Original author: @cmdefi
Original source: X
Key takeaway: Leveraging Bitcoin's economic security and Cosmos IBC cross-chain communication technology, allows BTC holders to provide an additional layer of security to other PoS blockchains through a unique staking mechanism in exchange for yield while maintaining asset autonomy and not leaving the Bitcoin network. Take advantage of some of the advantages of Proof-of-Work (PoW) to complement Proof-of-Stake (PoS) security.
- "Remote staking" keeps the staked BTC on the Bitcoin mainnet.
- Creating a custom staking contract on Bitcoin, Babylon customizes the operation of the UTXO by using Bitcoin Script and covenants, creating a special transaction type to complete the staking locking function.
- Leverage the Cosmos IBC cross-chain communication protocol to seamlessly aggregate and pass messages and data between Bitcoin and other blockchains.
- An extra layer of security. A "checkpoint" is established by recording the hash of some of the PoS blockchain's key data, such as transaction hashes, important decisions, or state updates, onto the Bitcoin blockchain. Babylon is able to provide tamper-proof proof of the timestamp of this data, which is equivalent to a snapshot of the state of the PoS chain, which is periodically anchored to the Bitcoin blockchain.
Scenario analysis
As the second-highest asset by market capitalization, Ethereum has completed its first phase of mission to become the largest smart contract platform to date. It is now being targeted to become a security layer for other networks and networks through EigenLayer's "Restaking" concept.
In the PoS consensus mechanism, one of the main sources of security for the blockchain is to attract a large amount of capital through stakeable assets, gradually building economic security, the larger the network, the more desirable and stronger the consensus assets are needed, and the more difficult it is to create assets with such a high consensus. The only two assets that are currently consensus strong enough are BTC and ETH, and to solve this problem, projects like EigenLayer have leveraged the security of ETH to secure other blockchains or AVS, rather than bootstrapping it through high-cost token issuances.
As of now, EigenLayer has been a huge success and has attracted more than $15 billion in TVL, so Bitcoin, as the most consensus, the most secure, and the only PoW chain, also has the possibility of providing security services for other blockchains, and at the same time, it will also provide a good PoW security supplement to the PoS consensus mechanism, and there is no need to argue whether PoW is better or PoS.
Babylon is committed to creating BTC staking, allowing BTC holders to share more than $1.3 trillion in economic security with other networks in exchange for staking rewards without leaving the Bitcoin network itself. In terms of scheme, Babylon has realized the recording and verification of key data submitted by the PoS chain through remote staking, customized staking contracts, timestamps, and EOTS (extractable one-time signatures), but we need to be clear that Bitcoin's own architecture cannot verify complex computing logic and smart contracts, so there are still basic logical operations inside the PoS chain, and the PoW security of Bitcoin provided by Babylon is an "extra layer of security", which is a pair The supplement of PoS security can also be said to promote the integration of PoS and PoW at the security level. At the same time, due to the difference in the consensus mechanism at the lowest level of Babylon and Eigenlayer, there are differences between the two products in terms of service objects and protocol goals. This will be discussed after explaining the core principles of Babylon.
Babylon 架构
- Bitcoin Mainnet
- Babylon aggregation layer
- IBC communication protocol
- PoS 消费链(目标 PoS 区块链)
Babylon is essentially an aggregation layer used to build security between any PoS blockchain and Bitcoin, if a BTC holder wants to stake their assets, they can go to Babylon to select the eligible network they want to stake, and then lock their BTC on the BTC mainnet, on the Babylon Chain this aggregation layer will aggregate the key data of the PoS and send it to the Bitcoin network through IBC on a regular basis. Checkpoint", the end user can claim the proceeds of the target PoS network.
This way, stakers can continue to hold their BTC while earning additional yield, while the PoS network inherits Bitcoin's economic security at some cost.
远程质押 Remote Staking
Remote staking is a way to allow asset holders to earn yield by providing staking validation services to other networks without moving assets out of their native chain. The key to remote staking is to maintain autonomous control of the assets and avoid using third-party intermediaries such as custodian or bridging services.
