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Babylon Ecosystem
For readers who are not familiar with the Babylon ecosystem, Babylon is a Layer 1 blockchain developed based on the Cosmos SDK. It attempts to introduce BTC assets, that is, staking BTC in Babylon, and the pledger can get staking incentives. It can be briefly understood as a project that allows "BTC to earn interest" through staking.
Babylon claims to be the leading project in the Bitcoin ecosystem and the largest Bitcoin staking infrastructure, which will unlock the value of 21 million Bitcoins. Currently, the heavy staking track based on Ethereum is very hot, locking up a large amount of ETH, which is believed to further enhance the value of ETH and turn ETH into an interest-bearing asset.
As the earliest and most core crypto asset, BTC’s value has been derived more from consensus over the past decade. It has not become the underlying asset in the Ethereum ecosystem like ETH, and has not become the "ballast stone" of different projects such as DeFi to obtain asset returns. In the past, BTC holders could only obtain additional BTC income through third parties such as lending, which carries a great risk of asset loss.
Babylon has liberated the value of BTC to some extent and given BTC more room for imagination. Perhaps, after Babylon goes online, more people will pledge their dormant BTC.
Bitcoin holders can earn income from their idle Bitcoin in a secure way: without the need to trust a third party or bridge Bitcoin to any other chain. Bitcoin holders simply lock up their Bitcoin in a self-custodial manner and gain the right to validate the PoS chain and earn income in return.
Bitcoin stakers can also enjoy maximum liquidity and returns, powered by the protocol’s fast unbonding and scalable re-hypothecation capabilities.
From a technical perspective, Babylon is a set of Bitcoin security sharing protocols. Currently, it includes two protocols:
Bitcoin Timestamp: This protocol sends a concise and verifiable timestamp of any data (such as a PoS blockchain) to Bitcoin;
Bitcoin Staking: The protocol allows Bitcoin assets to provide economic security for any decentralized system through trustless (and self-custodial) staking.
In terms of implementation, Babylon works by acting as an intermediary between chains that require additional security and Bitcoin, obtaining block headers from chains that use its services and writing these block headers into the Bitcoin blockchain, thereby enabling blockchains in the Cosmos ecosystem to use Bitcoin network security. Validators running Babylon are paid by using the native tokens of the Babylon chain and will also be paid in Babylon native tokens.
What are the scenarios in which Bitcoins withdrawn using Babylon are safe?
Let’s start with a very popular use case in the Cosmos ecosystem, which is brought by our Bitcoin timestamp protocol.
The security of Bitcoin blocks increases over time because the difficulty of forking becomes higher and higher. However, the mechanism of PoS chain is not the same. In PoS chain, the security of the network is guaranteed by staking tokens, and staking is inevitably accompanied by the possibility of unstaking.
For example, if a user stakes tokens as a validator on a PoS chain, and six months later decides to unstake and convert the tokens into cash, even though they have already been financially compensated in reality, in theory, they can still use their past identity as a validator to go back to the genesis block and create a forked chain at no cost. This is because from the perspective of the genesis block, this user is still considered a legitimate validator with the right to create and vote, thus being able to initiate a fork at no cost, thereby deceiving other participants in the network.
This strategy is called a long range attack, which takes advantage of the possibility that after the validator nodes in the PoS chain unstake, they return to a historical block where they were still stakers and start a forked chain. This problem is inherent in the PoS system and cannot be completely solved by simply improving the consensus mechanism of the PoS chain itself. Both Ethereum and Cosmos PoS chains face this challenge.
In order to solve this problem, the inventors and supporters of the POS chain, including Vitalik, proposed Weak Subjectivity or Social Concensus, which means that the POS chain does have problems that cannot be solved by itself, but the participants of the chain can regularly form an offline consensus - Block100 should look like this, Block1000 should look like this, and reach a consensus in this way to avoid accepting other forks.
However, there is a problem with this approach: it is impossible for everyone to discuss every block offline, and they can only rely on a regular cycle. In addition, this is a social behavior, and the delay is also very large, so the pledge unbinding time of many POS chains is very long. For example, it usually takes several weeks to unbind the Cosmos chain.
