In our “Comprehensive Overview of the Bitcoin Ecosystem” series, we previously explored inscriptions (Part 1) and Layer 2 scaling solutions (Part 2).
In this piece, we will focus on restaking, an emerging concept in crypto which has garnered significant attention over the past few months. Restaking involves utilizing staked assets to earn additional rewards. This allows idle assets such as staked BTC to earn additional yield.
Motivation Behind Bitcoin Staking
As the blockchain ecosystem evolves, we have seen a proliferation of new, sovereign layer 1 blockchains. These layer 1s are carving their own path: one with maximum autonomy, customization, and influence in the crypto space. The diverse needs of today’s projects challenge the notion that Ethereum will become a one-size-fits-all blockchain. Some chains simply cannot be built atop Ethereum due to technological constraints or regulatory considerations. For instance, Monad, a high-performance parallel EVM blockchain that recently secured $225 million in funding, cites decentralization, performance, and focus as its reasoning for building a layer 1 rather than a rollup. Amplifying this shift, advancements in cross-chain interoperability are breaking down barriers to accessing liquidity across different networks, effectively making large L1s less sticky for developers and users. This movement towards sovereign blockchains has gained momentum over the past year and is poised to explode in the next market cycle, with new layer 1 chains proliferating across the crypto landscape.
The rush towards L1 blockchains mirrors a modern-day gold rush. And as the old adage goes, in a gold rush, fortune favors those who sell the shovels. One of the most critical challenges for emerging L1s, particularly Proof-of-Stake (PoS) chains, is bootstrapping and maintaining security. PoS networks rely on economic security through staking to incentivize honest validators, but new chains often lack the necessary economic backing, leaving them vulnerable to attacks. This security bootstrapping challenge presents a chicken-and-egg dilemma, with many chains struggling to gain the momentum needed for sustainable, secure growth.
Babylon addresses this issue by creating a two-sided marketplace, effectively linking idle monetary value (in the form of Bitcoin) to PoS chains in search of security. This new approach aims to provide the "shovels" – in this case, the essential security infrastructure – but could also unlock new opportunities for cross-chain collaboration.
Potential Impact
While a marketplace for blockchain security might seem like a minor advancement in the crypto space, its potential impact is profound and far-reaching. Babylon is poised to become for chain builders what Ethereum has been for dapp developers – a game-changing platform that democratizes access to critical resources.
Ethereum revolutionized the crypto landscape by allowing anyone to build censorship-resistant applications with minimal code that could tap into assets totaling over half a trillion dollars. Babylon represents the next evolution, offering a similar value proposition to blockchain developers. With Babylon, the barriers to entry for creating new L1 chains will be significantly lowered. Developers will have access to an open marketplace for competitive security guarantees – a resource previously available only to top-tier projects. To put this in perspective, if the amount of Bitcoin staked on Babylon reaches just 1% of the total supply, it could potentially offer security comparable to that of the 7th largest PoS cryptocurrency today. The security is even more robust due to Bitcoin's relatively stable price compared to smaller cryptocurrencies.
A security marketplace introduces a crucial layer of abstraction. Chain developers can now focus on building innovative ideas rather than grappling with security concerns. By removing security bootstrapping as a major bottleneck for launching viable chains, Babylon significantly enhances the productivity of blockchain developers. This abstraction allows the crypto ecosystem to iterate faster and more efficiently. To draw a parallel, imagine an internet where website builders had to worry about TCP and TLS protocols. The abstractions provided by Babylon, particularly in security, could catalyze a boom of new projects, much like how standardized internet protocols paved the way for the web as we know it today.
Babylon's Architecture
Let's discuss how Babylon's architecture unlocks these new potential use cases. This next section is a bit more technical and describes the two main parts of Babylon: a staking service and a timestamping service. These work together to make new and existing PoS blockchains more secure by using the strength of the Bitcoin network. The staking service lets Bitcoin owners help secure other blockchains without giving up control of their Bitcoin, while the timestamping service helps prevent certain attacks on these blockchains by regularly recording important information on the Bitcoin blockchain.
