Babylon: Is There a Future for Bitcoin Staking?

Babylon is a new protocol for Bitcoin staking, with its mainnet recently launched.

According to Babylon, 12,740 stakers are already using the protocol. The Total Value Locked (TVL) is 1,000.00492375 BTC, which is approximately $58.1 million at the current exchange rate. However, it is worth noting that this data is not yet available on DeFiLlama.

Data on Babylon. Source: Official Website of the Project

How Does Bitcoin Staking on Babylon Work?

The project calls itself the first self-custodial Bitcoin staking protocol. But what does that mean in reality?

One of the features of Babylon is that Bitcoin staking can be done by other chains that run on the Proof-of-Stake (PoS) protocol. For example, Solana (SOL) or Ethereum (ETH) can be used.

Examples of Babylon Working as Bitcoin Staking. Source: Project Website

Babylon uses its technical architecture to interact with PoS chains. It’s important to note that Bitcoin runs on Proof-of-Work (PoW), meaning the network cannot directly interact with Proof-of-Stake chains.

Babylon uses timestamping to write block hashes of PoS and voting stakers into the Bitcoin chain.

Timestamping helps synchronize communication between the PoS and Bitcoin networks.

3/ Tech Architecture

Babylon achieved a technical architecture that works as a control plane between Bitcoin and PoS chains.

It takes care of Bitcoin timestamping on PoS chains, acts as a marketplace to track staking and validation information, and also records finality… pic.twitter.com/IMNAHGw87j

— hitesh.eth (@hmalviya9) August 22, 2024

Part of the Crypto Community Is Skeptical

One aspect that has caused controversy about Babylon is the reward system. A user on X (formerly Twitter) with the nickname mononaut noticed that the project only offers staking so far.

Mononaut pointed out that the official website mentions points. According to the staking protocol, there are 3,125 points of Babylon in the first stage. These are planned to be distributed proportionally among the active stakers in the block.

It is also stated that stakers will not be rewarded directly. Instead, the actions of each of them will be calculated using public key data.

However, there is a note in the rewards clause. It states that these points have no value and cannot be converted or sold. Users have no right to dispose of this asset until Babylon changes the rules.

As far as I can tell, Babylon has no functionality yet, other than staking.

There are no staking rewards and no yield. pic.twitter.com/8A25ikY3bA

— mononaut (tx/acc) (@mononautical) August 22, 2024