jakiro
Author: helloyyy, Mirror
Written before:
This is a non-traditional research report about Babylon, and it is also a milk article and warning book about Bitcoin re-staking.This article was written on the 12th day after Bitcoin halving, the XX day when the Bitcoin re-pled track exploded, and the XX day when the Bitcoin re-pled bubble burst.
If you don’t keep it a secret, let’s talk about the conclusion first. The Bitcoin re-pled track represented by babylon will blow up a huge bubble in the Bitcoin ecosystem. This Restaking revolution originated from the Bitcoin ecosystem will have an influence no less than inscriptions.
I would like to use this article to commemorate the feelings of many leek friends who want to ride on Bitcoin and pledge the Dongfeng, just like me.
1. Causes of bubbles
1) The transformation of BTC from store of value to interest-generating assets
Since the birth of Bitcoin, BTC has been regarded as a digital gold store of value.BTC holders have difficulty obtaining excess returns such as Defi, and BTC has become an idle precipitated asset on the chain.
According to Defilama data, the current interest-producing Bitcoins are scattered in 87 chains, 412 protocols, and 574 liquidity pools.Without exception, all interest-generating Bitcoins have left the original Bitcoin chain, and there is a certain degree of trust in the packaged and bridged form of BTC (such as the most widely used WBTC currently requires trusting a single entity, side chain/L2BTC needs to trust multi-signature committees, etc.);
According to data provided by Messari researcher @NikhilChatu’s tweet, the current interest-bearing BTC scale exceeds US$10 billion, of which US$4 billion is making profits, with a yield of between 0.01% and 1.25%.All interest-generating BTCs implemented through custodial solutions have more or less trust assumptions.
2) Awakening of the Uncustodian Bitcoin Solution
Centralized custody risks have become an insurmountable mountain across the road to Bitcoin’s interest rate, and non-custodial Bitcoin staking solutions have become a shortcut to crossing the mountains.Uncustodial Bitcoin, also known as the self-custodial Bitcoin solution, in short, BTC implements the premise of “not leaving the original Bitcoin chain, not encapsulation, not cross-chain, not custodial, and not adding any trust assumptions”.Assets generate interest and value-added.
Currently, the only protocol that implements uncustodial Bitcoin on the main network is CoreDAO, and Babylon (another uncustodial Bitcoin staking solution) is in the test network stage and has not yet been launched on the main network.
At this point, BTC can realize asset interest generation in a trustless and safer way, whether it is through BTC staking mining or through re-staking to provide secure service interest generation for PoS sub-chains.
EigenLayer, a leading protocol focused on the Ethereum Restaking scenario, has a TVL on-chain currently up to US$15 billion, accounting for 5% of Ethereum’s circulating market value; Bitcoin has a market value of more than US$1 trillion, unlocking 1.5% of the liquiditySex can leverage $15 billion.The unmanaged Bitcoin Restaking track is currently in a blank space, like a baby in swaddling clothes. Babylon, which is positioned on this track, has shown its unique advantages.
But at the same time, a bubble crisis about Bitcoin re-pled is quietly nurturing.
The next chapter talks about why we embrace bubbles, as for why we think it is bubbles and why bubbles burst, we will talk about them in the last chapter of the whole text.
2. Why do you hug me even though you know you are soaked?
1) Narrative-driven
The main theme of this bull market cycle is the Bitcoin ecosystem, from the narrative of new Bitcoin assets (Ordinals BRC20, Atomicals ARC20, RGB++, Runes, etc.) to the popularity of various Bitcoin second-tier (Merlin, Bouncebit, etc.), for usersBringing new Bitcoin assets and Bitcoin smart contract scenarios and other fascinating narratives.Babylon and CoreDAO bring uncustodial Bitcoin saking/restaking narratives to the leeks, telling them clearly that our technology can stake/restaking without transferring control of BTC on your Bitcoin chain, making BitcoinBecome an interest-generating asset.This seed symbolizing love and freedom (enjoy the security and decentralization of the Bitcoin main network/trust-free) began to take root in the heart of the leek. The narrative of unmanaged Bitcoin is attractive enough, just wait for a round of bitsThe spring rain irrigation of the coin sector rotates.
CoreDAO has launched the main website of uncustodial Bitcoin staking. Here, we will briefly talk about the implementation principle of uncustodial Bitcoin staking.
Unmanaged BTC is also called self-custodial or native staking. BTC is not encapsulated, does not cross-chain, does not add any trust assumptions, and is only on the Bitcoin chain and only relies on the Bitcoin native scripting language to implement it.
The core of the implementation of unmanaged BTC staking technology is the application of CLTV time locks.
CLVT: OP_CHECKLOCKTIMEVERIFY (CLTV) Time Lock is a specific opcode in the Bitcoin scripting language that allows conditions to be created based on time or block height, until these conditions are met, and Bitcoin cannot be spent from transaction output.
The specific implementation process is as follows:
The user sends Bitcoin from one address to another time-locked address (the receiving address is derived from the user’s main wallet private key, and the user has control over the address assets).In addition, the transaction needs to include an op_return output, which contains the following 2 parts of information:
1) The address of the staker who wishes to delegate Bitcoin to the CoreDAO chain verifier;
2) The address where the staker wishes to receive the CORE token reward.
After the time lock expires, the user can spend UTXO using the corresponding redemption script.