Staking Service
“Not your keys, not your coins” is the tried and true saying of crypto, especially for bitcoin holders. A major draw of Babylon's staking service is that Bitcoin never leaves self-custody. The challenge lies in Bitcoin's basic programming language, which limits what can be done directly on its network. Babylon works around this limitation using something called "extractable one-time signatures" (EOTS). EOTS incentivize validators to behave honestly while allowing users to keep their coins on the Bitcoin network. These signatures function like hidden passwords which allow anyone to spend the bitcoin; however, they are only revealed if a validator commits a malicious action, such as signing two conflicting blocks.
EOTS also allow more complex tasks (like penalizing bad behavior) to be offloaded to the Babylon staking service. Then, once Bitcoin is staked, validators can help finalize transactions on the Babylon network. Now there's more economic stake validating the network (blocks are finalized once ⅔ of Babylon's validators confirm the transaction) meaning the PoS chain has more economic security.
Think of Babylon's staking service as Amazon's product listing and visibility features. Just as Amazon allows new sellers to list their products and gain visibility to millions of potential customers, Babylon enables new PoS chains to "list" themselves and gain attention from Bitcoin holders.
- New PoS chains can showcase their projects on Babylon, much like new products listed on Amazon's marketplace.
- Bitcoin holders, akin to Amazon's vast user base, can browse these new blockchain projects and choose to support them by staking their Bitcoin.
Timestamping Service
Babylon's timestamping service tackles a key weakness in PoS chains called long-range attacks. It does this by regularly recording important data from PoS chains onto the Bitcoin blockchain, such as snapshots of each chain's current state. Once recorded on Bitcoin, these snapshots become unchangeable, creating a reliable historical record that can't be manipulated. This makes it extremely difficult for attackers to rewrite a chain's history, significantly boosting the security of PoS networks. To keep things efficient and cost-effective, Babylon bundles data from multiple PoS chains into a single Bitcoin transaction. This approach allows Babylon to support many chains without overwhelming the Bitcoin network. As an added bonus, users can timestamp any data they want onto the Bitcoin blockchain through Babylon, taking advantage of Bitcoin's strong resistance to censorship. This feature ensures that important information can't be easily suppressed by the PoS chain.
Going back to the Amazon analogy, Babylon's timestamping service is comparable to Amazon's established shipping and logistics infrastructure. Just as new sellers on Amazon can take advantage of its efficient delivery system without building their own, new PoS chains can leverage Babylon's timestamping service for security and verification.
- Babylon's timestamping service records crucial data on the Bitcoin blockchain, similar to how Amazon sellers use the platform's tracking and delivery confirmation systems.
- The service provides an immutable record of transactions and events, much like how Amazon's shipping updates create a reliable timeline for each order.
Ecosystem
Babylon's architecture functions as a two-sided marketplace, bridging Bitcoin holders willing to stake their assets with blockchain networks seeking enhanced security. This section will delve into both aspects of this innovative ecosystem: the stakers' perspective and the needs of the client chains.
Supply side of the marketplace - Liquid staking service
As we mentioned earlier, BTC holders can provide BTC to different projects on the marketplace. In return for offering their BTC to secure other projects, they receive compensation, normally paid in the form of the project's token they’re helping secure. But, because locking up BTC in the marketplace is very inefficient, liquid staking services (e.g. Lombard, Lorenzo, Solv, etc.) give users minted BTC equal to the value of their locked BTC. This minted BTC can be integrated and used in various DeFi protocols. The graph below illustrates the asset flow on the supply side.
Since Babylon's mainnet launch, the platform has demonstrated significant traction. Following a successful Cap 2 staking event, the total staked Bitcoin has reached 23,891 BTC, contributed by 25.3k unique stakers. For context, the graph below compares Babylon's performance to the top 5 liquid staking projects, illustrating the total amount staked across these projects.
