“Three chains in one”: The underestimated Babylon

Author: DaPangDun, Source: Author's Twitter @DaPangDunCrypto

1.What is Babylon?

There have been many introductions about Babylon, and many large institutions and media have analyzed it. Therefore, I will not introduce its process and principles in detail here. I will try to describe what Babylon is in the most concise language.

Babylon is a project that uses a "self-limiting" solution to achieve "trustless staking" of BTC. The "staking certificate" is used for the "security layer of the POS chain" to obtain "revenue".

Here are a few terms to explain:

1. Self-limitation: This means that Babylon limits itself in a "zero-trust" way, does not use multi-signature and other methods as the basic design, and continues to develop the "Bitcoin Timestamp" protocol, making it one of the foundations of the project.

2. De-trusted pledge: There are two concepts here. One is de-trust. Babylon is not a custody solution. It cannot control the user's assets. The user's assets are locked in an address controlled by the user through "time-lock" and "SchnorrSignature" (of course, the operation is limited), and there is no need to trust a third party; the other is pledge. To be precise, I prefer to use "locking" because the real situation is the locking of BTC in the main network, but "pledge" is considered from the perspective of use and is easier to understand.

3. Pledge certificate: This is easy to understand. The pledge event is processed into a certificate through technical means, so that it can be used in different places. The point of explanation is that it is not that BTC is transferred to the target chain for pledge, but the certificate is used as the confirmation of pledge.

4. Security layer of POS chain: As we know, the security of POS chain mainly depends on the pledged funds. The more funds, the safer it is in principle. Many chains will use the chain's own token as collateral, which actually contains unsafe factors. If the price of the currency falls, the security of the chain will decrease. The lower the security, the easier it is to cause unsafe events to occur, so that the token continues to fall, resulting in a "death spiral". The introduction of BTC, the best asset in crypto, as a guarantee of the security layer will greatly enhance the security of the POS chain.

5. Income: Yes, Babylon is a project to obtain income, and the income comes from the "reward" for providing security for the POS chain. It should be pointed out that Babylon is not a project for activating BTC Defi, and the pledged BTC cannot directly participate in Defi. However, the income or points generated can be used to participate in Defi through certain means, which is another matter, so don't confuse them.

Second,What is the significance of Babylon?

1. Activate BTC

This is one of the most important significances of Babylon in my opinion. I said in the previous article that the problem that the current BTC ecosystem urgently needs to solve is "how to activate those BTC that are unwilling to move".

BTC currently has a market value of 1.3 trillion US dollars. Except for the coins in CEX, most of them are either in a "hibernation" state or in a "false hibernation" state, lying in the account. No matter how strong the wind blows, I will remain unmoved!

The reason for this phenomenon is rooted in the consistent concept of BTC holders, "not your key, not your coin". No matter how good the project is, as long as they lose control of their BTC, they would rather lie in their account and eat dust than participate. Because they know that many projects are designed to "steal" their BTC.

The pursuit of "extreme security" by holders is naturally different from that of ETH holders. At the same time, due to the limited scripting capabilities of the BTC main network, it is impossible to effectively use the form of smart contracts to carry out "secure cross-chain", so the utilization rate of BTC has been very low, and pledge projects based on multi-signatures (including optimized solutions) have also been widely criticized.

The emergence of Babylon can break this deadlock. Although Babylon is not perfect and it still cannot bring huge liquidity to BTC-Eco, it can slowly activate the idea of ​​these BTC holders to use BTC and gradually cultivate this habit. Anyway, BTC is kept in the account and does not move. If you can make money without losing control, why not do it? !

This seemingly small step may be a big step for the development of BTC ecology!

2. Build a security layer module for the Crypto world

There are many public chain systems in the Crypto world, but everyone needs a "security layer" as a guarantee of chain security. EVM system, COSMOS system, etc.... Most of them are based on the POS consensus mechanism, which requires sufficient high-quality funds as the foundation to ensure security.

From a modular perspective, Babylon can develop into a "universal module component": security layer module. It is widely used in various POS chains, and BTC is introduced as a security guarantee for these chains.

BTC holders get more profit opportunities, and each chain gets more security, which is mutually beneficial and win-win!

3.What is the prospect of Babylon?

1. Three chains in one, with a bright future

Why do I say this? It is based on the fact 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 will be more closely integrated with Babylon.

3) ETH chain: Babylon's concept is "same" as Eigenlayer, but based on the difference of the BTC network, Babylon has achieved self-custody, and has surpassed Eigenlayer in this area. 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, pay attention to the premise). Moreover, for the EVM chain, it is not impossible to introduce BTC, an asset whose "quality" exceeds ETH.

2. Valuation and basis

When it comes to prospects, we have to mention the valuation of the project; to calculate 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 first. Eigenlayer received US$100 million in funding from a16z in its B round on February 22, 2024. I will tentatively measure this project based on US$5-10 billion. I think Babylon's FDV will not be lower than Eigenlayer in the future;

Therefore, in my non-rigorous deduction, Babylon FDV will be at least 10 billion US dollars in the future.

Fourth,What are the opportunities for Babylon to participate?

Given the actual progress of Babylon, for ordinary people, I think there are three main ways to participate:

1. Participate in the secondary transaction of Bitcoin Staking Pioneer Pass

This is the reward of the Testnet-3 test network, a total of 98,651, which can only be purchased through the trading market:

Here is a question: How to measure the value and odds of this NFT?

My personal opinion is that the purpose of buying NFT is to bet on the probability of airdrops. Therefore, you can roughly estimate the probability p of airdrops, the estimated proportion r of airdrops, and the valuation FDV of the project, and then use the following formula to calculate it.

NFT-value=FDV*p*r/98651

2. Participate in Babylon Testnet - 4

Babylon Testnet-3 will be closed soon, and Testnet-4 will be opened soon, but I think Testnet-4 is likely to have no rewards, and the mainnet may be launched soon, so we need to pay further attention to relevant information.

3. Earn more BTC, and then wait for the project to participate after the mainnet

Accumulating more BTC must be the right way, and then just enjoy the interest earned by lying down!