Babylon Cap-2 Stake: Over $1.2 billion in funds pouring in, who is madly staking BTC?

Yesterday, the first phase of the Bitcoin staking protocol Babylon, Cap-2, came to an end. Although the staking lasted only 10 blocks, nearly 23,000 BTC participated. However, compared to Cap-1, the community discussion intensity and on-chain transaction fees for Cap-2 have significantly decreased. What is the reason for this difference? Which institutions or individuals are still actively participating in BTC staking?

This article will delve into the above issues, statistically analyze the participation of major Babylon re-staking protocols in Cap-2, and explore whether there are potential risks to user fund security and the development of the Babylon ecosystem against the backdrop of the rapid development of the re-staking ecosystem.

Why is the Cap-2 stage staking so calm?

Looking back at the Babylon Cap-1 phase, users experienced a surge in Bitcoin network transaction fees, which soared to over 1000 satoshis/byte in order to participate in staking, with transaction costs exceeding 4% of the principal. Ultimately, the staking cap of 1000 BTC was reached in just over 3 hours, with approximately 12,700 participating addresses.

In contrast, the on-chain activity during the Cap-2 phase was noticeably calm. Although the total amount staked reached 22,891 BTC, there were only about 12,570 active addresses, and during this period, the network transaction fees remained at a maximum of around 30 sats/byte. There are three main reasons for this difference:

1. Stake rules change

Cap-1 has a staking hard cap, with a single staking limit of only 0.05 BTC and a lower limit of 0.005 BTC. Cap-2 has removed the staking limit and changed to a "limited time, unlimited quantity" mechanism, with a staking period of 10 blocks (864790-864799), while raising the single staking limit to 500 BTC.

This change has alleviated users' FOMO to some extent, allowing them to participate in staking according to the time progress. Although the increase in the single transaction limit has little impact on retail investors, it greatly facilitates re-staking protocols and institutional participants, reducing their trading frequency and lowering the likelihood of causing on-chain congestion.

2. stake points dilution

In Cap-1, due to the staking limit of 1000 BTC, the 3125 points generated per block are distributed according to the staking ratio, with more points awarded per BTC. For example, staking 0.05 BTC can earn 0.15625 points per Bitcoin block. This "head mining" benefit is the main reason for FOMO triggered by Cap-1.

After Cap-2 is enabled, with the point distribution mechanism unchanged, the points generated per block increase to 10,000 points. Similarly, staking 0.05 BTC now allows each Bitcoin block to earn only about 0.0209 points.

Clearly, after the launch of Cap-2 staking, the staking points have been severely diluted, which has affected users' enthusiasm for participation to some extent.

3. The control of staking shifts to institutions and project parties

Data shows that the number of Cap-1 stake participation addresses is 12,700, while the Cap-2 stake addresses slightly decreased to 12,570, with no significant growth.

In Cap-1, the official disclosure reveals that approximately 80% of the staked amount comes from liquid staking token (LST) projects, while 20% comes from native stakers. In Cap-2, the proportion of re-staking projects has further increased, with mainstream re-staking projects accounting for nearly 90%, and the proportion of native stakers possibly being less than 10%.

The main battlefield of Babylon stake has undoubtedly shifted towards institutional and re-staking projects. They conduct professional staking through custodians and transaction confirmation service providers. For users who have long deposited BTC into re-staking platforms, the entire process requires no direct participation; they only need to claim rewards at specific times. Therefore, the "calmness" of Cap-2 stake somewhat reflects the continuous development of the Babylon re-staking ecosystem, providing users with more convenience.

Who is crazily staking BTC?

A statistical analysis of the staking situation of the current mainstream 7 Babylon re-staking protocols in Cap-1 and Cap-2 has been conducted.

Overall, these seven re-staking protocols account for over 80% of the total staking share in Cap-1, while their share increases to about 90% in Cap-2 staking.

Among them, Lombard has the highest stake in BTC during the Cap-2 phase, with a total of 7166 BTC staked, accounting for 31.66%. It is worth noting that Lombard did not participate in staking during Cap-1 due to high transaction fees. As of now, its platform users have deposited 8081.8 BTC, and the platform's staking rate (the ratio of BTC staked in Babylon to BTC deposited by users on the platform) exceeds 88%.

In addition, the staking rates of the platforms Solv, Chakra, and pSTAKE have all reached 100%.

Does the re-staking agreement deviate from the original intention of Babylon?

Babylon has developed a trustless and self-custodial solution that allows users to securely stake BTC while providing security for the POS system and earning rewards.

The re-staking protocol in the Babylon ecosystem acts as a "staking intermediary" between users and Babylon. Users first deposit BTC into the re-staking platform, and when Babylon's staking opens, the platform uses professional technology to help users complete the staking process. Users can enjoy dual reward points from both the platform and Babylon.

From the perspective of returns and convenience, it is understandable that users choose to re-stake. On one hand, they can receive double rewards; even BTC that is not staked in Babylon can enjoy platform staking rewards. On the other hand, considering that Babylon's staking rules and timing are relatively complex, the re-staking agreement can save users effort and time.

However, from a security perspective, is it worth sacrificing some security for the sake of profit and convenience? Does this contradict the trustless and self-custody concepts promoted by Babylon and BTC?

Currently, the Babylon re-staking protocol commonly adopts custodial solutions. Previously, Bedrock suffered an attack that resulted in approximately $2 million in losses on the DEX. Although the official team later implemented repairs and compensation, this incident still raised users' concerns about the security of re-staking protocols. Will there be other black swan events in the future? Once users' staked principal faces security threats, the point rewards earned from staking may also lose their value.

"Not your keys, not your coins". Babylon attempts to unleash the potential of BTC without violating this principle. However, if the staking protocols within the ecosystem do not prioritize security upgrades, or if the native staking ratio remains sluggish, then the issue may revert to square one.