Will Babylon usher in the arrival of BTCFi Summer?

Author: Haotian

What do you think of the subsequent market impact after the launch of @babylonlabs_io mainnet? There is no doubt that it will set off a wave of staking craze in the Bitcoin ecosystem, just like Eigenlayer in Ethereum, giving birth to the arrival of BTCFi Summer.

So, how does Babylon work? What is the difference with Eigenlayer? What are the potential highlights of the Babylon ecosystem? Where is Babylon's weakness, etc.? Next, let me talk about my understanding:

- Thorough understanding of Babylon

In short: Babylon has realized a secure, cross-chain-free, and custody-free Native Staking solution for a number of POS chains such as BTC layer2 by building complex UTXO script contracts on the Bitcoin mainnet. How to do it specifically?

The traditional solution is to make a POW chain achieve the effect of POS chain where the pledged assets can generate yield, which depends on the third party to provide asset custody, and then the wrapped 1:1 assets are circulated on the new POS chain. (For example: WBTC). The trust crisis caused by WBTC a while ago exposed the biggest shortcoming of this solution.

Babylon has built a system that uses the Bitcoin chain for remote staking. It uses a scripting language to design Covenant based on complex cryptographic algorithms to lock BTC on the Bitcoin mainnet, and then remotely manages and dispatches assets through the Babylon Chain built with the Cosmos SDK to implement subsequent functions:

1) The staking, unbinding, and withdrawal defined in the script contract must be verified, punished, and operated by the Control Plane console by the Validators on the Babylon Chain in strict accordance with the rules defined in the script (such as: EOTS signature scheme, final round multi-signature consensus, etc.), that is, the validator nodes of the Babylon Chain can safely and decentralizedly manage the assets remotely locked on the Bitcoin mainnet;

2) Babylon abstracts the verification and coordination capabilities of Validators into a capability that can deliver secure consensus to other POS chains, and provides native security features to other modularly compatible POS chains in the form of "security as a service".

In this way, other POS chains will generate corresponding Yield income to generate income for the BTC assets pledged by Babylon. In theory, the greater the demand for this security service of the POS chain, the greater the imagination space for Babylon's pledge interest.

- Babylon VS Eigenlayer

1) The Babylon protocol is a connector that connects the BTC mainnet and other POS chains. Its goal is to match the criticism that the native assets of the BTC POW chain lack Yield and other POS chains lack decentralized BTC custody services, so that BTC assets can be connected to other POS chains in a native way and generate expected income. Therefore, Babylon mainly serves the assets of the BTC universe invincible consensus, providing a technical framework and possibility for them to generate income.

Eigenlayer packages the verification service capabilities of Ethereum Validators into commodities. On the one hand, Ethereum layer2 or other modular POS chains can access Ethereum's super Validators verification capabilities. On the other hand, the Yield generated by these POS chains can amplify and enhance the original Ethereum nodes. Therefore, Eigenlayer's goal is to commercialize the entity verification service capabilities of Ethereum Validators to amplify the profitability of native Ethereum.

2) Babylon's "Security as a Service" and Eigenlayer's "AVS as a Service" are no different from business logic, but the subtle difference is that the requirements provided by Babylon are more rigid. If other POS chains are not connected to Babylon, they will be criticized for being "centralized" in terms of custody.

In contrast, Eigenlayer has magnified the leverage mechanism of Ethereum's original Staking income. Although it can stimulate the prosperity of the Restaking platform in the short term, there will be a game between the income from exporting security consensus and the LRT points war. If the real commercial income cannot match the speed of the LRT platform's superimposed leverage, the Staking income utility will be backfired.

-What are the follow-up highlights of the Babylon ecosystem?

The launch of Babylon will definitely stimulate and catalyze the BTC layer2 market, which has been depressed for a long time, and has two main impacts:

1) It can allow many projects that originally combined CeFi to conduct a technical "upgrade", eliminate the criticized centralization problem, and make the slogan of asset interest easier to gain market trust.

2) It can bring direct commercial vitality to many BTC second-layer POS chains. On the one hand, BTC interest will accelerate the TVL accumulation speed of some POS chains, allowing the TVL points war to continue. On the other hand, in addition to BTC interest, there will also be LSD, LRT platform + DeFI combination interest and other diverse gameplay.

The potential Babylon + platform points subsidy war will also bring continued heat to the BTCFi track, which will be comparable to the Restaking craze brought by Eigenlayer.

@SolvProtocol, relying on the positioning of decentralized Bitcoin reserve center, Solv seized the current situation of BTC assets being too decentralized and quickly accumulated nearly 20,000 BTC. After Babylon goes online, SolvBTC.BBN will get expected growth;

@Bedrock_DeFi, incubated in the BNBChain ecosystem and supported by OKX Ventrues, as one of the leading projects in the Babylon ecosystem, the recent UniBTC casting performance and Babylon points profit expectations are relatively strong;

@LorenzoProtocol, introduced the concept of liquidity staking, users can participate in staking and get rewards without locking funds, its Pendle-like principal and interest separation characteristics, the combination of liquidity principal token LPT + income accumulation token YAT is eye-catching;

In addition, there are @BSquaredNetwork, Many platforms such as @Lombard_Finance, @ChakraChain, and @BotanixLabs will show off their muscles in this wave of Babylon ecological craze. - Babylon's "weakness"? There is no doubt that the launch of Babylon has brought more positive effects to the BTC ecosystem, but it is not impossible to find "weaknesses". Objectively speaking, the security consensus provided by Babylon depends on its Cosmos SDK chain, and it is not directly controlled and scheduled by the script program on the BTC main chain. A series of subsequent complex derivative gameplays are naturally limited to the scope of "asset management". Therefore, relying on Babylon can generate many "Blast-like interest-bearing derivative projects", and it is difficult to grow Starkent, Arbitrum and other king-level layer2 comprehensive chain projects for the BTC ecosystem.

The logic is relatively simple. If a BTC layer2 chain relies on Babylon to provide a secure consensus, it is equivalent to castrating the sovereignty of the layer2 chain, which is not conducive to the subsequent complex ecological construction. I have analyzed it in a long article on the top of my homepage. There are many more technical frameworks that can make up for this problem:

1) zkVM general protocol framework, @ProjectZKM takes advantage of the trusted characteristics of zk in cross-chain interoperability, builds @GOATRollup with zk technology, and realizes ZK Bridgeless cross-chain, Entangled Rollup Network interactive communication layer, etc., which is equivalent to using ZK technology to build a set of Cosmos IBC cross-chain communication components to help the prosperity of the BTC ecosystem. This is a more general BTC underlying Native technology solution, which is suitable for most sovereign BTC layer2 chain applications;

2) UTXO Stack structural framework, this set of BTC layer2 solution extended by @NervosNetwork CKB team based on RGB++, allows BTC and its derivative assets to Leap to the CKB chain for circulation through isomorphic binding, which is equivalent to reconstructing a BTC execution VM environment to support the subsequent programmable complex features required;

In addition, there are MoveVM global state high-level language execution architecture provided by @RoochNetwork, and @atomicalsxyz AVM virtual machine framework, etc., which can become the successor force for the development of BTC layer2 market.

If Babylon can provoke the first wave of BTCFi interest-bearing tide, and more projects with solid technical foundation and good innovation will take over the second wave of enthusiasm, this is the prosperous scene of BTC layer2 that I expect.

In short, Babylon has no "weaknesses", but the BTC layer2 market cannot rely solely on Babylon. Please firmly believe that the BTC ecosystem will definitely have its own summer.