At this point, the native staking of BTC has been completed.Users cannot spend Bitcoin until the staking period ends.BTC participates in the consensus of the CoreDAO chain through native staking, providing BTC with an opportunity to earn CORE token rewards in exchange for their contribution to the consensus of the CoreDAO chain.
The implementation mechanism of Babylon’s unmanaged BTC is similar to that of CoreDAO, and the cost and Slash conditions are set for BTC through time lock technology.Users implement “BTC staking” operations on the Bitcoin main network, which is actually entrusting BTC to Babylon’s verifier nodes through time lock technology to provide consensus for the Babylon chain to obtain consensus rewards.If the validator node does evil, because the slash condition of BTC UTXO was previously set, the unmanaged BTC will be sent to a destroyed address.
Babylon’s “upgrade” function based on CoreDAO is to propose the concept of Bitcoin re-staking.If unmanaged BTC staking can serve Babylon consensus, then this consensus service can also be extended to any PoS chain that integrates Babylon.In short, the act of delegating BTC to other PoS chains through babylon as the intermediate layer to provide consensus services and obtain consensus rewards is called Babylon’s Bitcoin re-stake.
Babylon acts as the middle layer of the Bitcoin network and other PoS chains that integrate Babylon, aggregates important transactions (such as staking, unstaking, double spend, censorship transactions, etc.) that occur on the PoS chain and publishes them to Bitcoin through a time stamp.network.Based on the timestamp service, the duration of destaking of PoS chain consensus assets will be significantly shortened (from weeks to hours).
According to the information provided by Messari, Babylon has currently cooperated with 45+ projects, including many popular Cosmos ecosystem chains such as Cosmos Hub, Injective, Sei, etc.; AI & DePin chain; Bitcoin L2 chain, etc.That is to say, through the Bitcoin re-staking service provided by Babylon, users can work several jobs at the same time (for multiple jobs) on the Bitcoin chain while leaving the original Bitcoin chain, non-custody, and trust-free.PoS chains provide consensus services) and receive multiple salary (consensus incentives from different PoS chains).
2) Demand-driven
The Bitcoin ecosystem has always been a continuous narrative of this bull market cycle. From the battle for new assets of Bitcoin ecosystem to the 100-chain war in Bitcoin L2, it is hard to say that it is driven by actual demand, and it is more about the hype of hot topics and concepts.Demand driven.
The uncustodial Bitcoin re-staking track represented by Babylon is closer to a narrative driven by actual demand.BTC has always been considered as the existence of the world’s crypto-world value reserve, but there has been no asset interest-generating scheme widely recognized by the market. The reason can be attributed to the fact that there is currently no sufficient decentralized, trust-free and secure solution to achieve BTC defi income..
When the more decentralized and secure Bitcoin self-custody solution provided by Babylon is verified by the market to be stable and feasible and can obtain stable Bitcoin re-staking returns, an optimistic assumption can be made, and we have reason to believe that big players are willing to put itBTC idle in cold wallets is used to “make money through work”, and the behavior of large investors can also drive small FOMO.
Mechanical drive
After talking about narrative-driven and demand-driven, let’s take a look at Babylon’s financing situation.
Babylon announced in December 2023 that it completed a $18 million financing round led by Polychain Capital and Hack VC, with Framework Ventures, ABCDE Capital, IOSG Ventures, Polygon Ventures and OKX Ventures; in February 2024, Binance ExperimentThe office announced the completion of a round of financing for Babylon, with the specific amount unknown.
From the financing of Binance Lab’s Bitcoin re-stake track, it can be seen that Babylon is a very important part of Binance’s entry into the Bitcoin ecosystem.Binance Lab has successively announced financing for projects such as Babylon, StakeStone, Bouncebit, etc., and Binance has undoubtedly seen the huge potential of the Bitcoin ecosystem, a specific track.
3. Without exception, the bubble will eventually burst
The Bitcoin re-pled track represented by Babylon is leading the direction of the Bitcoin ecological narrative in the future. Driven by multiple factors, the bubble will be blown bigger and bigger, and the liquidity of the huge amount of Bitcoin-salted assets will be unlocked.Unlock.But the bubble will eventually shatter when market sentiment is at its highest, and large investors will make a fortune, and the dream of leeks awaken.
1) Risk superposition under the metropolis mechanism
As mentioned earlier, Bitcoin re-staking through Babylon can provide consensus services for multiple PoS chains and obtain multiple consensus rewards.But the risk and return are proportional. For every additional return, the risk of slash will be increased.Under the multi-nested slash mechanism, the risk will be infinitely amplified.
2) From demand-driven to demand sluggish, negative economic flywheels are generated
The demand for Bitcoin re-staking comes from BTC holders being able to obtain considerable restaking returns in a safer way. In the downward cycle, the decline in the consumer chain consensus incentive token price has led to a sharp decline in resting returns, and aTrade-off points.
If the potential slash risk is greater than the potential restaking income, there will be an unstakeing wave of BTC, a crisis of trust spreads, big investors flee, and retail investors flee.Demand tends to sluggish, and negative economic flywheels are generated.
postscript
Finally, from an emotional perspective, suppose that Babylon’s life cycle also follows Buffett’s famous saying: “I am greedy when others are afraid, and I am afraid when others are greedy.” At least now, it is far from the time when others are greedy.
Bitcoin re-pled will create an unprecedented Bitcoin ecological bubble, but before the bubble bursts, please welcome and embrace the bubble.
