondary trading market for these notes, providing a comprehensive DeFi infrastructure for the Babylon ecosystem. PumpBTC provides LST services based on Babylon and other Restaking protocols, aiming to solve the liquidity problem of Bitcoin assets and convert various forms of BTC (native or wrapped) into interest-bearing assets. Through cooperation with FIL, Brea Chain, etc., PumpBTC provides users with staking income.PumpBTC uses Cobo custody technology to ensure maximum asset security.