Demand side of the marketplace - Chains using Babylon security, a.k.a Bitcoin Secured Networks
On the demand side, projects consist of specialized chains designed for specific purposes. These may include chains optimized for speed, particular types of virtual machines, or dedicated services like data availability and oracles. These projects receive dual benefits from Babylon: immediate security and the ability to bootstrap liquidity from the supply side. Increased liquidity enhances the value of a project's token, which in turn leads to higher rewards for liquidity providers. This creates a positive feedback loop, incentivizing further participation and growth.
The chart below adds “Bitcoin Secured Networks” as the demand side of the equation. The trade between two sides doesn't just involve paying for security, but also getting the TVL injection from the liquid BTC on the supply side. It's worth mentioning that the liquid BTC isn't limited to use on the demand side; for example, an ERC-20 token can be used in any ecosystem through a bridge. However, supplying to the demand side offers far more returns in the Babylon ecosystem. Whether you are on the demand side, supply side, or Babylon itself, an increase in token value means an overall win for all parties.
Corn, as an early adopter to join Bitcoin Secured networks, exemplifies how protocols can leverage Babylon. It prioritizes maximizing Bitcoin yield and facilitating smooth onboarding for Ethereum ecosystem dApps. Beyond its native CORN token, the protocol introduces an innovative approach by refunding gas fees to users in Bitcoin. Furthermore, Corn's reward mechanism draws inspiration from the veToken model, aiming to align the interests of token holders with those of the applications (see details for more information).
Opportunities
Opportunities clearly favor early movers on both the supply and demand sides of the ecosystem, with Total Value Locked (TVL) serving as the key metric.
On the supply side, projects are competing for Bitcoin (BTC) deposits to boost their TVL, following a strategy similar to that of the Eigenlayer ecosystem. Those who attract the most BTC deposits will gain an advantage in providing security to the demand side.
On the demand side, projects should explore ways to utilize liquid BTC from the supply side to enhance their own ecosystems, as billions in such assets will be available for deployment. Chains can be tailored for specific virtual machines (VMs) such as EVM, SVM, MoveVM, or Cosmos VM, unlocking BTC use cases for each community.
We've already seen exciting partnerships forming between supply and demand sides. For instance, Corn has partnered with several supply-side players, including LBTC (Lombard) and pumpBTC.
As a BTC holder, you may have noticed the opportunity to deposit into one project and earn multiple yields in various projects' points or tokens. This is due to the composability of such assets. The graph below illustrates a simple path of BTC flow through the Babylon ecosystem, showing how BTC deposits earn incentives from both Babylon and the chains that borrow security from it.
The ecosystem becomes significantly more dynamic when incorporating liquid staking, which enables deposited BTC to flow freely throughout the network. The graphs below illustrate additional types of applications that enhance this value chain. In theory, every application through which BTC passes has the potential to offer airdrops to BTC holders, creating a multi-layered reward system.
The collaborative nature of these projects evokes the image of a snake game, where the goal is to extend the body as much as possible while collecting all available coins. This analogy aptly describes how projects in the ecosystem are linking together to maximize value capture.
However, it's crucial to recognize that as this 'snake' grows longer and incorporates more 'coins' (or in this case, projects and value), it also introduces increased risk to the entire ecosystem. This risk isn't limited to chain-level security concerns but extends to the applications built on top of these interconnected systems.
Risks
There's no such thing as a free lunch, and with every nascent technology comes inevitable risk; especially if you start stacking new protocols on top of newer protocols. Eventually the snake gets too big and runs into its own tail. That's because new protocols inherently introduce new trust models, thus more ways for funds to be lost. In the case of Babylon and Lombard, each has its own consortium of validators responsible for processing certain transactions. If Lombard's consortium acts dishonestly, they could censor transactions and jeopardize the protocol.
