Babylon, The Protocol For Staking Bitcoin

Term Structure
5 min readJun 7, 2024


The emergence of Bitcoin ushered in the era of crypto and blockchain technology. Over the past 15 years, this nascent industry has evolved significantly with the rise of decentralized finance (DeFi), propelled by Ethereum’s smart contract capabilities. Initially, Ethereum stood out as the only blockchain network with innovations. By contrast, Bitcoin was primarily viewed as a store of value, despite its advancements in security and mining.

As the landscape continues to evolve, new technologies and protocols are emerging, effectively elevating Bitcoin beyond just a store of value or a medium of exchange.

One notable innovation is Babylon’s Bitcoin Staking Protocol, funded by Binance Labs. This protocol leverages cutting-edge innovations, allowing Bitcoin holders to earn yields on their holdings while enhancing the security and efficiency of the Proof of Stake (PoS) consensus mechanism. In this article, we will analyze the Babylon Protocol, explain how it works, and the advantages of using it.


The Role of Staking in Crypto

Ethereum and other Layer 1 blockchain have been at the forefront of staking. In fact, staking has become a fundamental aspect of the crypto ecosystem, and its importance has grown significantly in recent months, especially with the advent of liquid staking. Currently, liquid staking accounts for 40% of the ETH staking market.

Source: Dune Analytics

Bitcoin, typically regarded as a store of value, lacks an inherent mechanism for generating passive income. As a result, around 21 million BTC, with an estimated value of $900 billion, remain inactive.

However, this is becoming a thing of the past as Bitcoin unlocks value that could skyrocket its market capitalization. Bitcoin’s market capitalization currently sits at over $1.2 trillion, while ETH is valued at over $356 billion. When considering the entire crypto ecosystem, Ethereum surpasses Bitcoin. As Bitcoin continues to gain utility in DeFi, it is expected to reach a new level.

What Is Bitcoin Staking?

Unlike most cryptocurrencies that use the Proof of Stake (PoS) consensus mechanism, Bitcoin operates on the Proof of Work (PoW) system. However, innovative approaches have emerged to enable Bitcoin holders to indirectly engage in staking-like activities.

In a typical PoS setup, staking involves locking up crypto to support network operations such as validating transactions, enhancing network security, and earning rewards similar to interest in traditional banking. While Bitcoin lacks an inherent staking mechanism, some cryptocurrency exchanges have devised methods to involve Bitcoin in staking. Through these platforms, users can stake tokens representing Bitcoin in various ways to earn rewards, expanding Bitcoin’s utility and linking it to the evolving PoS ecosystem.

How Babylon Works

Babylon is exploring a new way to connect Bitcoin with PoS blockchains. This system allows Bitcoin holders to integrate their coins into PoS networks, thereby enhancing the security of these newer networks by leveraging Bitcoin’s robust security features. It is also convenient to use: users can stake Bitcoin on PoS blockchains without moving their crypto off the Bitcoin network.

The Babylon Bitcoin Staking Protocol operates through a straightforward yet effective process:

  1. Staking Bitcoin: Bitcoin holders can stake their BTC by sending it to a self-custodian vault, which involves creating a unique transaction on the Bitcoin blockchain to lock the Bitcoin under specific conditions.
  2. Validation and Rewards: Once staked, the Bitcoin can be used to participate in validating PoS blockchains. Stakers, or the validators they delegate to, can earn yields by actively participating in the network’s consensus mechanism.
  3. Unbonding and Security: After staking, there are two possible outcomes: earning rewards for honest participation or facing slashing for malicious activities. The protocol ensures that anyone breaching the security are penalized to maintain the network’s integrity.

For in-depth insights into the Babylon Bitcoin Staking Protocol, including its technical specifications and workflow, visit the official Babylon Blockchain Doc.

Advantages of Babylon’s Bitcoin Staking

Generate Returns on Bitcoin

One major benefit is the opportunity for Bitcoin holders to earn yields on their BTC, a feature not traditionally available to Bitcoin investors. This could transform Bitcoin from being seen solely as “digital gold” to a valuable source of passive income through staking.

Improved Security for Proof-of-Stake Chains

The Babylon protocol enhances the security of PoS chains by leveraging Bitcoin’s robust security model to provide additional protection against attacks and increase the network’s integrity and resilience. This added security benefits individuals with stakes in PoS chains as well as BTC holders. The protocol also addresses liquidity issues related to staking by facilitating a secure and quick unbonding process.

Security & Liquidity

The Babylon Bitcoin Staking Protocol prioritizes security and liquidity above all else. It implements a unique security system where staked Bitcoin can be completely slashed if any security breaches occur. Moreover, the protocol ensures that staked assets remain liquid, enabling quick and secure unbonding. This addresses a common concern with staking mechanisms, which usually have extended locking period.


The Babylon Bitcoin Staking Protocol marks a significant advancement in integrating Bitcoin with the PoS consensus mechanism, offering Bitcoin holders a new way to earn yield while enhancing the security and efficiency of PoS blockchains. Supported by Binance Labs, this protocol is set to play a crucial role in shaping the cryptocurrency landscape by improving the utility, liquidity, and security of both Bitcoin and PoS blockchains. As the project progresses, its impact on the broader crypto ecosystem will be fascinating to watch.



Term Structure

The Term Structure team is dedicated to creating a term structure of interest rates as a fundamental infrastructure in DeFi.