Research
Babylon Overview: Strengthening PoS with Bitcoin Staking
Discover Babylon’s innovative staking model, designed to connect Bitcoin holders with Proof-of-Stake networks for enhanced security and rewards
Author
Imperator
Date
Aug 20, 2024
of-Stake (PoS) blockchains. By allowing BTC holders to stake their assets and earn rewards, Babylon connects Bitcoin to PoS networks while boosting security. In this article, we’ll explore Babylon’s architecture, Babylon staking model, and the unique benefits it brings to the blockchain ecosystem.
Why does Web3 need Babylon?
Back in 2022, Fisher Yu and David Tse envisioned a plan to leverage the PoW (Proof-of-Work) security of Bitcoin. They also wanted to put to use the Bitcoin that was sitting idle in private wallets. The fruit of this plan was Babylon, a chain that allowed for slashable economic security guarantees to the PoS chains. At the same time, it ensures efficient stake unbonding to increase liquidity for holders.
PoS (Proof-of-Stake) has been the technology of choice because of its cost-effectiveness, efficiency, and lower energy consumption. The PoW algorithm on the other hand that Bitcoin uses presents a gap in the market, and Babylon is now here to fill it up. No longer will the trillion-dollar asset remain idle in people’s wallets.
Natively Bitcoin does not have smart contract capabilities so it hasn’t had the surge in use like Ethereum and Binance Chain have. Even when it has to be bridged to other protocols, there are latent trust issues with the counterparties holding your original tokens.
Babylon has cleverly identified this market gap and is aiming to use BTC to secure PoS chains without going through the hassle of bridging. This staking will work similarly to the ones on other PoS chains where the staker will earn rewards from the staking.
Unlocking the Power of Bitcoin with Babylon Staking
Other than the fact that it allows you to earn yields from your previously idle Bitcoins, Babylon has other pros working in its favor.
Slashable Security for Protection
If you commit a safety violation on the PoS chain when you are staking your tokens, ⅓ of the stake is guaranteed to be slashed. Meaning that ⅓ of the stake is sent to a burn address, never to be recovered.
Guaranteed Withdrawal Rights
Every person who stakes with Babylon is guaranteed to be able to withdraw their funds, even if all the other stakers have been dishonest. This method of trustless staking prevents the protocol from censoring withdrawals at any time.
Swift Unbonding Process
When you put in a request to unbond your Bitcoins, your coins will be back in your wallet in a matter of days rather than the several weeks it takes on a chain like Ethereum. Other protocols do unbonding by using social consensus to not fall prey to long-range attacks. With Babylon, your stake distribution is maintained on-chain and is not affected by these attacks.
How do you stake your Bitcoin with Babylon?
Let's say you have 1 BTC and you want to stake it on a PoS chain via Babylon. Here are the steps you should follow to get it done successfully.
Step 1: Enter into a staking contract
This is done by sending a staking transaction to the Bitcoin chain. It signals your intent to lock up your asset in a self-custodian vault. Once the transaction goes through, your vault can only be unlocked using your private key. This will happen due to either of these two reasons:
You issue an unbonding transaction signalling your intent to unstake your locked Bitcoin. Provided you have not caused any infractions in the time your asset was staked, you should have your 1 BTC along with your staking reward back in a matter of days.
You or the contract you entered into initiates a slashing transaction. This will send your Bitcoin to a burn address, never to be found again.
Step 2: Validate the PoS chain
Once the Bitcoin is staked, you can then begin to validate transactions for the PoS chain you staked on. This is done by using your private key. From here, you have two paths as well:
If you do everything honestly and want to unstake, you can send the unbonding transactions to the Bitcoin chain. Once approved, your validation duties come to an end and you will get your 1 BTC along with your staking reward in a matter of days.
If you have been malicious while carrying out your duties as a validator, the protocol makes sure that your private key is made public. With this information, anyone can send Alice’s staked tokens to the burn address. This path is supposed to act as a deterrent as well as a punishment for malicious actors.
How does Babylon do what it does?
When you stake with Babylon, you don’t have to be worried about third-party custody, bridges, or wrapping. This is because it works as a modular plug-in that can be added to different PoS consensus protocols.
At the core of this plug-in is the ‘control plane’ which manages the following functions.