If we introduce BTC Staking, there will be a historical record of the POS chain on BTC. This record will carry the Bitcoin timestamp. Even if someone wants to create another fork, the timestamp on Bitcoin will definitely be later than the original orthodox chain, so long-distance attacks will fail at this time.
At the same time, Bitcoin is online 24 hours a day, so there is no need to wait two or three weeks to determine the orthodox Canonical Chain. In the Cosmos ecosystem, when the Cosmos chain obtains the Bitcoin timestamp through Babylon, the Stake Unbonding Time can be shortened from 21 days to 1 day. This is a use case of our BTC Time Stamping.
BTC is the most secure and decentralized asset in the world, and Babylon has unlocked $1.2 trillion worth of Bitcoin through BTC staking to share security. With the explosive growth of Ethereum re-staking and the development of the BTC ecosystem, Babylon will continue to grow.
One of the main sources of security in blockchains is the ability to channel capital through desirable assets that can be staked (such as ETH). In practice, creating an asset that can achieve this goal is difficult, expensive, and rare.
EigenLayer takes a secure and desirable asset like ETH and leverages it to secure other blockchains without the bootstrapping of massive token distribution. In just five months,
EigenLayer has attracted over $13 billion in TVL, demonstrating that ETH is an ideal security choice.
If this model of shared security is ideal for ETH, why not do the same for an even more desirable and secure asset: Bitcoin? Babylon is now sharing over $1.2 trillion in security value with other networks to earn BTC staking rewards.
Babylon Team
Babylon received $18 million in financing from top investors.
Babylo consultants are Sreeram Kannan and Zaki. David Tse is a professor and director of the Tse Engineering Lab at Stanford University. The lab published a research report in 2021 pointing out the vulnerability of Ethereum PoS.
How Babylon Works
Babylon is a secure aggregation layer between any PoS chain and Bitcoin, supporting BTC staking. The staked BTC is still stored on the Bitcoin network, and Babylon uses their internal protocol to convert the staked assets and entrust the security of Bitcoin to other networks.
In exchange, BTC stakers can earn yield on the native token of the consumer blockchain. This provides idle BTC holders with the ability to keep their assets upside while earning yield on another asset.
The architecture of Babylon is shown in the figure below:
Babylon uses a time-locked self-custodial vault where BTC holders stake their assets on the Bitcoin blockchain for a certain period of time. Assets can only be retrieved using the BTC holder’s private key.
Babylon’s timestamp protocol allows PoS blockchains to publish arbitrary data and communicate with the Bitcoin network, and retrieve timestamps that can be used to synchronize networks that gain security through BTC staking on the Bitcoin blockchain.
The blockchain publishes the hash of any "important" transaction (such as staking, unstaking, double spending, censored transactions, etc.) to the Bitcoin network through Babylon, which aggregates the hashes of all blockchains that have chosen this service.
Potential impact of Babylon
I will cover the following points:
(1) According to DefiLlama, the current one-sided Bitcoin yield market size exceeds $10 billion, of which $4 billion is active yield, with yields typically ranging from 0.01% to 1.25%, and requiring trust in certain versions of bridged BTC or wrapped BTC. Babylon offers self-custodial BTC staking, which has a lower degree of trust assumptions than the above options, and the staking yields on PoS blockchains range from 2.36% to 17%, with higher yields, in many cases 50 times higher than ordinary BTC yields.
(2) Babylon also has a competitive advantage because BTC’s interest rate premium is lower than ETH and almost all other crypto assets. Consumer chains using BTC as a security asset can pay less distribution (operating costs) for the same economic security.
(3) Ethereum currently has over $104 billion staked, less than 30% of its current circulating supply, supporting a vibrant LST economy with over $54 billion in TVL. There are also systems like EigenLayer with a TVL of nearly $14 billion.
