How Babylon attracted $3.5B to native Bitcoin staking protocol — Co-founder

Babylon’s co-founder explained how the Bitcoin staking protocol attracted billions of dollars in BTC as decentralized finance (DeFi) started on the world’s largest cryptocurrency network.

At the Bitcoin MENA event in Abu Dhabi, Babylon co-founder and chief technology officer Fisher Yu told Cointelegraph that true Bitcoin (BTC) DeFi “did not exist” until recently. While BTC can be staked or wrapped and used in different decentralized applications (DApps), the executive argued that there was still a trust requirement.

“You have to trust someone else,” Yu said. “If you do lending, you have to give your Bitcoin to someone else and then keep your fingers crossed that the borrower can return your Bitcoin. If you want to do some smart contract things, then you need to bridge your Bitcoin to another smart chain,” he added.

This introduces counterparty risk similar to traditional or centralized finance (CeFi), according to Yu. “In this case, you also lose your control of Bitcoin. It is under the control of someone else. They can run away with your Bitcoin,” Yu said. 

True Bitcoin DeFi shouldn’t trust any third-party

Yu emphasized that DeFi’s key advantage over CeFi is its trustless nature, which eliminates third parties. “True DeFi” is where users can simply trust the blockchain or the smart contract within the protocol, he said.

Babylon’s team claims to have invented Bitcoin staking, enabling DeFi on Bitcoin: 

“We invented Bitcoin staking so that it is a native use case for Bitcoin, which does not require the Bitcoin holder to trust any third party. Similar to holding a Bitcoin or using Bitcoin for simple payment, you only trust Bitcoin and yourself. You do not have to trust anyone else.”

Yu added that the Bitcoin staked in Babylon will be used to secure a proof-of-stake (PoS) blockchain the company plans to launch. 

Unlike the Ethereum or Solana blockchains, Bitcoin staking does not reward stakers in the chain’s native asset. Instead, stakers are rewarded with the native token of the PoS blockchain secured by the Bitcoin capital staked.  

Related: DeFi TVL nears 2021 highs on liquid restaking, Bitcoin L2s

Babylon has attracted $3.5 billion in staked BTC

Babylon is rolling out its mainnet in phases, beginning with Bitcoin holders locking their BTC. The company will then launch a blockchain described as “the first chain secured by Bitcoin staking.”

Yu said that during Babylon’s initial staking cap, the protocol accepted 1,000 BTC (around $100 million) within an hour. In its second cap, the company drew 24,000 BTC, worth $2.3 billion at the time, in just 90 minutes.

“In some cases, there are people who staked 500 Bitcoin in one transaction because that was the maximum limit,” Yu said. 

On Dec. 10, Babylon opened the third cap for staking Bitcoin. In an announcement published on X, the Bitcoin staking protocol said it had already attracted $3.5 billion in staked Bitcoin. 

DeFi on Bitcoin will attract similar attack vectors 

While DeFi on Bitcoin is gaining traction, Yu acknowledged it would face similar vulnerabilities to those seen in broader DeFi ecosystems, including hacks and exploits: 

“DeFi is trustless, which assumes the code and the system run correctly. But if there is fraud in a code or a bridge system, people can lose money. So, in theory, they are safe, but in practice, there are many attack vectors that can happen. So, I don’t see Bitcoin DeFi as any different from those.” 

However, Yu believes Bitcoin DeFi can learn from past incidents across the DeFi space. “We have learned so many lessons from them. So we can go through this train and evolve the systems at a much faster pace compared to other ecosystems,” Yu added. 

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