In the Babylon project, Bitcoin holders can stake users' BTC on the Bitcoin network through remote staking, rather than the traditional way of transferring to other chains or through centralized services. This is achieved through the improved Bitcoin Script and specific transaction types, known as "custom staking contracts".
Bitcoin custom staking contract
Since Bitcoin does not support complex smart contracts, Babylon must implement staking functionality within the confines of Bitcoin's existing scripting language. Bitcoin, unlike Ethereum, uses a UTXO (Unspent Transaction Output) model, where each transaction output can be an input to another.
Babylon customizes the operation of UTXOs by using Bitcoin scripts and covenants, which is simply understood as a tool to customize the behavior of Bitcoin transactions, creating specific contract logic, which allows users to lock their Bitcoin for a period of time, and only after the lock-up period ends, users can use their private keys to redeem these assets. This "customized staking contract" replaces the staking contract implemented through smart contracts.
Submit data and validate
Data submission: Nodes on a PoS blockchain generate some important data and turn it into a hash, such as transaction or block information.
Send to the Bitcoin network: Babylon Chain is responsible for collecting these hashes and aggregating them into packaging, through IBC, the packaged hash collection will be submitted to the Bitcoin blockchain in a specific transaction.
Generate timestamps: Once these hashes are recorded on the Bitcoin blockchain, they receive a timestamp from the Bitcoin blockchain. This creates "checkpoints", which inherit the security of the Bitcoin network and are globally recognized and immutable. This means that anyone can view this Bitcoin transaction and confirm when the data was submitted based on the timestamp.
Use timestamps: PoS blockchains can utilize these timestamps to verify the correctness and timeliness of their data. For example, they can reference these timestamps when processing transactions or verifying the authenticity of blocks.
The use of timestamps helps prevent some security issues, such as replay attacks (in which old transactions are resubmitted to spoof the network) and long-range attacks (by creating an alternate chain forked from the old state).
Security and punishment mechanisms
Although Babylon implements basic staking functions by customizing special UTXO operations, it still has a certain gap from smart contracts, such as the inability to execute penalties through the logical operation of smart contracts, so Babylon has designed a penalty and reduction mechanism in its own way.
In the design of Babylon, 2 signatures are used to guarantee the smooth operation of all mechanisms.
Schnorr signatures provide an efficient (aggregated) and secure way to process Bitcoin stakers' signatures.
EOTS is used to allow automatic extraction of private keys from signatures generated by malicious behavior and automated slashing when stakers attempt to double-spend the network.
Schnorr signatures were introduced in Bitcoin's 2021 Taproot upgrade, mainly to address some of the limitations of traditional signatures to achieve a more efficient and concise way of signing, the main feature is to allow multiple signatures to be aggregated into one, which is very useful for multi-signature transactions and complex script transactions, while it can also significantly reduce transaction size and fees.
In terms of security, Bitcoin Script is unable to directly implement complex punishment mechanisms (such as Slashing) similar to those found in PoS blockchains due to its limited expressive capabilities, so Babylon implements the Slashing mechanism through an ingenious design.
If a Bitcoin staker's private key is used to sign two different blocks in the same amount of time, this would be considered an attempt at a double-spending attack and their private key would be exposed, in which case anyone would now be able to pretend to be a staker and send a slash transaction to the Bitcoin Chain and burn the BTC that the staker is staking.
This is achieved through EOTS (Extractable One-Time Signatures), which is compatible with Schnorr signatures. This is a special form of encryption that ensures the integrity of block signatures and penalizes misconduct. The process involves an additional consensus layer called the "Finale Wheel", which comes into play after the basic consensus protocol functionality of the consumer chain. Only after more than two-thirds of the EOTS signatures involved in BTC staking have been collected will the block reach the final state. If any validator tries to attack the protocol by signing two different blocks at the same block height, the EOTS system will ensure that their private key is compromised.
