How do you view the subsequent market impact of the Babylon mainnet launch?

Original author: Haotian

How do you view the subsequent market impact after the launch of @babylonlabs_io mainnet? Undoubtedly, it will set off a wave of staking craze in the Bitcoin ecosystem, just like Eigenlayer did for Ethereum, giving birth to the arrival of BTCFi Summer.

So, how does Babylon work? What is the difference between Babylon and Eigenlayer? What are the potential highlights of Babylon ecosystem? Where is Babylons weakness, etc. Next, let me talk about my understanding:

Thorough understanding of Babylon

In short: Babylon has implemented a secure, cross-chain-free, and custody-free Native Staking solution for BTC layer 2 and other POS chains by building a complex UTXO script contract on the Bitcoin mainnet. How is it done specifically?

The traditional solution is to make a POW chain achieve the effect of POS chain where the pledged assets can generate yield, which requires relying on the third party to provide asset custody, and then the wrapped 1:1 assets are circulated on the new POS chain. (For example: WBTC). The trust crisis caused by WBTC a while ago exposed the biggest shortcoming of this solution.

Babylon has built a system that uses the Bitcoin chain for remote staking. It uses a complex cryptographic algorithm to design Covenant in a scripting language to lock BTC on the Bitcoin mainnet, and then uses the Babylon Chain built with the Cosmos SDK to remotely manage and dispatch assets to implement subsequent functions:

1) The pledge, unbinding, withdrawal, etc. defined in the script contract must be verified and punished by the Validators on the Babylon Chain in strict accordance with the rules defined in the script (such as: EOTS signature scheme, final round multi-signature consensus, etc.) Control Plane console operations, that is, the validator nodes of the Babylon Chain can safely and decentralizedly manage the assets locked remotely on the Bitcoin mainnet;

2) Babylon abstracts the verification and coordination capabilities of Validators into a capability that can deliver secure consensus to other POS chains, providing native security features to other modularly compatible POS chains in the form of security as a service.

In this way, other POS chains will generate corresponding yields to make the BTC assets pledged by Babylon generate income. In theory, the greater the demand for this kind of security service of the POS chain, the greater the imagination space for Babylons pledge interest.

Babylon VS Eigenlayer

1) The Babylon protocol is a connector that connects the BTC mainnet and other POS chains. Its goal is to match the lack of Yield for native assets on the BTC POW chain and the lack of decentralized BTC custody services on other POS chains, so that BTC assets can be connected to other POS chains in a native way and generate expected returns. Therefore, Babylon mainly serves assets with the BTC Universe Invincible Consensus, providing a technical framework and possibility for them to generate returns.

Eigenlayer packages the verification service capabilities of Ethereum Validators into commodities. On the one hand, Ethereum layer 2 or other modular POS chains can access Ethereums super Validators verification capabilities, and on the other hand, the Yield generated by these POS chains can amplify and enhance the original Ethereum nodes. Therefore, Eigenlayers goal is to commercialize the physical verification service capabilities of Ethereum Validators to amplify the profitability of native Ethereum.

2) Babylons Security as a Service and Eigenlayers AVS as a Service are the same in terms of business logic, but the subtle difference is that the requirements provided by Babylon are more rigid. If other POS chains are not connected to Babylon, they will be criticized for being centralized in terms of hosting methods.

In contrast, Eigenlayer amplifies the leverage mechanism of Ethereums original Staking income. Although it can stimulate the prosperity of the Restaking platform in the short term, there will be a game between the income from exporting security consensus and the LRT points war. If the actual commercial income cannot match the speed of LRT platform superimposing leverage, the Staking income utility will be backfired.

What’s next for Babylon’s ecosystem?

The launch of Babylon will definitely stimulate and catalyze the BTC layer 2 market, which has been sluggish for a long time. It has two main impacts:

1) It allows many projects that originally combined CeFi to upgrade their technology, eliminate the criticized centralization problem, and make the slogan of asset interest generation easier to gain market trust.

2) It can bring direct commercial vitality to many BTC second-layer POS chains. On the one hand, BTC interest will accelerate the TVL accumulation speed of some POS chains, allowing the TVL points war to continue. On the other hand, in addition to BTC interest, there will also be a variety of gameplay such as LSD, LRT platform + DeFI combination interest.

The potential Babylon+ platform points subsidy war will also bring continued heat to the BTCFi track, which will be comparable to the Restaking craze brought by Eigenlayer.

@SolvProtocol, with the positioning of decentralized Bitcoin reserve center, Solv has seized the current situation of over-decentralization of BTC assets and quickly accumulated nearly 20,000 BTC. After Babylon goes online, SolvBTC.BBN will have expected growth;

@Bedrock_DeFi, incubated in the BNBChain ecosystem and supported by OKX Ventrues, is one of the leading projects in the Babylon ecosystem. Recently, UniBTC’s minting performance and Babylon points’ earnings expectations are both relatively strong;

@LorenzoProtocol introduced the concept of liquidity staking, where users can participate in staking and receive rewards without locking up funds. Its Pendle-like principal and interest separation feature, and the combination of liquidity principal token LPT + income accumulation token YAT are eye-catching;

In addition, many platforms including @BSquaredNetwork, @Lombard_Finance, @ChakraChain, @BotanixLabs, etc. will show their muscles one after another in this wave of Babylon ecological craze.

Babylons weakness?

There is no doubt that the launch of Babylon has brought more positive impacts to the BTC ecosystem, but it is not without its weaknesses.

Objectively speaking, the security consensus provided by Babylon relies on its Cosmos SDK chain, rather than being directly controlled and scheduled by the script program on the BTC main chain. The subsequent series of complex derivative gameplays are naturally limited to the scope of asset management.

Therefore, while many Blast-like interest-bearing derivative projects can be generated by relying on Babylon, it is difficult to grow top-level layer 2 integrated chain projects such as Starkent and Arbitrum for the BTC ecosystem.

The logic is relatively simple. If a BTC layer 2 chain relies on Babylon to provide security consensus, it is equivalent to castrating the sovereignty of the layer 2 chain, which is not conducive to the subsequent complex ecological construction. I have analyzed it in a long article on the top of the homepage. There are many more technical frameworks that can make up for this problem:

1) zkVM general protocol framework, @ProjectZKM takes advantage of the trusted feature of zk in cross-chain interoperability, builds @GOATRollup with zk technology, and implements ZK Bridgeless cross-chain, Entangled Rollup Network interactive communication layer, etc., which is equivalent to using ZK technology to build a set of Cosmos IBC cross-chain communication components to help the BTC ecosystem prosper. This is a more general BTC underlying Native technology solution that is suitable for most sovereign BTC layer 2 chain applications;

2) UTXO Stack structural framework, this set of BTC layer 2 solutions extended by @NervosNetwork CKB team based on RGB++, allows BTC and its derivative assets to Leap to the CKB chain for circulation through isomorphic binding, which is equivalent to reconstructing a BTC execution VM environment to support the subsequent programmable complex features required;

In addition, there is the MoveVM global state high-level language execution architecture provided by @RoochNetwork, and the AVM virtual machine framework provided by @atomicalsxyz, etc., which can become the successor force for the development of the BTC layer 2 market.

If Babylon can start the first wave of BTCFi interest-bearing boom, and more projects with solid technical foundation and good innovation can take over the second wave, this is the prosperous scene of BTC layer 2 that I expect.

In short, Babylon has no weaknesses, but the BTC layer 2 market cannot rely solely on Babylon. Please firmly believe that the BTC ecosystem will definitely have its own summer.

This article is sourced from the internet: How do you view the subsequent market impact of the Babylon mainnet launch?

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