TBW - Babylon (BABY): When Bitcoin becomes the engine of decentralised finance

As Bitcoin continues to establish itself as a global store of value, Babylon aims to take the next step: enabling native BTC staking without compromising on security or user sovereignty.

By combining Bitcoin engineering, proof-of-stake and cryptographic innovations, the protocol is already attracting billions of dollars in deposits. A full analysis of a project that aims to transform Bitcoin into a pillar of interoperable decentralised finance.

General presentation

Babylon stands out as an innovative staking and securitisation protocol, enabling native staking of bitcoins (BTC) without having to transfer them to client blockchains in proof of stake (PoS). In practical terms, users 'stak' or lock their BTC directly on the Bitcoin blockchain. At the same time, Babylon allows "finality providers", operating on PoS or EVM (Ethereum and its L2s) compatible blockchains, to access these stakes to reinforce the finality and security of the networks.

BTCs are locked via a time-locked Bitcoin script, programming the conditions of use of the funds through an UTXO model, and thus reproducing the functions of a staking smart contract, with a slashing mechanism in the event of malicious behaviour by the finality providers. Users can generate returns by locking their bitcoins, signing delegation transactions with their private key and choosing themselves which finality providers to delegate to.

In exchange for their services, these providers receive rewards in Babylon points as well as in native tokens from partner PoS networks. For their part, stakers receive Babylon staking points, redeemable for $BABY tokens at the end of the airdrop registration phase and Token Generation Event (TGE) announcement. Babylon thus functions as a control panel between BTC stakers and PoS blockchains.

BTC staking took place in three phases called Cap-1, Cap-2 and Cap-3. The first, launched on 22 August 2024, offered a cap of 1,000 BTC, reached in 75 minutes, with more than 12,240 unique addresses participating. Cap-2, launched on 8 October 2024, spanned ten Bitcoin blocks, or around 100 minutes, and saw 22,891 BTC staked by 12,590 users, bringing the total value locked (TVL) to more than $1.5 billion. Finally, Cap-3, which opened on 10 December 2024, spanned 1,000 Bitcoin blocks, or around seven days, during which 33,399 BTC were staked by nearly 110,000 unique addresses.

At the end of the three phases, Babylon had a TVL of 57,290 BTC, equivalent to more than $4.7 billion, from a total of 135,290 participating addresses. Accepted deposit amounts ranged from 0.005 to 5,000 BTC per transaction depending on the phase.

In terms of incentives, Cap-1 distributed 3,125 points between users and finality providers. Cap-2 allocated 10,000 points per BTC block, while Cap-3 saw a distribution of 100,000 points per block for the first 300 blocks, then 21,000 points per block for the next 700.

Financing

Babylon kicked off its financial journey in 2023 with an initial $8 million Seed round, backed by IDG Capital and Breyer Capital, announced on 10 March 2023.

A few months later, on 7 December 2023, Babylon bolstered its cash position by raising a further $18 million in a Series A round, led by big names in crypto venture capital, including OKX Ventures and Polychain Capital, with the latter acting as lead investor.

The following year marked a turning point with Babylon's largest fundraising: on 30 May 2024, the protocol closed a $70 million Series B round, led by Paradigm, one of the most reputable funds in the sector.

Since its inception, Babylon has thus raised an estimated total of $96 million, affirming its ambition to establish itself as a key infrastructure for native bitcoin staking.

Team

At the helm of Babylon are two leading figures from the academic and technology worlds: Professor David Tse and Fisher Yu, CTO of Babylon Labs.

David Tse is a renowned academic. After teaching at UC Berkeley from 1995 to 2014, he joined Stanford where he continues his research in engineering. His areas of expertise cover information theory, computational genomics, machine learning and blockchain.

His co-founder, Fisher Yu, has a solid background in the blockchain world. He began his career at Dolby Laboratories, where he rose through the ranks to the position of Senior Staff Research Engineer. He is also Managing Director of Hash Laboratories, a blockchain security consultancy that has worked with major projects such as XDC Networks and IOHK. In May 2022, Fisher Yu joined forces with David Tse to co-found Babylon Labs, where he serves as CTO.

