Overview of the BTC LSD Track: How to Leverage Trillions of Dollars in Funding?

Babylon is an innovative Bitcoin staking solution that achieves non-custodial staking of Bitcoin native assets through cryptographic technology. This solution allows Bitcoin holders to earn staking rewards while ensuring security, and also provides security guarantees for other blockchains.

In the Babylon system, the staked Bitcoin remains on the mainnet, protected by the proof-of-work mechanism. The entire staking process is entirely based on the cryptographic method of extractable one-time signatures, without relying on any third-party bridges or custodians. This highly secure design has gained wide recognition from the Bitcoin community.

The emergence of Babylon has opened up a new track for Bitcoin staking, fundamentally changing the way the Bitcoin ecosystem operates. It not only allows Bitcoin holders to earn staking rewards but also addresses the issues of inflation and startup difficulties for small and medium-sized proof-of-stake chains. These chains no longer need to offer excessively high inflation rewards to attract stakers, nor do they require large amounts of capital to build validation nodes.

Bitcoin Liquid Staking Plan

The Bitcoin liquidity staking scheme is similar to Ethereum's liquidity tokens, aimed at achieving the function of demand deposits for Bitcoin. Users can deposit and withdraw at any time while earning interest, and the liquidity staking tokens can also be used in other DeFi projects, such as providing liquidity or lending. In contrast, staking on Babylon is more like a fixed-term deposit, with higher returns but no option for immediate withdrawal.

This solution can also attract more non-mainnet Bitcoin users to participate, for example, users holding wBTC on Ethereum can also participate in Babylon staking.

Essentially, liquid staking can be seen as the project team borrowing users' Bitcoin to stake in Babylon, using the staking rewards to pay users interest, while also providing users with tradable bonds ( liquid staking tokens ).

Currently, most of Babylon's liquid staking tokens are built on Ethereum, with plans to support multi-chain in the future. With a few exceptions, most adopt a custodial model, where the project party stakes on behalf of users to Babylon, and third-party institutions provide liquidity.

pSTAKE

pSTAKE adopts an institutional custody liquidity model. Users stake their funds into pSTAKE's deposit address, where liquidity support is provided by custodians such as Cobo, and then the project team stakes Bitcoin with Babylon.

yBTC is the official liquid staking token of pSTAKE, which has not yet been issued. Users are expected to utilize yBTC to earn yields in other DeFi projects, such as providing liquidity or lending. yBTC will initially be issued on Ethereum and will later expand to other layer two networks.

Lorenzo

Lorenzo implemented a similar principal and interest separation business to Pendle in the Bitcoin liquidity scheme.

The user sends Bitcoin to Lorenzo's multi-signature wallet, which is then custodied by a staking agent composed of a group of trusted Bitcoin institutions and traditional financial giants. The user receives stBTC as a staking certificate, and Lorenzo then stakes the Bitcoin to Babylon.

After collateralizing Bitcoin liquidity, Lorenzo issued three types of tokens:

1. Liquidity Principal Token ( LPT ): represents redeemable Bitcoin principal, stBTC is Lorenzo's official LPT.

2. Yield Accumulation Token ( YAT ): represents the right to claim rewards from the staking project at the end of the re-staking period. YAT can be traded and transferred, but cannot be transferred after maturity. Users can claim project rewards based on the YAT they hold.

3. Staking Proof Token ( SPT ): After users claim project rewards using YAT, YAT will automatically convert to an equivalent amount of SPT, entering a unified queue and cannot be traded. The sole purpose of SPT is to be destroyed in order when users burn stBTC to withdraw Bitcoin.

Since both LPT and YAT can be traded, anyone holding YAT and LPT can claim rewards with them and withdraw re-staked Bitcoin.

Lombard

Lombard adopts a more decentralized approach, where user funds are directly staked to Babylon, rather than being provided liquidity by a third party. The overall architecture consists of users, Bitcoin nodes, the backend, and a decentralized state machine managed by Consortium( that oversees the staking process.

The staking process of Lombard is managed by a decentralized Consortium. Users send native Bitcoin to the Consortium's address, and after the backend detects the deposit, it triggers the deposit notarization process. After the Consortium verifies the deposit, the Bitcoin is staked to Babylon, and an equivalent amount of LBTC is minted for the users.

LBTC is the liquid staking token of Lombard, and holders can earn native rewards by staking with Babylon. LBTC can be exchanged 1:1 with Bitcoin, used across chains, and can serve as collateral in DeFi protocols.

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)# Solv

Solv integrates staking and re-staking yields from Bitcoin Layer 2 ### into Babylon (, as well as tokenizes DeFi yield from Ethereum Layer 2 into SolvBTC. SolvBTC can be seamlessly integrated with other protocols, delivering Bitcoin liquidity to various applications. Solv currently supports Ethereum, BNB, Arbitrum, and Merlin.

Solv adopts a decentralized asset management architecture, including built-in security guards, price oracles, and modules based on liquidity strategies, establishing trustless process standards through smart contracts. Solv also employs a custodial model, with off-chain funds held by reputable custodians.

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)# Bedrock

Bedrock was initially developed for the Eigenlayer ecosystem and later became the largest staking entry on IOTX, achieving a total locked amount of nearly $200 million in the ETH and IOTX ecosystems.

Recently, Bedrock was commissioned by Babylon to develop the Bitcoin liquid staking protocol UniBTC, allowing Ethereum users to stake wBTC to Babylon. uniBTC is currently issued on Ethereum.

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)# Master Protocol

Master Protocol is a yield aggregation platform that integrates Bitcoin ecosystem projects such as Bouncebit, Babylon, and BitLayer, allowing users to stake or trade through the platform.

The two main products of Master Protocol:

1. Master Yield Market: Provides yield trading opportunities, aggregates Bitcoin ecological assets, packages them as MSY, and splits them into principal ### and interest ( for users to trade.

2. LST Protocol on Botanix Spiderchain: Liquid Staking Protocol, enhancing the liquidity and yield of Bitcoin. This product has not yet been launched and will be in collaboration with Botanix in the future.

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)# Chakra

Chakra is a zero-knowledge proof-driven shared modular Bitcoin settlement layer that provides unified settlement services for all layer two networks, building an aggregated liquidity and interoperability network, releasing Bitcoin liquidity into the entire chain ecosystem.

Chakra's funds on the Bitcoin network are custodially managed by a multi-party computation solution provided by Cobo, which are then staked to Babylon to earn staking rewards. After the transaction is retrieved and verified, tlBTC will serve as a staking certificate, allowing staking users to mint.

( Summary

The Bitcoin staking of Babylon is about to go live, which will have a significant impact on the Bitcoin ecosystem. Bitcoin staking will increase the overall yield of assets, and the staking rewards may be dozens of times higher compared to traditional Bitcoin interest. This not only allows users to gain more profits from using Bitcoin but also promotes the development of Bitcoin Layer 2 and other ecosystems, forming a positive cycle.

However, Bitcoin staking in Babylon is different from Ethereum staking and is more akin to the restaking business of Eigenlayer. Therefore, it is unlikely that a monopoly pattern like that in Ethereum staking will emerge in the Bitcoin staking sector, and the motivation for exchanges to participate is also relatively weak. This provides market opportunities for early projects, and investors can expect high returns from rapid growth.