Brothers, I wonder if you’ve ever had an experience like this with leverage/borrowing: one time, my position difference was almost liquidated. I panicked and rushed to add collateral. Even though on-chain data showed the funds came in and my total assets went up, I knew in my heart—this money didn’t go out to open up a brand-new “battlefield.” It was purely keeping the old debts alive by force!
Over the past few days, I’ve been researching Babylon (@BabylonLabs_io ) and its TBV. I found that if you look only at the surface-level data, it’s extremely easy to fall into the same “false prosperity” trap.
You need to know how its mechanism works: the moment you activate the first Vault, the system generates a dedicated Position Proxy proxy account. After that, whenever you add more BTC, it will go straight into that account to settle the books. When you increase collateral, the health factor does indeed rise—but hidden in there are two completely different logics!
The first is called **“genuine capacity expansion”**: the user’s original position is already healthy. After adding BTC, they immediately borrow out more assets to arbitrage. This kind of TVL growth is real credit demand.
The second is called **“forced firefighting”**: the health factor is already dropping toward 1. The user is forced to add BTC to top up the position, even adding while repaying debt. At this point, TVL looks like it’s rising too—but in reality, everyone is shrinking their positions, seeking safety, and de-leveraging!
If you don’t separate these two types of money clearly, you will absolutely end up reading the project fundamentals in the wrong direction. When the market is good, everyone expands. But once the price action dips hard, “firefighting-type” topping up can make TVL data still look healthy—while the real story is the passive pressure of keeping the system alive. What follows is very likely a chain of liquidations and sell-offs!
So when I do my own investment research, I specifically distill a **“firefighting indicator”**: look at what proportion the newly added BTC by low-health accounts makes up of the total amount of collateral top-ups from older accounts. If that proportion keeps surging while total borrowing stalls, it means the so-called TVL is just filling the gaps in old leverage. Only if the proportion is low and debt grows in sync can it prove that people truly believe in this credit system.
When long-time users come back to deposit BTC, you really can’t just equate it directly with the product appreciating. The valuation of $BABY is the same: BTC that can consistently generate fees and new borrowings counts as a quality asset. But BTC used only to delay liquidation is, at best, a temporary firebreak.
#baby
Over the past few days, I’ve been researching Babylon (@BabylonLabs_io ) and its TBV. I found that if you look only at the surface-level data, it’s extremely easy to fall into the same “false prosperity” trap.
You need to know how its mechanism works: the moment you activate the first Vault, the system generates a dedicated Position Proxy proxy account. After that, whenever you add more BTC, it will go straight into that account to settle the books. When you increase collateral, the health factor does indeed rise—but hidden in there are two completely different logics!
The first is called **“genuine capacity expansion”**: the user’s original position is already healthy. After adding BTC, they immediately borrow out more assets to arbitrage. This kind of TVL growth is real credit demand.
The second is called **“forced firefighting”**: the health factor is already dropping toward 1. The user is forced to add BTC to top up the position, even adding while repaying debt. At this point, TVL looks like it’s rising too—but in reality, everyone is shrinking their positions, seeking safety, and de-leveraging!
If you don’t separate these two types of money clearly, you will absolutely end up reading the project fundamentals in the wrong direction. When the market is good, everyone expands. But once the price action dips hard, “firefighting-type” topping up can make TVL data still look healthy—while the real story is the passive pressure of keeping the system alive. What follows is very likely a chain of liquidations and sell-offs!
So when I do my own investment research, I specifically distill a **“firefighting indicator”**: look at what proportion the newly added BTC by low-health accounts makes up of the total amount of collateral top-ups from older accounts. If that proportion keeps surging while total borrowing stalls, it means the so-called TVL is just filling the gaps in old leverage. Only if the proportion is low and debt grows in sync can it prove that people truly believe in this credit system.
When long-time users come back to deposit BTC, you really can’t just equate it directly with the product appreciating. The valuation of $BABY is the same: BTC that can consistently generate fees and new borrowings counts as a quality asset. But BTC used only to delay liquidation is, at best, a temporary firebreak.
#baby