"Babylon is more than just a layer 1; it serves as the hub for a growing ecosystem of Bitcoin-secured networks," states David Tse to detail his vision.

Community

Babylon has a strong presence on social networks, particularly on X (formerly Twitter), where its account has more than 541,000 followers. The communications team is active there on a daily basis, publishing threads, relaying partnership announcements and keeping the community informed of developments in the protocol.

However, engagement remains moderate in relation to the audience: publications accumulate an average of 7,000 views and around 60 likes, a relatively low interaction rate given the total number of subscribers.

Babylon also has a sizeable community on Discord, with more than 440,000 members. Its LinkedIn profile has 29,000 subscribers, while its GitHub shows sustained activity, particularly in Babylon's public repository, which has been recording 13 weekly commits on average recently.

Technology and security

Babylon offers users the opportunity to "staker" their bitcoins, thereby releasing the dormant potential of BTC to generate returns.

The challenge is significant: as the Bitcoin blockchain does not support complex smart contracts, Babylon exploits the Bitcoin script and UTXO model to reproduce the staking conditions as well as the slashing mechanism typical of proof-of-stake (PoS) blockchains.

Staking, unblocking and slashing operations (introduced in Phase 2 with Genesis Layer 1) are carried out via UTXO transactions enriched with Bitcoin script opcodes, imposing time locks and strict conditions of use. Users sign "staking transactions" with their private key, sending their BTC to a self-custody vault. This process generates a specific UTXO, the spending of which will be subject to precise rules.

Final providers, designated delegates, use associated private keys to sign Babylon blocks and validate transactions destined for client blockchains.

To guarantee security, Babylon uses EOTS (Ephemeral One-Time Signatures), a cryptographic technology built on Bitcoin's Schnorr signature scheme (introduced with Taproot). EOTS enables slashing rules to be imposed directly on Bitcoin: in the event of malicious behaviour - such as double voting - the offending private key is revealed, authorising anyone to submit a slashing transaction that burns 33.33% of the BTC staked.

This mechanism makes the protocol more secure than traditional bridges: even if a client blockchain is compromised, as long as the finality providers behave honestly, the bitcoins remain protected.

To supervise compliance with these rules, Babylon relies on a Covenant Committee that co-signs staking transactions and ensures that penalties are applied in the event of fraud.

In addition, Babylon strengthens the security of rollups by requiring sequencers to deposit BTC as collateral, thus encouraging them to behave fairly or face financial penalties. This approach achieves finality within a second, a major advance compared to the sometimes long delays of traditional rollups.

Babylon's Bitcoin Timestamping Protocol adds an additional layer of protection for PoS chains by anchoring transaction hashes to Bitcoin, making long-range attacks much more difficult. The protocol also facilitates the rapid unlocking of bets through a system of epoch checkpoints.

The unlocking process allows for a minimum period of 1,008 Bitcoin blocks (or around 7 days) and a maximum period of 64,000 blocks (almost 15 months). A set of technical tools, such as IBC relayers, CosmWasm smart contracts, and BLS signature aggregation, enable all client chain transactions to be checkedpointed on Bitcoin efficiently, while guaranteeing strong resistance to censorship.

Finally, Babylon implements a watchdog system: a "vigilante reporter" continuously monitors Bitcoin headers to check that checkpoints have been finalised, while a "checkpointing monitor" ensures consistency and responsiveness to potential threats.

The $BABY token

Babylon unveiled the tokenomics details of its future $BABY token on 3 April 2025 via its official blog.

The latter will play a triple role: a utility token serving as a gas on the Babylon Genesis L1, a governance token for the protocol, and a security instrument thanks to a dual staking model combining BTC and BABY.

A clear distribution model

The total supply of $BABY is set at 10 billion tokens, divided into six main categories. Annual inflation in the supply in circulation will be limited to 8% per year, split evenly: 4% for BTC stakers and 4% for BABY stakers.