Securing PoS with Timestamping
This service embeds data at a specific point in time on the Bitcoin chain. Here, the PoS chain data is written onto the more robust PoW chain to use its security. Direct timestamping on the Bitcoin chain is not possible due to the limited and expensive block space.
So, to provide this service, the ‘control plane’ or Babylon Chain aggregates all these timestamps from the supported PoS chains. This keeps an immutable record of all the PoS data on the Bitcoin blockchain.
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Handling Your Bitcoin Stake Securely
If you want to become a staker, you can send a transaction to the Bitcoin chain which then locks your BTC in a self-custodial vault. This vault then only takes in three commands or transactions:
Unbonding: Allows the user to retrieve their staked token after a predefined period once the unbonding process is initiated.
Slashing: This transaction sends the staked tokens to a burn address if any of the PoS protocol rules are broken.
Withdrawal: Allows withdrawal after the predefined staking period is completed. This only occurs if no rule violations have happened.
You can also delegate these staking duties to what is referred to as a finality provider on the Babylon chain, who will use your private keys to validate transactions on the PoS chain. This act just ensures that you can retain control over your tokens and still participate in PoS transaction validation.
Validator Integrity with EOTS
The chain makes sure that the validators and finality providers are responsible for their actions using an Extractable One-Time Signatures (EOTS) mechanism. This mechanism allows the Babylon network to detect and prove double-signing which is a rule break in the PoS validation arena.
Once the rule break has been caught, is to expose the validator’s private key, and create a slashing transaction that burns the staked tokens as a penalty. According to the protocol’s algorithm, a block is only considered to be final once the EOTS has been received from ⅔ of the staked BTC.
Babylon and Finality Providers: What do they do?
To ease the process of staking, some entities help you remove the hassle from the process, and enjoy the rewards. In this case, they are called finality providers, and there are currently over 200 of these. Their main job is to approve the on-chain transactions and maintain the network’s and protocol’s operations. This is also what validators do in the PoS ecosystem.
Imperator stands out as one of the key finality providers, alongside other notable names such as Allnodes, Figment, and Galaxy Digital.
What is Babylon currently up to?
At the end of May 2024, Babylon raised a $70 million funding round, led by Paradigm. This round follows an $18 million funding round in December 2023.
August 2024 is big for the protocol as Phase 1 of its mainnet is launching this month. The team plans to launch the project in a total of 3 phases, which they have described in the following way.
Phase 1: Bitcoin Locking
The first phase of the project allows all the Bitcoin holders to start the staking process by initiating a staking transaction on the Bitcoin blockchain. Once the transaction is accepted, your Bitcoins are then stored in a secure, self-custodial Bitcoin staking script.
The stakers, in this case, will also specify the public key of the finality provider they plan to delegate their PoS voting power.
Just to reiterate, the staked Bitcoins are not transferred to the finality provider. Just the voting power for PoS transactions is delegated.
Phase 2: Bitcoin Staking Activation
In this phase, Babylon will launch its own PoS chain to take advantage of the crypto-economic security it has been passing on to other chains since the start of Phase 1.
The finality providers that have enough delegations from Phase 1 will be able to take part in the new chain’s consensus and determine what blocks are final.
With the new Babylon chain will also come the Bitcoin timestamping protocol.
Phase 3: Bitcoin Multi-Staking Activation
This phase will have the protocol evolve into a marketplace where any PoS systems can utilize the Bitcoin staking security offered by Babylon.
It will also allow stakers to use the same Bitcoins across multiple PoS systems at the same time, diversifying their staking rewards as well.
The Babylon chain will then be the ‘control plane’ that makes the Bitcoin staking happen for all PoS systems.
Final Reflections on Babylon Labs
Babylon brings a fresh approach to Bitcoin staking, using Bitcoin's Proof-of-Work security to enhance the security of Proof-of-Stake networks. By enabling BTC holders to put their assets to work and earn rewards, it unlocks new potential for Bitcoin that would otherwise sit idle. Babylon’s model creates real value for both Bitcoin users and PoS chains, offering a practical and impactful solution in the evolving blockchain space.
Stake Babylon with Imperator.co!
Maximize your BTC staking rewards : earn more, start now.
Stake Babylon with Imperator.co!
Maximize your BTC staking rewards : earn more, start now.