The system also solves the challenge of enforcing penalties on blockchains like Bitcoin that lack native support for smart contracts and complex transaction types.
The journey of a BTC staker
BTC 质押者 Alice 的旅程：
(a) Path to Happiness: Alice staking, verifying the PoS chain, requesting unbonding, and unstaking within 3 days.
(b) The unfortunate path: Alice stakes, commits a security offense against the PoS chain, and then her BTC is burned.
market space
According to DefiLlama, the majority of the current Bitcoin single-coin yield market yields are between 0.01%-1.5%, and the ability to capture yields between 5% and 10% is very limited.
The market cap of BTC currently stands at 1260B (1 BTC= $64000), the market cap of WBTC is 10B, and less than 5B BTC is currently actively gaining in DeFi, which has to do with several aspects:
- Most BTC holders are reluctant to let BTC leave the Bitcoin network
- Concerns about the security of wrapped assets such as WBTC, tBTC, etc
- The yield is too low
- A portion of BTC is dormant (according to Coinshares, 25% of the BTC supply has been idle for more than 5 years and 67% has been idle for more than 1 year)
For reference, in 2021, Celsius attracted 43,000 BTC by offering a competitive 8% yield to BTC holders, which is currently worth nearly $3 billion. It can be speculated that there is a need for idle BTC holders to earn yield on their assets, but the main friction points at the moment are low returns, concentration of trust assumptions, and risk.
Therefore, assuming that close to 8% of the income can be captured through Babylon's staking, then it is possible to reach a scale of $3 billion, combined with the decentralized nature of Babylon, the staking of native BTC does not need to leave the Bitcoin network, and it is possible to impact the tens of billions of market.
What problem was solved
According to the current project data, Babylon solves 4 problems:
- BTC is natively staked on the Bitcoin network and offers higher yield opportunities
- Lowers the security budget of the PoS chain and lowers the token emissions that attract stakers
- Providing a Security Supplement to PoW for PoS Chains - Mitigating "Long-Range Attacks"
- Provide a security complement to PoW for PoS chains - increase the liveness attack threshold
Long-range attack
Let's first understand what a "long-range attack" is, also known as a long-range attack, which is a specific security risk faced by proof-of-stake (PoS) blockchains. This attack involves stakers using their staked tokens to create a fork at some early point in the history of the blockchain after unbonding (i.e., retrieving the staked funds). This attack attempts to exploit past staking states to rewrite the blockchain's history.
Attack process
1. Attack starting point: The attacker chooses an early point in the blockchain's history, which is usually at a point in time when their stake is still valid. Then, they started secretly building a private forked chain at this point.
2. Build a forked chain: An attacker builds blocks on their own forked chain, which may include invalid or fraudulent transactions. Since they have sufficient staking rights at this point in history, they can influence which blocks are added to the forked chain.
3. Release the fork: Once the forked chain is long enough to cover the same period blocks on the main chain, an attacker can publish it. Since PoS protocols typically accept the heaviest (i.e., the most accumulated staking or longest chain) chain as a valid chain, an attacker's fork may be accepted by the network as orthodox history.
In a PoS system, it is relatively easy to reorganize old blocks (i.e., blockchain reorganizations) because they do not require a lot of computation like PoW. An attacker only needs to present a chain on the private chain that is longer than the main chain or has more "weight" in some systems to convince the network to accept their chain as valid.
This type of attack typically involves emerging or smaller PoS chains with fewer network nodes and weaker monitoring and security measures, as such networks are more vulnerable to a small number of large stakers.
In order to mitigate long-range attacks, general PoS chains will set a minimum unbonding period, usually ranging from 7 days, 14 days, and 21 days, which is why when you redeem assets (such as ATOM) from nodes, you have to wait for a fixed period to get the staked assets. Setting an unbond period means that once a validator decides to unbond their funds, those funds will not be available immediately. During this period, their stakes are still considered part of network security, but they cannot use these stakes to validate new blocks or participate in consensus decisions, which greatly increases the cost and complexity of their attacks.