On a more meta level, restaking conceals a risk to the ecosystem as a whole. Restaked assets can be spread across multiple chains, and while protocols like Babylon claim this offers individual PoS chains additional economic security, it paradoxically makes the entire ecosystem more vulnerable to attacks. If restaked assets are linked to an equivocation (such as a double spend as a very rare case), they will be slashed not just on one chain, but potentially across hundreds, amplifying the impact. What happens when a bug in one PoS chain triggers a slashing event across many unrelated chains? We expect to see some interesting risk mitigation designs emerge, such as preventing the same capital from being reused more than a certain number of times.
The graph illustrates the potential cascading effects of a slashing event, which can significantly compromise chain security. This scenario bears some resemblance to the Terra/Luna hard fork in 2022, when Luna's price became too weak to adequately secure the Terra Chain. However, it's important to note that this comparison is not exact, as Bitcoin's price is likely to remain far more stable, even under liquidation pressure.
Restaking protocols acknowledge this risk, but their mitigations often involve adding extra layers of centralization to prevent a spiral effect. While users can choose which validator to delegate to, this creates a central point of failure that adversaries can exploit, especially if the validator has little of their own economic value at stake. It's unrealistic to expect users to make truly informed decisions about delegation; most will likely opt for the validator offering the highest stake, potentially the riskiest option, without fully knowing the risks.
Conclusion
Bitcoin has been and continues to be a powerful catalyst for crypto adoption. Over the past year, we've witnessed the development of numerous Bitcoin-focused infrastructures, including sidechains and Layer 2 solutions. Among these, Babylon stands out as an innovative approach, leveraging Bitcoin's security to enable additional utility and attract developers to create Bitcoin-specific applications.
In the coming months, we anticipate growth on both the supply and demand sides. We expect to see multiple novel applications launched, catering to increasing demand. Furthermore, the Bitcoin-centric yield strategies employed by projects within the Babylon ecosystem are likely to unfold, adding another layer of interest and activity to the space.
Ultimately, our hope is to see reputable projects emerge that strike an optimal balance between maximizing yield and managing security risks. This is especially crucial for projects with large Total Value Locked (TVL) and significant influence over asset flow paths. Happy yield hunting and play safe! ✦
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In our “Comprehensive Overview of the Bitcoin Ecosystem” series, we previously explored inscriptions (Part 1) and Layer 2 scaling solutions (Part 2).
In this piece, we will focus on restaking, an emerging concept in crypto which has garnered significant attention over the past few months. Restaking involves utilizing staked assets to earn additional rewards. This allows idle assets such as staked BTC to earn additional yield.
Motivation Behind Bitcoin Staking
As the blockchain ecosystem evolves, we have seen a proliferation of new, sovereign layer 1 blockchains. These layer 1s are carving their own path: one with maximum autonomy, customization, and influence in the crypto space. The diverse needs of today’s projects challenge the notion that Ethereum will become a one-size-fits-all blockchain. Some chains simply cannot be built atop Ethereum due to technological constraints or regulatory considerations. For instance, Monad, a high-performance parallel EVM blockchain that recently secured $225 million in funding, cites decentralization, performance, and focus as its reasoning for building a layer 1 rather than a rollup. Amplifying this shift, advancements in cross-chain interoperability are breaking down barriers to accessing liquidity across different networks, effectively making large L1s less sticky for developers and users. This movement towards sovereign blockchains has gained momentum over the past year and is poised to explode in the next market cycle, with new layer 1 chains proliferating across the crypto landscape.
The rush towards L1 blockchains mirrors a modern-day gold rush. And as the old adage goes, in a gold rush, fortune favors those who sell the shovels. One of the most critical challenges for emerging L1s, particularly Proof-of-Stake (PoS) chains, is bootstrapping and maintaining security. PoS networks rely on economic security through staking to incentivize honest validators, but new chains often lack the necessary economic backing, leaving them vulnerable to attacks. This security bootstrapping challenge presents a chicken-and-egg dilemma, with many chains struggling to gain the momentum needed for sustainable, secure growth.
Babylon addresses this issue by creating a two-sided marketplace, effectively linking idle monetary value (in the form of Bitcoin) to PoS chains in search of security. This new approach aims to provide the "shovels" – in this case, the essential security infrastructure – but could also unlock new opportunities for cross-chain collaboration.
