TLDR: Babylon Chain will allow Bitcoin holders to stake their BTC without the need for third-party custody, bridging, or wrapping. Instead of rewards in BTC, Bitcoin stakers will receive their yield in the currency of the chain they secure. Babylon has successfully secured $18 million in funding and is currently in its testnet phase.
You are probably aware of the most common objection of traditional investors against Bitcoin, or gold, for that matter: this asset doesn’t collect yield. it just sits there doing nothing in your hardware wallet or safe…
While Bitcoiners will shrug their shoulders (‘Who needs 5% yield on an asset that goes up at least 50% a year?’) It is notable that the times they are a-changin: soon, adventurous Bitcoiners will be able to collect yield on their BTC – albeit paid out in coins from another protocol.
The protocol that will allow us to do this is Babylon Chain. It will allow you to stake your Bitcoin and earn yield. It lets BTC secure Proof-of-Stake (PoS) chains and decentralized apps (Dapps) through a Bitcoin Staking Protocol.
Before we dive into the machinery, let’s take a step back and look at what staking and re-staking is.
Staking and Re-staking on Ethereum
Keep in mind that staking is locking up and risking capital in return for yield. Instead of energy and hardware costs – as is the case with Bitcoin – in proof-of-stake protocols like Ethereum – it’s the joint staked capital that creates the game-theoretic equilibrium that keeps the network safe. Why? Validators (stakers) who behave badly get their stake slashed. Validators who behave well get a financial reward.
Now, since Ethereum moved to proof-of-stake in 2022, it has been smooth sailing. Ethereum has run flawlessly and the amount of staked ETH has been steadily climbing. Nothing to see there. Which is probably why a developer thought: why not make it a bit more exciting: let’s allow users to re-stake their ETH.
To explain, imagine you’re a billionaire and just bought an island. How to protect it from invaders? You could either fund and train an army or… become friends with a superpower like the United States. Ask if they could watch out for your coastline while they’re there anyway.
Now picture trying to build a new decentralized app. Instead of funding your own security budget… you could become friends with one of the superpowers, Bitcoin or Ethereum. These are the securest chains, so what if you could ‘borrow’ their security? For Ethereum, this mechanism is already almost fully operational and it’s called Eigenlayer.
A bit like the United States Navy can use the same vessel to protect both its shore and a friendly neighboring island nation, so Ethereum stakers can choose to stake their Ether a second time to a network they want to support. The same stake to secure the Ethereum network can be re-used to secure other networks. EigenLayer is the tech that intermediates.
You can stake in Ethereum and then also specify to the EigenLayer contracts that you allow your ETH to be staked a second time – and a third, and fourth, and… as many times as there are applications that invite you.
In just five months, EigenLayer has amassed over $13 billion in Total Value Locked (TVL). Given the attractiveness of this security model with ETH, why not apply the same approach to Bitcoin, an even…
Erik started as a freelance writer around the time Satoshi was brewing on the whitepaper.
As a crypto investor, he is class of 2020. More of a holder than a trader, but never shy to experiment with new protocols.