Allocation breakdown:

• 15% (1.5 billion tokens) are reserved for community incentives to stimulate interaction with the ecosystem. These tokens, controlled by the Babylon Foundation, will be fully released at the launch of the TGE, with no vesting period.
• 18% (1.8 billion tokens) are earmarked for grants, investments, bounties, marketing and acquisitions. 25% will be released at the birth of the network, the remaining 75% will be released linearly over three years.
• 18% is allocated to Babylon Foundation operations, R&D, and the development of native Bitcoin use cases. The release schedule is similar to grants.
• 30.5% (3.05 billion tokens) goes to early investors, with a 4-year vesting period: 12.5% released in the first year, then the rest released gradually.
• 15% is dedicated to the founding team. After a one-year "cliff", the tokens will be released linearly over three years.
• 3.5% is allocated to advisors, with individual vesting schedules.

Note: locked tokens cannot be staked during the first year.

With annual inflation of 8%, Babylon remains at the low end of the average for a Layer 1 project.

However, the large share allocated to early investors (30.5%) could generate significant selling pressure from 2026, when vesting periods begin to expire.

Business model

As yet, Babylon has no revenue-generating mechanism of its own, due to the lack of a fully operational blockchain. The protocol therefore derives its resources solely from its fundraising - $96 million - and ad hoc partnerships with finality providers and projects in the crypto ecosystem.

The finality providers apply commissions to users who stash their BTC, remunerating themselves in Babylon points and tokens native to the client blockchains.

This model is expected to evolve with the completion of Phase 2: once the Babylon Genesis Chain is launched (in testnet since January 2025) , the protocol will start charging fees on staking, unstaking and slashing transactions initiated by users.

This is when Babylon will really start to capture value and build a functional cash position.

Cash position and financial health

Babylon today has a total locked value (TVL) of 57,167 BTC, or approximately $4.7 billion at the time of writing.

The platform grew by leaps and bounds during the Cap-2 phase in October 2024, when 22,850 BTC were deposited in less than two hours, propelling Babylon's TVL by $1.5 billion in a single day.

The Cap-3 phase, spread over seven days in December 2024, added a further 34,000 BTC, taking the TVL to an all-time high of more than $6 billion at Bitcoin's peak of $109,000.

Despite the recent market correction, Babylon has been able to maintain a solid TVL around $4.7 billion.

A dominance of liquid restaking protocols

The majority of BTC staked - 85% - is deposited in liquid restaking protocols (LRST) built on Ethereum and other EVM-enabled chains.

The Lombard protocol largely dominates, accounting for 40.6% of all BTC deposited.

Following Solv, via its SolvBTC token (17.9% of the total), PumpBTC (9.8%) and Lorenzo (3.7%).

All these protocols, integrated with Babylon, also play the role of finality providers.

Lombard particularly stood out from Cap-1, attracting 654 BTC on 22 August 2024 (65% of the total deposited that day).

Solv saw its peak influx in February 2025, with more than 3,000 BTC deposited in two days.

PumpBTC, meanwhile, dominated Cap-3 with a notable influx of 2,000 BTC in a single day.

Despite this performance, Babylon does not yet have a market cap or an established earnings model, making it impossible to calculate conventional indicators such as P/E or P/B.

Governance

At this stage, Babylon's governance remains highly centralised, with strategic decisions entrusted to internal committees and the founding team.

The Covenant Committee is responsible for managing multi-signature portfolios. It oversees the application of slashing and unbonding rules, guaranteeing the security of staked BTC.

In parallel, the Finality Provider (FP) Node Committee brings together the validators responsible for providing finality to client blockchains as proof of stake.

All major decisions concerning the evolution of the protocol, the choice of validators or the development of the ecosystem remain in the hands of the central team.

This approach ensures stability and control in the initial phase of the project.

However, Babylon's ambition is to gradually decentralise as the ecosystem matures, transferring more decision-making power to the community and users.

Partnerships and ecosystem

Babylon has rapidly built up a dense ecosystem, bringing together more than 40 finality providers, including big names in blockchain infrastructure such as Blockdaemon, Kiln, Figment, Galaxy and BlockHunter.

On the repository side, the biggest contributors to TVL remain the liquid restaking protocols Lombard, Solv, Lorenzo and PumpBTC.

Babylon also integrates organically into the Cosmos ecosystem, using IBC (Inter-Blockchain Communication) to dialogue with client blockchains and finality providers.

