The Launch of Babylon Chain: Enhancing the Bitcoin Ecosystem

Jul 23

Babylon Chain, commonly known as Babylon, is set to launch soon. According to the Babylon team, the launch is anticipated between the end of July and early August.

This article explores what Babylon is, its innovative mechanisms, the potential impact on the Bitcoin ecosystem, and the view of the BlockSpaceForce team.

What is Babylon?

Babylon is a protocol initiated by Stanford University Professor David Tse and blockchain security expert Fisher Yu. The protocol allows users to stake Bitcoin.

Their first major release was a paper on Bitcoin timestamping last year. Bitcoin timestamping is a mechanism that logs data from other chains onto the Bitcoin blockchain, essential for synchronizing events with Bitcoin's block time.

This innovation paved the way for Bitcoin staking.

Building on the timestamping mechanism, Babylon introduced Bitcoin staking. Users can time-lock their Bitcoin UTXOs (Unspent Transaction Outputs) so they cannot spend them for a pre-determined period of time measured in blocks. During this time, they can delegate these locked Bitcoin to secure another Proof-of-Stake chain, such as a chain on Cosmos. This delegation helps validate blocks on the other chain. If a double-spend attack occurs, a portion of the locked Bitcoin can be slashed and sent to a burn address or an address specified by the foundation.

This process enhances security for other networks while keeping the staked Bitcoin trustlessly in the user's custody. After the time lock expires, users can still access their Bitcoin even if other services are down, which provides greater assurance to users. It is fundamentally set up to be as trustless as possible while still enabling the provision of economic security to the other networks.

More Bitcoin HODLers

The Bitcoin ecosystem has evolved significantly, especially with the approval of Bitcoin ETFs. Users can now buy Bitcoin through services like Coinbase and Binance, which recently celebrated their seventh anniversary with over 200 million users. Coinbase has over 100 million users.

The combined efforts of exchanges and ETF products, available to any brokerage account holder, expand the network for Bitcoin holders. Even JD Vance, the Vice President candidate announced by Trump, has about $250k worth of Bitcoin, showing how easy it is for people to hold Bitcoin as a diversification asset.

With protocols like Babylon launching, users can demand more from their Bitcoin, extending its use to secure other networks and earn rewards.

Using the biggest crypto asset for security

The Bitcoin market cap is currently around $1.3 trillion, making it the largest crypto asset with immense potential to secure other chains. Most chains currently use their tokens for staking rewards, which can be highly volatile. By borrowing Bitcoin's security, proof-of-stake networks can create a more stable economic model, preventing the downward pressure seen in volatile markets and providing a robust security solution. Their current inflation and emissions are often the only usage of the tokens and if they were to adopt the Bitcoin staking for security, it would help focus the ecosystem on other more meaningful utilities.

Strong backing for Babylon

Investors have shown strong interest in Babylon since the early days. The seed round was backed by IDG Capital and Breyer Capital, who have invested in many crypto companies like EigenLayer, Circle, and Coinbase.

The Series A was led by Polychain and Hack, major investors in the Babylon ecosystem. The series B, led by Paradigm, shows strong institutional backing for the Babylon ecosystem and the Bitcoin ecosystem in general.

Expected launch dynamics

Babylon's launch will occur in several phases, starting with the staking-only mainnet. Users can stake Bitcoin for a set period, with initial caps gradually increasing over time. Since we do expect that there is more demand to stake BTC than the caps offered, stakers will have to pay more to miners in BTC transaction fees to have their staking transaction prioritized.

Higher fees and hedging it for users to stake in Babylon

This launch is expected to impact the Bitcoin block space, potentially driving up transaction fees. The current Bitcoin fee rate is about 3.6 sat/vB, with a 30-day moving average of 5.56 sat/vB. When Babylon launches, these fees could rise significantly.

The protocol Alkimiya is launching on mainnet at Bitcoin Nashville 2024 and it will allow users to hedge their fees ahead of time, making it possible to spend more on transaction fees while offsetting costs through hedging mechanisms.

Future Developments of Babylon

Future developments for Babylon include partial unbonding and slashing capabilities. The team will also launch their Babylon on Cosmos, showcasing the economic model for Bitcoin stakers. This will involve rewarding users with tokens and setting an example for other chains to adopt the model.

Extending securing PoS chains to secure AVS

Projects like SatLayer aim to extend Babylon's capabilities to Actively Validated Services (AVS), developing decentralized indexers, cross-chain bridges, and more. When Babylon launches its Cosmos contract platform, Satlayer will also be launching its AVS platform with the first few AVS partners to utilize Bitcoin security.

Retail and institutional self-custody solutions

Self-custodial and semi-custodial solutions are plentiful. For self-custody, users can use OneKey or Keystone hardware wallets to manage their Babylon staking.

On the semi-custodial / institutional offering front, Cobo, founded by Shenyu and Chang Hao, offers staking with Babylon. Cobo’s founders have a strong reputation, with Shenyu being the co-founder of F2pool, one of the largest mining pools in the world.

Liquid Staking & Restaking

Lombard, for instance, will launch a program allowing users to deposit Bitcoin or derivatives and receive a receipt token called LBTC (ERC-20 token). This LBTC represents the stake, and Lombard will stake the Bitcoin into the Babylon protocol, passing rewards to lbtc holders. There will be an unbonding time between locking Bitcoin on Babylon and unlocking it. The market will expect the yield to outweigh the liquidity cost, so LBTC may trade higher than BTC in dollar terms. In times when liquidity is valued over future yield, BTC may trade higher than lbtc. This creates interesting price dynamics similar to Lido with stETH.

On the liquid staking side, other projects like PStake, PumpBTC, and FBTC are launching. SatLayer is also launching a deposit program where users can deposit lbtc onto SatLayer to receive set BTC, signaling their intention to restake into the AVS platform.

The Evolving Bitcoin Ecosystem

Last year, we saw the rise of Bitcoin ordinals, runes, and BRC-20s, with significant market caps. For example, ORDI (BRC-20) has a market cap of $842M, SATS (BRC-20) $603M, and Dog (Runes) $453M. The ordinal space is producing good art, and leading artists are embracing the ordinal standard.

With protocols like Babylon launching soon, users can do even more with their Bitcoin, extending it to other areas. More innovations and partnerships with mechanisms like Babylon are expected. This optionality is great for the market.

The Bitcoin space and ecosystem have changed significantly over the last couple of years.

The UniSat team collaborated with BlockSpaceForce to build Fractal Bitcoin, a Bitcoin scaling solution for infinite scaling and lower transaction fees. Fractal is currently in the testnet stage and will launch on the mainnet targeting September. This solution allows for higher throughput and lower fees, enabling more innovations.

Many other projects like Merlin Chain, Mezo, BOB, and Bouncebit are also looking to scale Bitcoin in their own way, further enhancing the ecosystem.

BlockSpaceForce is Building the Bitcoin Ecosystem

At BlockSpaceForce, we are a team looking to make Bitcoin blockspace more interesting. With our contribution to projects like Fractal, Alkimiya, and SatLayer, together with our investments in Babylon, we hope to make the space more builder-friendly.

We're here to innovate together and keep building.