How does Babylon mitigate "long-range attacks"?
Babylon aggregates the "unbonding" operations of PoS chains by marking timestamps and setting checkpoints on the Bitcoin blockchain, which has the advantage of providing an external secure verification point for the PoS chain by leveraging Bitcoin's strong consensus characteristics, which provides the possibility to significantly reduce the time required for unbonding, from weeks to hours, which can significantly improve the liquidity and efficiency of funds.
Active attacks
Second, let's understand what an activity attack is, which is when a small number of validators (e.g. one-third) may attempt to censor or block certain transactions or operations, thus affecting the normal operation of the chain. For example, validators deliberately do not include certain transactions, which may be motivated by self-interest or external incentives.
How Does Babylon Increase the Liveness Attack Threshold?
Babylon leverages the security of the Bitcoin blockchain to create checkpoints. These checkpoints are snapshots of the state of the PoS chain, anchored to the Bitcoin blockchain on a regular basis. This approach enhances the security of the PoS chain through the immutability of the Bitcoin blockchain, providing a trusted, externally verified record of important decisions or states on the PoS chain.
In addition, Babylon increases the economic and technical cost of an attacker's active attack on PoS by creating an additional layer of security on the Bitcoin blockchain. (May include breaking Bitcoin's strong consensus)
Comprehensive analysis against Eigenlayer
Limitations: More advanced security support is not possible without smart contracts
The industry usually compares Babylon to Eigenlayer, which is written to coordinate the needs of AVS and Restaker restakers by writing smart contracts, and theoretically as long as smart contracts can be written, Eigenlayer can do the task, such as supporting ETH restaking and protocol token staking and set the ratio parameter to be adjustable, providing an additional layer of Ethereum-level security protection for existing middleware, and can also directly build a consensus layer for new middleware. While smart contract risk is also introduced, it can support a wider range of businesses.
Babylon's current focus is to establish "checkpoints" by taking regular snapshots of the PoS chain's state on the Bitcoin chain, thereby providing a trusted, externally verified record of strong consensus for the protected PoS chain. Although it implements the native staking lock of BTC through a customized UTXO, it still does not have smart contract-level functionality to handle and coordinate complex requirements and logic.
Limitations: Subject to IBC
Babylon leverages IBC to aggregate data and communicate between Bitcoin and any PoS blockchain. This is a necessary prerequisite for BTC staking and establishing checkpoints with timestamps. The reason for using IBC is its ability to seamlessly pass arbitrary data and validator messages between different chains. Currently, Babylon's current addressable marketplace is 91 Cosmos chains that natively support IBC. However, IBC-based extension protocols are gradually being built, such as Composable, which is building IBC support for other networks such as Ethereum, Polkadot, Solana, NEAR, and TRON.
Advantages: There is a lot of market space for idle BTC
Compared with Eigenlayer, the underlying asset targeted by Babylon is BTC, and according to the discussion in the [Market Space] section, the amount of BTC currently idle is very huge, and the basic needs of not leaving the Bitcoin main chain have been realized, so theoretically, once more partners access Babylon and provide considerable income for BTC staking, then the market will grow very rapidly.
Similarities: support for economic security
The similarity with Eigenlayer is that Babylon also provides economic and security support for some early small-scale PoS chains, increasing the economic and technical costs of attackers against small-scale PoS chains.
Differences: Clients and goals
Babylon may be more effective in mitigating long-range attacks, shortening the lock-up period for PoS asset staking, etc., for example, if Osmosis cooperates with Babylon, it may only take 1 day or even less (14 days) to unstake OSMO, which is a relatively clear need. Of course, Babylon brings BTC's PoW strong consensus to PoS, which may unlock more possibilities as the protocol matures.
Eigenlayer, on the other hand, relies on Ethereum's huge ecosystem to radiate Ethereum's security to all corners and middleware through smart contracts + re-staking. Therefore, Eigenlayer has fully obtained the natural advantages of smart contracts in terms of scalability, and is more diversified in terms of service objects and function implementation.