Hey Edge readers,

This week, we’re spotlighting two major developments that could transform your DeFi strategy. First, we’re diving deep into Babylon staking—your guide to unlocking new opportunities with your Bitcoin. Then, don’t miss out on the details of our new USD lending pool on Morpho.

In today’s edition:

• The ultimate guide to Babylon staking

  We’ll explore what Babylon is, how it works, and how you can start earning rewards.

• New USD lending pool on Morpho

  Dive into the mechanics behind our first-ever lending pool on Morpho.

• Maker rebrands to Sky 🗞️

  Threshold proposal to save WBTC, Vitalik thoughts on DeFi, and more.

Stay sharp. 🫡

-The Exponential team

The ultimate guide to Babylon staking

As BTCFi (Bitcoin DeFi) continues to evolve, Bitcoin’s role within DeFi is also expanding. One of the most exciting developments is Babylon, a project that has just launched its Phase 1 mainnet, bringing a new dimension to Bitcoin staking. In this guide, we’ll explore what Babylon is, how it works, and how you can start earning rewards.

What is Babylon?

Babylon is an innovative project that leverages Bitcoin’s robust security features to enhance the economic security of Proof-of-Stake (PoS) blockchains. By allowing Bitcoin holders to stake their BTC, Babylon integrates Bitcoin into the PoS ecosystem, enabling participants to earn rewards while strengthening the security of various blockchain networks.

How does Babylon work?

Babylon works by integrating Bitcoin’s inherent security into PoS ecosystems through its suite of protocols. The core components include the Bitcoin Staking Protocol and the Bitcoin Timestamping Protocol, which collectively enhance the security and efficiency of PoS networks.

The Bitcoin Staking Protocol allows Bitcoin holders to stake their BTC directly from the Bitcoin network to secure PoS chains. Unlike traditional staking methods, Babylon’s protocol does not require the BTC to be bridged, wrapped, or held by third parties. Instead, it enables Bitcoin to provide full slashable security guarantees to PoS networks, meaning that if any malicious activity occurs, a portion of the staked Bitcoin can be forfeited. This setup provides a robust security layer for PoS blockchains while offering Bitcoin holders an opportunity to earn staking rewards.

The Bitcoin Timestamping Protocol adds a crucial layer of security by anchoring PoS chain data to the Bitcoin blockchain. This process creates an objective and immutable record of events, which is essential for maintaining the integrity of PoS chains. By leveraging Bitcoin’s security, the protocol helps prevent long-range attacks—a type of threat where attackers attempt to rewrite blockchain history by creating a fraudulent chain fork.

In practice, this works by submitting key data from PoS chains, such as block hashes, to the Bitcoin network, where it is timestamped. These timestamps are nearly impossible to alter due to Bitcoin’s extensive computational power, providing a strong defense against potential attacks. This immutable record ensures that even if an attacker tries to create a fork, the chain with the correct Bitcoin timestamp will always be chosen, effectively neutralizing the threat.

What problems does Babylon address?

Babylon addresses several critical challenges within the DeFi and blockchain ecosystems:

1. Security for new and existing PoS chains: Babylon provides a way to enhance the security of PoS blockchains, especially newer ones that may lack robust economic security. By leveraging Bitcoin’s security, these chains can protect against various attacks.

2. Native source of yield for Bitcoin: Bitcoin traditionally sits idle as a store of value, but with Babylon, BTC holders can put their assets to work. This enhances capital efficiency by allowing Bitcoin to be used productively within the PoS ecosystem, generating native yield without the need for bridging or custodial solutions.

3. Faster unbonding and improved liquidity: Babylon’s protocols enable faster unbonding times for stakers, addressing one of the major pain points in traditional staking systems where users often face long waiting periods to access their funds.

4. Censorship resistance and data integrity: By anchoring PoS chain data to Bitcoin’s blockchain, Babylon provides an immutable and censorship-resistant layer that ensures the integrity of the PoS chains it secures.

Ecosystem alpha

Babylon’s ecosystem is rapidly expanding through strategic partnerships and integrations with leading blockchain networks and projects. Some of the key ecosystem participants include:

• Lombard: A partnership with Lombard introduces “liquid Bitcoin” (LBTC) tokens, which provide liquidity over staked BTC, allowing users to access DeFi opportunities across multiple platforms while maintaining Bitcoin’s security.

• Akash Network: This collaboration integrates Bitcoin’s security features into Akash’s decentralized cloud infrastructure, enhancing both security and scalability for users deploying workloads on the Akash Network.

• Cosmos Hub: By partnering with Babylon, Cosmos Hub leverages Bitcoin staking to secure its consumer chains, offering an additional layer of protection and an incentive model for BTC holders.

• Bitcoin Layer 2s: Babylon’s integration with Bitcoin Layer 2 solutions, like Lorenzo and Bison, allows these networks to utilize native BTC for staking and yield generation, all while maintaining the security and decentralization ethos of Bitcoin.

Conclusion

Babylon represents a significant advancement in integrating Bitcoin’s security into the broader DeFi ecosystem. By enabling Bitcoin staking and timestamping, Babylon not only enhances the security of PoS blockchains but also provides Bitcoin holders with new opportunities to earn rewards. Babylon is poised to play a critical role in the future of BTCFi.

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