The Babylon Chain is capitalizing on Bitcoin (BTC-USD) as one of the most secure infrastructures humanity came up with — the blockchain’s proof-of-work (PoW) mechanism — to enable BTC staking. As a financial system, Bitcoin has one major flaw: no one wants to spend their BTC. The decentralized finance (DeFi) ecosystem wants to tap into the massive liquidity laying dormant on the Bitcoin network to open up new opportunities for DeFi by utilizing Bitcoin to improve the economic security of all other proof-of-stake (PoS) blockchains.
Aiming to convert the 21 million Bitcoins into a decentralized staking asset for the PoS economy, blockchain experts at Babylon introduced their Bitcoin Staking Protocol MVP (minimum viable product) on October 2 during the Cosmoverse event held in Istanbul. At its core, Babylon’s Bitcoin Staking Protocol provides a way for PoS chains to stake Bitcoin instead of their native tokens, which can especially help emerging PoS networks.
Bitcoin Instead of Native PoS Tokens
Despite hosting a $500 billion+ digital asset that can be found in the balance sheet of the world’s most powerful companies like Tesla (NASDAQ:TSLA), the Bitcoin blockchain is unusually inactive. In fact, data from Glassnode shows that two-thirds of all the Bitcoin in circulation, or more than 12 million BTC, laid dormant for at least a year.
On the other side, PoS chains have helped the growth of the DeFi space, but their reliance on native tokens for security has always been a limiting factor, especially for new blockchains. As the majority of value locked in DeFi gravitates to more established protocols, emerging chains often struggle with limited liquidity. The only solution they could come up with is offering high staking rewards, which can take a toll on their token utility, financial robustness, and security.
Babylon highlights the untapped potential of idle Bitcoins and wants to position BTC as an alternative capital of the PoS economy. According to the litepaper (a concise document that outlines the main features and functionalities of a blockchain project), the concept of Bitcoin staking relies on BTC holders staking their idle coins in exchange for yield from DeFi blockchains and decentralized applications (dApps).
So basically, Babylon’s Bitcoin Staking Protocol wants to go a step further than bridging and swapping tokens to open up new use cases, adding fresh value to an asset already seen as digital gold by many.
Babylon Chain: Gateway to Bitcoin Staking
The MVP that was unveiled at the Cosmoverse event showed how Babylon overcomes the limitations of Bitcoin’s scripting language by amalgamating it with advanced cryptographic techniques that do not require any soft or hard fork of the Bitcoin blockchain.
It allows BTC holders to lock their coins on the Bitcoin network in a self-custodian way yet enables locked BTC to serve as a staking asset for PoS chains with desirable properties such as yield generation, slashability, and on-demand unstaking. Secured by Bitcoin testnet coins, the Babylon PoS chain is planned as the control hub for other PoS chains to access the Bitcoin Staking Protocol.
One of the biggest obstacles to broader DeFi adoption is the poor user experience. Babylon seems to have done its homework, resulting in a user-friendly interface that incorporates a modern explorer along with a web application where Bitcoin holders can test BTC staking features.
DeFi protocols using Cosmos SDK are already exploring the Bitcoin staking features. Sommelier Protocol’s Zaki Manian noted that up to this point, Bitcoin had limited interaction with Web3 applications, adding, “Babylon Bitcoin staking lays the path for consensus layer integration with modular and app chains.”
Now that the MVP is complete following a seed funding round led by early backers of Coinbase (NASDAQ:COIN) and Circle, Babylon aims to expand the adoption of Bitcoin staking to the wider Cosmos ecosystem, where blockchains are heavily reliant on native staking.
“Our approach seamlessly integrates Bitcoin staking with almost any PoS protocols in a modular fashion, allowing any Bitcoin holder to earn staking rewards from a wide variety of PoS chains,” explained Babylon co-founder David Tse. By becoming the capital for the DeFi economy, Bitcoin can add another utility on top of being a store of value and enjoy broader adoption.