Original author: yyy
Original text: twitter
Note: This article is from @y_cryptoanalyst Twitter, and Mars Finance is organized as follows:
Written on the front:
This is an unconventional research report on @babylon_chain, as well as a milk article and cautionary note about BTC restaking. This article was written on the 12th day after the Bitcoin halving, on the XX day of the outbreak of the Bitcoin Restaking track, and on the XXXTH day of the bursting of the Bitcoin Restaking bubble.
The BTC restaking track represented by babylon will blow a huge bubble in the Bitcoin ecosystem, and this restaking revolution originating from the Bitcoin ecosystem will have an impact no less than the inscription.
I would like to use this article to commemorate the feelings of many leek friends who want to take advantage of Bitcoin Restaking like me.
1. Causes of bubbles
1) BTC's shift from a store of value to an interest-bearing asset
Since the inception of Bitcoin, BTC has been regarded as digital gold as a store of value. It is difficult for BTC holders to obtain excess returns such as Defi, and BTC becomes an idle precipitated asset on the chain.
According to Defillama data, interest-bearing bitcoins are currently distributed across 87 chains, 412 protocols, and 574 liquidity pools. Without exception, all interest-bearing bitcoins have left the original bitcoin chain, and there is a certain degree of trust in the encapsulated and bridging form of BTC (for example, the most widely used WBTC needs to trust a single entity, and the sidechain/L2 BTC needs to trust the multi-signature committee, etc.);
According to data provided by Messari researcher @NikhilChatu tweet, the current scale of interest-bearing BTC exceeds $10 billion, of which $4 billion is earning yields, with yields ranging from 0.01%-1.25%. Interest-bearing BTC achieved through escrow schemes all have more or less trust assumptions.
2) The awakening of non-custodial Bitcoin schemes
Centralized custody risk has become an insurmountable mountain across the road of Bitcoin interest, and non-custodial Bitcoin staking solutions have become a shortcut across the mountain. Non-custodial Bitcoin, also known as the self-custodial Bitcoin solution, in short, means that BTC achieves interest-bearing and value-added assets under the premise of "not leaving the original Bitcoin chain, not encapsulating, not cross-chain, not custodial, and not adding any trust assumptions".
At present, the only protocol that implements non-custodial bitcoin on mainnet is only @Coredao_Org, and Babylon (another non-custodial bitcoin staking scheme) is in the testnet stage and has not yet been launched on mainnet.
At this point, BTC can earn interest on assets in a trustless and more secure way, whether it is through BTC staking mining or providing security services for PoS sub-chains through re-staking.
@eigenlayer, a leading protocol focusing on the Ethereum restaking scenario, has an on-chain TVL of $15 billion, accounting for 5% of Ethereum's circulating market capitalization, and Bitcoin has a market capitalization of more than $1 trillion, unlocking 1.5% of its liquidity can leverage $15 billion. The non-custodial Bitcoin Restaking track is currently in a blank space, like an infant baby, and Babylon, which is positioned in this track, has a unique advantage.
—————— Dividing Line——————
But at the same time, a bubble crisis about BTC restaking is quietly being bred incubating.
The next chapters talk about why to embrace bubbles, and why they are considered bubbles and why bubbles burst, which will be discussed in the last chapter of the text.
2. Why hug when you know that the bubble is bursting?
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 explosion of various Bitcoin layer 2 (Merlin, Bouncebit, etc.), bringing users new Bitcoin assets and Bitcoin smart contract scenarios and other fascinating narratives. Babylon and CoreDAO bring a non-custodial Bitcoin saking/restaking narrative to the leeks, telling them that our technology can stake/restake without transferring control of BTC on your Bitcoin chain, making Bitcoin an interest-bearing asset. This seed of love and freedom (enjoying the security and decentralization/trustlessness of the Bitcoin mainnet) is starting to take root in the hearts of leeks, and the narrative of non-custodial Bitcoin is attractive enough to wait for the spring rain of the Bitcoin plate rotation.
CoreDAO 已主网上线非托管BTC staking, 这里借CoreDAO 简单来讲讲非托管BTC staking 的实现原理。
Non-custodial BTC is also known as self-custody or native staking, BTC is not encapsulated, not cross-chain, does not add any trust assumptions, is only on the Bitcoin chain, and only relies on the Bitcoin native scripting language implementation.
At the heart of the implementation of non-custodial BTC staking technology is the application of CLTV timelocks.
CLVT: OP_CHECKLOCKTIMEVERIFY (CLTV) timelock is a specific opcode in the Bitcoin scripting language that allows the creation of conditions based on time or block height that cannot be spent from the transaction output until those conditions are met.
The specific implementation process is as follows:
The user sends bitcoins from one address to another with a timelock (the receiving address is derived from the private key of the user's main wallet, and the user has control over the address's assets). In addition, the transaction needs to contain a op_return output that contains the following 2 parts of information:
1) The address where the staker wants to delegate Bitcoin to the validator of the CoreDAO chain;
2) The address where the staker wishes to receive the CORE token reward.
Once the timelock expires, users can spend UTXO using the corresponding redemption script.
