The Babylon Chain benefits from Bitcoin (BTC USD) as one of the most secure infrastructures invented by humanity – the blockchain’s Proof-of-Work (PoW) mechanism – to enable staking of BTC. As a financial system, Bitcoin has one major flaw: no one wants to spend their BTC. The decentralized finance (DeFi) ecosystem wants to leverage the massive liquidity that lies dormant in the Bitcoin network to open up new opportunities for DeFi by leveraging Bitcoin to provide the economic security of all other Proof-of-Stake (PoS) blockchains improve.
With the aim of converting 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 2nd during the Cosmoverse event in Istanbul . At its core, Babylon’s Bitcoin staking protocol provides a way for PoS chains to stake Bitcoin in place of their native tokens, which can particularly help emerging PoS networks.
Bitcoin instead of native PoS tokens
Although it houses over $500 billion in digital assets that can be found on the balance sheets of the world’s most powerful companies such as Tesla (NASDAQ:TSLA), the Bitcoin blockchain is unusually inactive. In fact, data from Glassnode shows that two-thirds of all Bitcoin in circulation, or more than 12 million BTC, have been inactive for at least a year.
On the other hand, PoS chains have contributed to the growth of the DeFi space, but their dependence on native tokens for security reasons has always been a limiting factor, especially for new blockchains. Since the majority of the value locked in DeFi is on more established protocols, emerging chains often struggle with limited liquidity. The only solution they could come up with is to offer high staking rewards, which can negatively impact the utility, financial robustness and security of the token.
Babylon highlights the untapped potential of untapped Bitcoins and aims to position BTC as an alternative asset of the PoS economy. According to the Litepaper (a concise document that describes the key features and functionalities of a blockchain project), the concept of Bitcoin staking is based on BTC holders staking their idle coins for yield from DeFi blockchains and decentralized applications (dApps).
So essentially, Babylon’s Bitcoin Staking protocol goes a step further than just bridging and exchanging tokens to open up new use cases and add new value to an asset already viewed by many as digital gold.
Babylon Chain: Gateway to Bitcoin Staking
The MVP, unveiled at the Cosmoverse event, showed how Babylon overcomes the limitations of Bitcoin’s scripting language by combining it with advanced cryptographic techniques that do not require a soft or hard fork of the Bitcoin blockchain.
It allows BTC holders to lock their coins on the Bitcoin network in a self-custody manner, but allows locked BTC to serve as staking value for PoS chains with desirable properties such as yield generation, slashability, and unstaking on demand. The Babylon PoS chain is secured by Bitcoin testnet coins and is intended to serve as a control hub for other PoS chains to access the Bitcoin stake protocol.
One of the biggest obstacles to wider adoption of DeFi is poor user experience. Babylon appears to have done its homework, resulting in a user-friendly interface that includes a modern explorer as well as a web application that allows Bitcoin holders to test out BTC staking features.
DeFi protocols using the Cosmos SDK are already exploring Bitcoin staking features. Zaki Manian of Sommelier Protocol noted that up until this point Bitcoin had only had limited interaction with Web3 applications, adding: “Staking Babylon Bitcoin paves the way for the integration of the consensus layer into module and app chains .”
Now that the MVP is following a seed funding round led by previous backers from Coinbase (NASDAQ:COIN) and Circle, Babylon aims to expand Bitcoin staking adoption to the broader Cosmos ecosystem, where blockchains rely heavily on native staking.
“Our approach seamlessly and modularly integrates Bitcoin staking into almost all PoS protocols, allowing every Bitcoin holder to earn staking rewards from a variety of PoS chains,” explained David Tse, co-founder of Babylon. By becoming an asset of the DeFi economy, Bitcoin can provide additional utility and wider acceptance in addition to its role as a store of value.
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