Several strategic partnerships have been formed:

• OKX, Bitget and OneKey, three crypto wallets from large centralised exchanges, now allow users to interact with Babylon.
• Binance has launched the "On-chain Yields" option, allowing BTC to be staked directly via Babylon on its platform.
• Anchorage Digital, one of the leading institutional crypto banks, has also integrated Babylon to offer BTC staking to its institutional clients.

Finally, Babylon is preparing the launch of Tower, its first native DEX built on Genesis L1.

Limits, risks and incidents

Since its launch, Babylon has not suffered any major hacks. The only notable incident was the hacking of its X (Twitter) account in January 2025, with no lasting consequences for the protocol.

Several limitations and risks remain, however:

• Difficulty in attracting BTC: despite initial success, the majority of bitcoins remain tied up in ETFs, cold portfolios or long-term treasuries. Convincing hodlers to move their BTC to a staking protocol remains a major challenge.
• Technical complexity: implementing the slashing mechanism via Bitcoin Script is complex and could expose Babylon to future vulnerabilities, particularly during the launch of Genesis L1.
• Centralisation: today, 85% of deposited BTC is concentrated in just 10 liquid restaking protocols, with Lombard capturing more than 40% of the total. This imbalance could pose problems for the future governance and resilience of the network.
• Dependence on a few partners: a major incident at a dominant protocol such as Lombard or Solv could lead to a massive flight of capital and tarnish Babylon's reputation.

Competition

On the staking market, Babylon mainly faces two heavyweights in the Ethereum ecosystem:

• EigenLayer, the undisputed leader in liquid restaking in terms of TVL and funding.
• Symbiotic, which is showing spectacular growth, having raised more than $1 billion in TVL with just $5.8 million in initial funding.

Babylon, although positioned in a potentially larger market - Bitcoin, with $1.670 trillion in capitalisation - is still lagging behind for the time being in terms of developer activity and ecosystem maturity.

However, its ability to raise funds quickly and attract a high TVL in a matter of months is testament to a notable potential to catch up.

Roadmap

Babylon has successfully completed its Phase 1: on 17 December 2024, the Cap-3 close marked a milestone, taking the protocol to a TVL in excess of 33,000 BTC.

The objective of this first stage was clear: to massively attract stakers and establish Babylon as the leader in the emerging Bitcoin staking market.

During this phase, users and finality providers accumulated Babylon points as well as other partner rewards (such as Lombard points), intended to be converted into governance tokens at the launch of $BABY.

Phase 2, expected in Q1 2025, will see the launch of Genesis Layer 1, a Bitcoin-secured PoS blockchain, becoming the first official Bitcoin Secured Network (BSN).

This stage will also introduce slashing capabilities on Bitcoin and should mark the transition to a tokenised rewards system, gradually replacing points.

Finally, Phase 3, already outlined, will aim to:

• Deploy a full security sharing model.
• Strengthen inter-blockchain communication via IBC.
• Extend Bitcoin security to other PoS chains beyond Cosmos.

The Big Whale's view

With Babylon, an ambitious gamble is taking shape: unlocking Bitcoin's return potential while merging the robustness of Proof of Work with the agility of Proof of Stake blockchains.

So far, the signs are promising.

The strong uptake of staking, the rapid rise of TVL and the buzz around the upcoming $BABY airdrop show that a latent market exists for native BTC staking.

Technically, Babylon combines several novel innovations: Bitcoin Script, UTXO, IBC Relayer, and soon Genesis L1, creating an architecture where Bitcoin becomes the bedrock of truth for securing other blockchains.

In terms of business model, Babylon is attempting to capture a share of a colossal market valued at $1.6 trillion. With the expected rise in the price of Bitcoin, the Total Addressable Market could expand further, multiplying the opportunities for the protocol.

To date, Babylon holds more BTC than the Bitwise or Ark 21Shares ETFs, proof of its attractiveness.

The main unknown remains execution: will Babylon be able to maintain the remote auto-custody of BTC, guarantee the security of the system in the face of the challenges of slashing, and above all reduce centralisation around a few large players?

Success will also depend on its ability to attract more finality providers and diversify its ecosystem.

One thing is certain: the launch of $BABY and Genesis L1 should attract market attention and put Babylon among the major projects of the new Bitcoin cycle.

‍