Potential Impact
While a marketplace for blockchain security might seem like a minor advancement in the crypto space, its potential impact is profound and far-reaching. Babylon is poised to become for chain builders what Ethereum has been for dapp developers – a game-changing platform that democratizes access to critical resources.
Ethereum revolutionized the crypto landscape by allowing anyone to build censorship-resistant applications with minimal code that could tap into assets totaling over half a trillion dollars. Babylon represents the next evolution, offering a similar value proposition to blockchain developers. With Babylon, the barriers to entry for creating new L1 chains will be significantly lowered. Developers will have access to an open marketplace for competitive security guarantees – a resource previously available only to top-tier projects. To put this in perspective, if the amount of Bitcoin staked on Babylon reaches just 1% of the total supply, it could potentially offer security comparable to that of the 7th largest PoS cryptocurrency today. The security is even more robust due to Bitcoin's relatively stable price compared to smaller cryptocurrencies.
A security marketplace introduces a crucial layer of abstraction. Chain developers can now focus on building innovative ideas rather than grappling with security concerns. By removing security bootstrapping as a major bottleneck for launching viable chains, Babylon significantly enhances the productivity of blockchain developers. This abstraction allows the crypto ecosystem to iterate faster and more efficiently. To draw a parallel, imagine an internet where website builders had to worry about TCP and TLS protocols. The abstractions provided by Babylon, particularly in security, could catalyze a boom of new projects, much like how standardized internet protocols paved the way for the web as we know it today.
Babylon's Architecture
Let's discuss how Babylon's architecture unlocks these new potential use cases. This next section is a bit more technical and describes the two main parts of Babylon: a staking service and a timestamping service. These work together to make new and existing PoS blockchains more secure by using the strength of the Bitcoin network. The staking service lets Bitcoin owners help secure other blockchains without giving up control of their Bitcoin, while the timestamping service helps prevent certain attacks on these blockchains by regularly recording important information on the Bitcoin blockchain.
Staking Service
“Not your keys, not your coins” is the tried and true saying of crypto, especially for bitcoin holders. A major draw of Babylon's staking service is that Bitcoin never leaves self-custody. The challenge lies in Bitcoin's basic programming language, which limits what can be done directly on its network. Babylon works around this limitation using something called "extractable one-time signatures" (EOTS). EOTS incentivize validators to behave honestly while allowing users to keep their coins on the Bitcoin network. These signatures function like hidden passwords which allow anyone to spend the bitcoin; however, they are only revealed if a validator commits a malicious action, such as signing two conflicting blocks.
EOTS also allow more complex tasks (like penalizing bad behavior) to be offloaded to the Babylon staking service. Then, once Bitcoin is staked, validators can help finalize transactions on the Babylon network. Now there's more economic stake validating the network (blocks are finalized once ⅔ of Babylon's validators confirm the transaction) meaning the PoS chain has more economic security.
Think of Babylon's staking service as Amazon's product listing and visibility features. Just as Amazon allows new sellers to list their products and gain visibility to millions of potential customers, Babylon enables new PoS chains to "list" themselves and gain attention from Bitcoin holders.
- New PoS chains can showcase their projects on Babylon, much like new products listed on Amazon's marketplace.
- Bitcoin holders, akin to Amazon's vast user base, can browse these new blockchain projects and choose to support them by staking their Bitcoin.
Timestamping Service
Babylon's timestamping service tackles a key weakness in PoS chains called long-range attacks. It does this by regularly recording important data from PoS chains onto the Bitcoin blockchain, such as snapshots of each chain's current state. Once recorded on Bitcoin, these snapshots become unchangeable, creating a reliable historical record that can't be manipulated. This makes it extremely difficult for attackers to rewrite a chain's history, significantly boosting the security of PoS networks. To keep things efficient and cost-effective, Babylon bundles data from multiple PoS chains into a single Bitcoin transaction. This approach allows Babylon to support many chains without overwhelming the Bitcoin network. As an added bonus, users can timestamp any data they want onto the Bitcoin blockchain through Babylon, taking advantage of Bitcoin's strong resistance to censorship. This feature ensures that important information can't be easily suppressed by the PoS chain.