Ethereum currently supports a TVL of $10 billion in the LRT ecosystem. BTC is valued at over $1.2 trillion, and less than 10% of its circulating supply currently needs to be staked through Babylon to compete with the Ethereum staking ecosystem.
(4) If PoS chains use Bitcoin for economic security because of the existing demand and value of holding Bitcoin, their security budgets will be lower. Some chains spend more than $40 million per year on their own economic security.
The money saved can be used to grow their network’s users and applications, making their applications and tokens more valuable.
(5) Babylon provides practical Bitcoin expansion solutions: As the demand for Bitcoin usage increases, Bitcoin and its adjacent L2, sidechain and bridge ecosystems are showing rapid growth. However, many expansion solutions are limited in the functionality they can provide without upgrading the network or without a decentralized third party.
Babylon is able to leverage and extend the utility of Bitcoin without requiring network upgrades or decentralized third parties, while still maintaining the momentum of the Bitcoin ecosystem.
(6) Ethereum and Cosmos are moving towards similar solutions, solving the same problems but in different directions.
Ethereum already has a security center and is the most decentralized and economically secure PoS blockchain. To scale, Ethereum relies on rollups that share security with Ethereum. The problem with this ecosystem is interoperability and composability between isolated rollups.
Cosmos approaches this problem from the opposite angle. The ecosystem already has a fixed interoperability framework (IBC) and a framework for scaling through application chains (CosmosSDK). However, the problem is the lack of a valuable security center that can be shared on a large scale.
Babylon shares Bitcoin’s economic security with the Cosmos ecosystem through IBC, potentially enabling it to truly compete with the Ethereum ecosystem.
Some potential challenges facing Babylon
The first is the number of BTC holders who have turned into stakers. A large portion of BTC holders hold idle BTC, with 25% of the BTC supply idle for more than 5 years and 67% idle for more than 1 year.
Another challenge is that IBC is a necessary prerequisite for Bitcoin staking or timestamping protocols. This limits Babylon's TAM to 91 Cosmos Zones. However, projects like Picasso and Landslide Network are expanding IBC to other chains.
in conclusion
Babylon is working to achieve what EienLayer has accomplished, but with a higher market cap of BTC security instead of ETH security. Unlocking new primitives for Bitcoin staking, making it easier for other chains to gain economic security and Bitcoin security, and providing yield on idle BTC are factors that could catalyze Bitcoin's current trajectory. With EigenLayer sharing Ethereum's $427 billion of security and a potential valuation of $3 billion to $15 billion, it's safe to say that after sharing Bitcoin's $1.4 trillion of security, Babylon will be a force to be reckoned with.
SOL poised for big gains
After a brief surge, bulls weakened somewhat as the prices of popular coins struggled to break through their respective resistance levels. Meanwhile, one of the altcoins, Solana, maintained its uptrend and led the gains among the top 100 coins in the market. Therefore, this suggests that the SOL price may maintain a healthy uptrend for the rest of the day, which may help the rally to reach key resistance levels soon.
After a sustained period of growth and subsequent retracement, the SOL price is now poised for a clear uptrend. Market indicators suggest that the cryptocurrency underwent a necessary correction and is now setting the stage for a recovery to previous all-time highs. Moreover, Solana price is expected to maintain its sharp gains and set new highs in the coming days as investor sentiment remains high and technicals suggest a continuation of the bullish trend.
Solana’s daily chart looks extremely bullish as the price has been printing consecutive bullish candles. However, the bears are doing their best to cap the price below the critical resistance of $158. On the other hand, the technical picture shows that a major turnaround is fast approaching. Bollinger Bands show a bullish divergence
The trend indicator DMI is neutral.
ADX is moving southwards and the two indicators +Di and Di are moving in parallel, anticipating a bullish crossover. Therefore, the price is expected to maintain an upward consolidation and reach the local resistance level of $160, which also collides with the upper rail of the Bollinger Band. This may also attract some bearish actions, but after a brief pullback, Solana price is expected to maintain an upward trend.
Once this move materializes and sustains, SOL price could be at the neckline of the double bottom pattern and a minor bullish push could propel the coin towards new highs.
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