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Bitcoin Babylon

Understanding Non-Custodial Staking on the Babylon

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What is Babylon?

Babylon is a revolutionary staking protocol that allows Bitcoin holders to provide their BTC assets to secure PoS systems and receive a yield on their assets.

The idea of BTC staking is relatively new and needs further explanation. When discussing BTC staking, many people associate it with locking BTC in some multisig account, bridging BTC to other chains, and minting new synthetic tokens. The addition of third parties always reduces security. However, that's not the case with Babylon.

To avoid misunderstandings, let’s clarify that Babylon is a Bitcoin Staking Protocol that provides shared security for PoS systems and allows Bitcoin holders to delegate their BTC to Finality Providers, who can then provide Bitcoin security to a consumer PoS chain or DA layer. On the other hand, there is also the Babylon chain, built on Cosmos SDK, which receives security from the Babylon Bitcoin Staking Protocol and acts as the first chain that Finality Providers can support. However, Babylon plans to support different PoS systems from various blockchain ecosystems and provide them access to shared security collateral with BTC.

In this article, we’ll focus on the Babylon Bitcoin Staking Protocol. We’ll show you how the staking flow works, how Babylon applies non-custodial features, and why the process is secure.

Core Parts of the Babylon Bitcoin Staking Protocol

The Babylon Bitcoin Staking Protocol consists of two key protocols designed to enhance security in decentralized systems. These protocols leverage the robust features of both Bitcoin and Babylon:

  1. Bitcoin Timestamping Protocol. This protocol in Babylon allows data from PoS systems, such as blockchains or DA layers, to be securely timestamped on the Bitcoin network. The protocol enables any data submitted to Babylon to receive Bitcoin timestamps, enhancing their security as more blocks are added over time. This increased immutability helps protect PoS systems from long-range attacks, improving their integrity. Additionally, this protocol facilitates data exchange between Bitcoin and other PoS systems that utilize BTC for security.
  2. Bitcoin Staking Protocol. