At 2 a.m. Beijing time on September 19, the Federal Reserve announced that it would lower the target range of the federal funds rate by 50 basis points to 4.75%-5%, the first rate cut in four years. Since March 2022, the Federal Reserve has launched an almost unprecedented round of aggressive rate hikes, and has maintained the policy rate at a high level of 5.25%-5.5% since July 2023.
Cryptocurrency started to rise in response, with Bitcoin rising from a low of 60,000 on September 19 to 66,000 on September 28, a 10% increase, which marked the beginning of this year's bull market. The crypto market is once again flourishing, with all sectors starting to flourish and a hundred schools of thought contending in an unprecedented era!
At the same time, on September 27, Binance founder and former CEO Zhao Changpeng was released two days early, completing his four-month sentence, and BNB also broke through the price of 600U in the first place.
With the return of CZ, Binance has also started a new round of investment and financing activities!
That is Babylon, a project with a project valuation of over 10 billion. Why is it leading the Bitcoin ecosystem boom? Let’s introduce them one by one!
Project Introduction
The Babylon project originated from Stanford and its origin is a research paper on Bitcoin security. Through remote staking and Ordinals technology, it reshapes the economic security role of Bitcoin.
The chain built by Babylon using the Cosmos SDK not only provides the crucial Bitcoin timestamp service for the PoS chain, but also cleverly acts as a synchronization hub between the Bitcoin network and the PoS chain.
Its core technical solutions mainly include the following three points:
1. Remote staking:
Remote staking represents part of the core of Babylon’s technology, enabling Bitcoin holders to stake without having to bridge their Bitcoin to a PoS chain.
This approach leverages innovations in cryptography and consensus protocols, as well as optimized use of the Bitcoin scripting language, to achieve a decentralized staking process, completely eliminating the need to bridge, encapsulate, and host Bitcoin.
2. PoS Staking:
Babylon, through its revolutionary Staking mechanism, allows Bitcoin to be locked and pledged without transferring it to the PoS chain.
This mechanism ensures that the validator behaves honestly because Bitcoin is locked as collateral during the verification process on the PoS chain, and once the validator violates the rules, the collateral will be cut.
It not only improves the security of the PoS chain, but also allows Bitcoin holders to gain benefits while keeping their assets safe.
3. Higher technical security:
Babylon is not only a staking platform, but also a technical framework for secure sharing of Bitcoin.
It mainly includes two major protocols: Bitcoin timestamp and Bitcoin staking, which aim to provide economic security for decentralized systems.
Babylon leverages the security of the Bitcoin network to provide additional protection for chains in the Cosmos ecosystem by writing the blockchain information of the PoS chain to the Bitcoin blockchain.
Team and financing details
The team is definitely a combination of professional technical talents. Their co-founder David Tse received a bachelor's degree in system design engineering from the University of Waterloo, a master's degree and a doctorate in electrical engineering from the Massachusetts Institute of Technology, became a professor at the School of Engineering at Stanford University and the University of Chicago, and is now a member of the National Academy of Engineering of the United States
As of June 1, 2024, Babylon has disclosed multiple rounds of financing, with a total amount exceeding $96.8Million.
Looking at the Bitcoin ecosystem, from March 1, 2023 to May 31, 2024, the number of financings related to the Bitcoin ecosystem reached 143 times, with a total amount of more than $2.3 billion; among them, the number of financings after 2024 was 85, with a total amount of more than $945.3 million. Now compare it with the number of financings of other ecosystems in the same period. From March 1, 2023 to May 31, 2024, the number of financings related to the Ethereum ecosystem was 727 times, Solana 121 times, Cosmos 50 times, and Avalanche 82 times. It can be seen that the number of financings related to the Bitcoin ecosystem is relatively high, reflecting the optimism of some institutions and VCs about the Bitcoin ecosystem.
What can Babylon bring to the BTC ecosystem?
1. By staking BTC on multiple PoS chains, your BTC assets can earn returns on these chains, thereby promoting the development of a more secure and scalable PoS economic system.
2. Apply BTC security to Bitcoin’s data availability layer and Layer2 solutions to provide support for the entire BTC ecosystem, such as BTC rollup or BTC middleware, enabling BTC to be used more efficiently in the second-layer network and the middle layer.
BTC DA Protocol: (Data Availability Protocol): Given that the Bitcoin blockchain is the world's most secure and difficult-to-censor storage space, Babylon is developing a new protocol designed to utilize Bitcoin's limited block space to perform critical tasks. This includes providing an anti-censorship protection layer for the Proof of Stake (PoS) chain.
Babylon Layer2: Babylon can be used as an intermediate layer between bitcoin rollup and bitcoin. As an intermediate layer for temporary store data before BTC inscription, this layer2 can greatly empower the entire ecosystem:
- Protect layer2 security through babylon
- Greatly reduce gas fees on the second layer
- Layer2 can generate a large number of Bitcoin applications
- Carrying the overflow of Bitcoin user traffic, increasing the huge Bitcoin ecological user base
What is the future of Babylon?
1. Three chains in one, bright prospects
The reason why I say this is that Babylon’s “technical and narrative background” is really excellent:
1) COSMOS Chain: Babylon is rooted in Cosmos, and the concept of "security sharing" also comes from Cosmos, using Cosmos's IBC inter-chain communication. For the Cosmos chain, it is inevitable to embrace the security brought by Babylon, and it will also bring new vitality to the Cosmos system.
2) BTC chain: Babylon’s positioning target is the BTC chain. As mentioned above, Babylon can gradually activate the use of BTC in the BTC network. When holders gradually adapt to this way of making money, it will become a habit and they will be more closely integrated with Babylon.
3) ETH chain: Babylon’s concept is “same” as Eigenlayer, but due to the difference in the BTC network, Babylon has achieved self-custody, surpassing Eigenlayer in this respect. If you regard ETH as a test chain for BTC, then Eigenlayer can even be considered an experimental product of Babylon in some dimensions (this is just my opinion, please note the premise). Moreover, for EVM-based chains, it is not impossible to introduce assets such as BTC, whose “quality” exceeds that of ETH.
2. Valuation and Basis
When talking about prospects, we have to mention the valuation of the project; when calculating the valuation, we have to find a comparison. Here are a few simple hypothetical comparisons (not rigorous):
1) TVL
Currently, Eigenlayer's TVL is 14.7 billion US dollars, and ETH's market value is about 350 billion US dollars, accounting for 4.2%; the current BTC market value is about 1.3 trillion US dollars. If the proportion is the same, Babylon's possible TVL in the future can reach 50 billion US dollars (what is the concept of 50 billion US dollars? According to the current situation, TVL will surpass USDC's market value and be second only to SOL). Even if the proportion is not that high, we only count half of it, which is more than 20 billion US dollars of TVL, and it should be noted that the assets locked here are all the best quality assets.
2) FDV
Let's compare it with Eigenlayer. Eigenlayer received $100 million in funding from a16z in its B round on February 22, 2024. I will tentatively measure this project based on $5-10 billion. I think Babylon's future FDV will not be lower than Eigenlayer.
If we use TVL for comparison, Arb's TVL is 15 billion, and FDV is about 10 billion. According to the previous analysis, Babylon's future TVL will most likely not be lower than Arb, so its valuation will theoretically not be lower than Arb, that is, 10 billion US dollars. Of course, you may say that Arb is a public chain, and Babylon is actually also a chain, and Arb seeks development and profits internally, while Babylon seeks development and profits externally. The business logic is different, but the expectations seem to be better.
Therefore, in my non-rigorous deduction, Babylon FDV will be worth at least 10 billion US dollars in the future.
Horizontal comparison of similar projects
Shared security is not an innovative concept first proposed by Babylon. In fact, it has a long history. Many projects have tried different directions. Currently, there are two typical projects: EigenLayer and Cosmos.
1.EigenLayer
The role positioning of EigenLayer and Babylon is actually very similar, but one is based on Ethereum and the other is based on Bitcoin. Due to the different technical characteristics and ecosystems of the two public chains, there are many differences between the two projects.
The first is that the implementation logic is different.
Since Ethereum supports smart contracts, Eigenlayer is essentially composed of a group of smart contracts, and can implement complex logic for management and confiscation. However, Bitcoin does not support smart contracts, and Babylon can only implement relatively simple locking and confiscation logic based on the Bitcoin script language, mainly through an independent chain to complete various complex processing tasks.
Secondly, the service objects are different.
Eigenlayer, an Ethereum-based smart contract, can also be composable with other projects in the ecosystem and provide security for a wider range of projects; however, Babylon's public chain is built based on the Cosmos SDK, so it is currently more compatible with projects in the Cosmos ecosystem and has certain limitations.
Finally, the market space is different.
Eigenlayer shares the security of Ethereum, while Babylon shares the security of Bitcoin. Ethereum's market value is currently about one-third of Bitcoin's market value, so the security that can be released may also be lower than Bitcoin.
In general, Babylon and Eigenlayer are differentiated competitions, with significant differences in underlying implementation logic, target service objects, and market space.
2.Cosmos
Cosmos is similar to the Android system on mobile phones. It can launch chains with one click based on Cosmos components, while directly sharing the security of Cosmos.
But the problem is that the current total market value of Cosmos is low, and the security obtained by staking the native token ATOM is insufficient, so the Cosmos ecosystem has a strong need to introduce external security.
Babylon, built on the Cosmos SDK, can naturally adapt to the Cosmos ecosystem, introduce Bitcoin security to the Cosmos ecosystem, and break through the security ceiling of the Cosmos ecosystem itself.
At present, the Cosmos ecosystem is relatively rich, and many influential public chains have emerged, such as Celestia, Osmosis, etc. These public chains can be easily connected to the Babylon chain to obtain the security of Bitcoin.
Therefore, we can see that Babylon and Cosmos are not in a competitive relationship, but a win-win cooperative relationship, and the supply and demand of the two are more in line.
Finally, Babylon has an important difference from Cosmos and Eigenlayer:
In Cosmos and Eigenlayer, the native tokens have been pledged to ensure the security of the original chain. Further staking may lead to the risk of over-leverage. If assets are pledged multiple times or nested, the returns will be higher, but the risks will also be accumulated in multiple layers.
This problem does not exist with Bitcoin staking, because the security of the Bitcoin network is not guaranteed by Bitcoin assets, but by the computing power of the PoW mechanism, which introduces external factors from the real world. Therefore, after Bitcoin assets are pledged to provide security, the security of the Bitcoin network itself will not be damaged.
Summarize
In summary, the problems that the Babylon protocol can solve include: low yield of Bitcoin financial management; few application scenarios of Bitcoin; and the problem that Bitcoin system security is not scalable. The Babylon protocol is in the Bitcoin ecosystem, Bitcoin programmability, Bitcoin Layer 2, Bitcoin pledge, and is also in the track of re-pledge, shared security, modularization, Cosmos ecology, etc. It conforms to the mainstream narrative and has a strong narrative.
Token situation:
Listed on: Binance, OK, Huobi, Coinbase, Sesame, Matcha, Bitget and other mainstream exchanges
Estimated total amount: 100 million
Locking mechanism: Lock 1 Full Release
Current stage: Bitcoin staking mainnet phase 1. Mainnet phase 2 will be launched in the second week of October!