Tested, read through｜Babylon TBV Whitepaper Chapter 12—Personal take on the proxy settlement pool

After carefully working through Chapter 12’s design of the proxy settlement pool, I found that most people in the ecosystem only praise the advantages of this permissionless settlement mechanism, and almost nobody mentions the trade-offs behind the design. Based on my hands-on experience repeatedly carried out on the testnet, this shortcoming is actually especially critical.

In the market, mainstream BTC lending liquidations basically come in two models. One is a whitelist-only, dedicated liquidator approach that is relatively stable from a risk-control perspective, but when the market crashes hard, liquidation bottlenecks can easily occur. The other is an open, external liquidation model with low participation limits—but the threshold is still too high. Participants need to have substantial liquidity ready, and ordinary users simply can’t get in. TBV chooses to build a two-layer proxy settlement pool: with an intermediate-asset buffer, traders can directly call the funds inside the pool to complete liquidations without having to advance capital themselves.

After personally simulating several extreme-market liquidation scenarios, I can genuinely feel the convenience brought by lowering the barrier. Even regular retail users can participate in the protocol’s liquidation arbitrage. The entire execution workflow runs on TBV’s independent treasury, with no need for third-party custodial involvement throughout. Of course, nothing comes for free: the protocol must continuously lock up a certain amount of reserve capital as fallback funding. That reserve can’t be used to lend out externally for yield, which directly drags down overall capital turnover efficiency.

Many peers treat this liquidation system as a broadly reusable industry template. In my view, that’s a clear misjudgment. The proxy settlement pool is designed exclusively for a one-to-one binding with the TBV treasury, with highly targeted applicability. If you forcibly apply it to an open, freely circulating token system like WBTC, the reserve capital consumption pressure will expand dramatically, and the mechanism’s advantages will disappear just as quickly.

Looking at the design of the entire chapter, the project still follows its consistent trade-off mindset: it sacrifices part of the capital yield to strengthen liquidation stability under extreme market conditions. There is no “one-size-fits-all” mechanism design. For me, holding $BABY and participating in treasury staking, I’m not going to be blinded by the trustless narrative alone. In day-to-day terms, I’ll continue to watch the boundary conditions around the protocol’s liquidation reserve size and assess this scenario-tailored solution rationally.
@BabylonLabs_io $BABY #baby

In what specific details does the two-layer proxy settlement pool of TBV differ from the traditional whitelist-based liquidation model in terms of real execution efficiency during extreme market conditions?