Going back to the Amazon analogy, Babylon's timestamping service is comparable to Amazon's established shipping and logistics infrastructure. Just as new sellers on Amazon can take advantage of its efficient delivery system without building their own, new PoS chains can leverage Babylon's timestamping service for security and verification.
- Babylon's timestamping service records crucial data on the Bitcoin blockchain, similar to how Amazon sellers use the platform's tracking and delivery confirmation systems.
- The service provides an immutable record of transactions and events, much like how Amazon's shipping updates create a reliable timeline for each order.
Ecosystem
Babylon's architecture functions as a two-sided marketplace, bridging Bitcoin holders willing to stake their assets with blockchain networks seeking enhanced security. This section will delve into both aspects of this innovative ecosystem: the stakers' perspective and the needs of the client chains.
Supply side of the marketplace - Liquid staking service
As we mentioned earlier, BTC holders can provide BTC to different projects on the marketplace. In return for offering their BTC to secure other projects, they receive compensation, normally paid in the form of the project's token they’re helping secure. But, because locking up BTC in the marketplace is very inefficient, liquid staking services (e.g. Lombard, Lorenzo, Solv, etc.) give users minted BTC equal to the value of their locked BTC. This minted BTC can be integrated and used in various DeFi protocols. The graph below illustrates the asset flow on the supply side.
Since Babylon's mainnet launch, the platform has demonstrated significant traction. Following a successful Cap 2 staking event, the total staked Bitcoin has reached 23,891 BTC, contributed by 25.3k unique stakers. For context, the graph below compares Babylon's performance to the top 5 liquid staking projects, illustrating the total amount staked across these projects.
Demand side of the marketplace - Chains using Babylon security, a.k.a Bitcoin Secured Networks
On the demand side, projects consist of specialized chains designed for specific purposes. These may include chains optimized for speed, particular types of virtual machines, or dedicated services like data availability and oracles. These projects receive dual benefits from Babylon: immediate security and the ability to bootstrap liquidity from the supply side. Increased liquidity enhances the value of a project's token, which in turn leads to higher rewards for liquidity providers. This creates a positive feedback loop, incentivizing further participation and growth.
The chart below adds “Bitcoin Secured Networks” as the demand side of the equation. The trade between two sides doesn't just involve paying for security, but also getting the TVL injection from the liquid BTC on the supply side. It's worth mentioning that the liquid BTC isn't limited to use on the demand side; for example, an ERC-20 token can be used in any ecosystem through a bridge. However, supplying to the demand side offers far more returns in the Babylon ecosystem. Whether you are on the demand side, supply side, or Babylon itself, an increase in token value means an overall win for all parties.
Corn, as an early adopter to join Bitcoin Secured networks, exemplifies how protocols can leverage Babylon. It prioritizes maximizing Bitcoin yield and facilitating smooth onboarding for Ethereum ecosystem dApps. Beyond its native CORN token, the protocol introduces an innovative approach by refunding gas fees to users in Bitcoin. Furthermore, Corn's reward mechanism draws inspiration from the veToken model, aiming to align the interests of token holders with those of the applications (see details for more information).
Opportunities
Opportunities clearly favor early movers on both the supply and demand sides of the ecosystem, with Total Value Locked (TVL) serving as the key metric.
On the supply side, projects are competing for Bitcoin (BTC) deposits to boost their TVL, following a strategy similar to that of the Eigenlayer ecosystem. Those who attract the most BTC deposits will gain an advantage in providing security to the demand side.
On the demand side, projects should explore ways to utilize liquid BTC from the supply side to enhance their own ecosystems, as billions in such assets will be available for deployment. Chains can be tailored for specific virtual machines (VMs) such as EVM, SVM, MoveVM, or Cosmos VM, unlocking BTC use cases for each community.