At this point, BTC native staking is complete. Users cannot spend Bitcoin until the end of the staking period. 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 contributions to the consensus of the CoreDAO Chain.
The implementation mechanism of Babylon's non-custodial BTC is similar to that of CoreDAO, and the spending conditions and Slash conditions are set for BTC through timelock technology. Users achieve "BTC staking" on the Bitcoin mainnet, which is actually delegating BTC to Babylon's validator nodes through timelock technology, providing consensus for the Babylon chain to obtain consensus rewards. If the validator node is evil, the non-custodial BTC will be sent to a burn address due to the previous slash condition of BTC UTXO.
The function of Babylon's "upgrade" on the basis of CoreDAO is to propose the concept of BTC restaking. If non-custodial BTC staking can serve Babylon's 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 to provide consensus services and obtain consensus rewards through babylon as an intermediate layer is called Babylon's BTC restaking.
Babylon acts as an intermediary layer for the Bitcoin network and other PoS chains that integrate Babylon, aggregating important transactions that occur on the PoS chain (such as staking, unstaking, double-spending, censoring transactions, etc.) and posting them to the Bitcoin network in the form of timestamps. Based on the timestamp service, the time taken to unstake consensus assets on PoS chains will be significantly reduced (from weeks to hours).
According to the information provided by Messari, Babylon has cooperated with 45+ projects, including @cosmoshub, @injective, @SeiNetwork and many other popular Cosmos ecological chains, AI & DePin chain, Bitcoin L2 chain, etc. This means that through the BTC restaking service provided by Babylon, users can work several jobs (providing consensus services for multiple PoS chains) and get multiple wages (consensus incentives from different PoS chains) on the premise of leaving the original Bitcoin chain, non-custodial, and trustless.
2) Demand-driven
The Bitcoin ecosystem has always been a continuous narrative of this bull market cycle, from the battle for new assets in the Bitcoin ecosystem to the 100-chain battle of Bitcoin L2, it is difficult to say that it is driven by actual demand, but more driven by the hype demand of hot spots and concepts.
The non-custodial BTC restaking track represented by Babylon is closer to a narrative driven by real needs. BTC has always been considered to be a store of value in the crypto world, but there is no widely recognized asset interest-bearing scheme in the market, and the reason for this can be attributed to the fact that there is no sufficiently decentralized, trustless, and secure solution to achieve BTC defi returns.
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 BTC restaking income, we can make an optimistic assumption that we have reason to believe that large investors are willing to use the idle BTC in cold wallets to "work and make money", and the behavior of large investors can also drive small scattered FOMO.
3) Mechanism driven
After talking about narrative driving and demand driving, let's take a look at Babylon's financing.
Babylon 于2023年12月宣布完成一轮由Polychain Capital 和 Hack VC 领投,Framework Ventures、ABCDE Capital、IOSG Ventures、Polygon Ventures 和 OKX Ventures 参投的1800万美元的融资;2024年2月,币安实验室宣布完成一轮对Babylon 的融资,具体金额未知。
From Binance Lab's financing of BTC restaking, it can be seen that Babylon is a very important part of Binance's entry into the Bitcoin ecosystem. Binance Labs has successively announced the financing of Babylon, @Stake_Stone, @bounce_bit and other projects, and Binance undoubtedly sees the huge potential of this specific track of the Bitcoin ecosystem.
3. Without exception, the bubble will eventually burst
The BTC restaking track represented by Babylon is leading the direction of the next Bitcoin ecological narrative, driven by multiple factors, the bubble will be blown bigger and bigger, and the liquidity of a huge amount of Bitcoin precipitation assets will be unlocked and unlocked. But the bubble will eventually burst when the market sentiment is at its highest, and the big households are full of money, and the leeks and yellow sorghum wake up.
1) Risk superposition under the nesting doll mechanism
As mentioned earlier, BTC restaking through Babylon can provide consensus services for multiple PoS chains and obtain multiple consensus rewards. But the risk and the return are directly proportional, and for each additional gain, there is an increase in the risk of slashing. Under the multiple nested slash mechanism, the risk is infinitely magnified.
2) From demand-driven to sluggish demand, a negative economic flywheel is generated
The demand for BTC restaking comes from the fact that BTC holders are able to earn significant restaking returns in a more secure way, and there is a trade-off point when the price of the consumer chain consensus incentive token falls in the upcycle, resulting in a sharp decrease in restaking returns.
If the potential slash risk is greater than the potential restaking gain, there will be a wave of unstaking of BTC, a crisis of confidence will spread, large investors will flee, and retail investors will follow. Demand tends to be sluggish, and a negative economic flywheel is generated.
postscript
Finally, on an emotional note, let's assume that Babylon's life cycle follows Warren Buffett's wise quote: "I am greedy when others are fearful, and I am fearful when others are greedy." At least for now, far from the time when others are greedy.
BTC restaking will create an unprecedented Bitcoin ecological bubble, but before the bubble bursts, please embrace it.
The content of this article is purely fictitious and any similarities are purely coincidental.
End of full text.
yyy
Written on the 12th day after the fourth halving of Bitcoin.