We've already seen exciting partnerships forming between supply and demand sides. For instance, Corn has partnered with several supply-side players, including LBTC (Lombard) and pumpBTC.
As a BTC holder, you may have noticed the opportunity to deposit into one project and earn multiple yields in various projects' points or tokens. This is due to the composability of such assets. The graph below illustrates a simple path of BTC flow through the Babylon ecosystem, showing how BTC deposits earn incentives from both Babylon and the chains that borrow security from it.
The ecosystem becomes significantly more dynamic when incorporating liquid staking, which enables deposited BTC to flow freely throughout the network. The graphs below illustrate additional types of applications that enhance this value chain. In theory, every application through which BTC passes has the potential to offer airdrops to BTC holders, creating a multi-layered reward system.
The collaborative nature of these projects evokes the image of a snake game, where the goal is to extend the body as much as possible while collecting all available coins. This analogy aptly describes how projects in the ecosystem are linking together to maximize value capture.
However, it's crucial to recognize that as this 'snake' grows longer and incorporates more 'coins' (or in this case, projects and value), it also introduces increased risk to the entire ecosystem. This risk isn't limited to chain-level security concerns but extends to the applications built on top of these interconnected systems.
Risks
There's no such thing as a free lunch, and with every nascent technology comes inevitable risk; especially if you start stacking new protocols on top of newer protocols. Eventually the snake gets too big and runs into its own tail. That's because new protocols inherently introduce new trust models, thus more ways for funds to be lost. In the case of Babylon and Lombard, each has its own consortium of validators responsible for processing certain transactions. If Lombard's consortium acts dishonestly, they could censor transactions and jeopardize the protocol.
On a more meta level, restaking conceals a risk to the ecosystem as a whole. Restaked assets can be spread across multiple chains, and while protocols like Babylon claim this offers individual PoS chains additional economic security, it paradoxically makes the entire ecosystem more vulnerable to attacks. If restaked assets are linked to an equivocation (such as a double spend as a very rare case), they will be slashed not just on one chain, but potentially across hundreds, amplifying the impact. What happens when a bug in one PoS chain triggers a slashing event across many unrelated chains? We expect to see some interesting risk mitigation designs emerge, such as preventing the same capital from being reused more than a certain number of times.
The graph illustrates the potential cascading effects of a slashing event, which can significantly compromise chain security. This scenario bears some resemblance to the Terra/Luna hard fork in 2022, when Luna's price became too weak to adequately secure the Terra Chain. However, it's important to note that this comparison is not exact, as Bitcoin's price is likely to remain far more stable, even under liquidation pressure.
Restaking protocols acknowledge this risk, but their mitigations often involve adding extra layers of centralization to prevent a spiral effect. While users can choose which validator to delegate to, this creates a central point of failure that adversaries can exploit, especially if the validator has little of their own economic value at stake. It's unrealistic to expect users to make truly informed decisions about delegation; most will likely opt for the validator offering the highest stake, potentially the riskiest option, without fully knowing the risks.
Conclusion
Bitcoin has been and continues to be a powerful catalyst for crypto adoption. Over the past year, we've witnessed the development of numerous Bitcoin-focused infrastructures, including sidechains and Layer 2 solutions. Among these, Babylon stands out as an innovative approach, leveraging Bitcoin's security to enable additional utility and attract developers to create Bitcoin-specific applications.
In the coming months, we anticipate growth on both the supply and demand sides. We expect to see multiple novel applications launched, catering to increasing demand. Furthermore, the Bitcoin-centric yield strategies employed by projects within the Babylon ecosystem are likely to unfold, adding another layer of interest and activity to the space.
Ultimately, our hope is to see reputable projects emerge that strike an optimal balance between maximizing yield and managing security risks. This is especially crucial for projects with large Total Value Locked (TVL) and significant influence over asset flow paths. Happy yield hunting and play safe! ✦
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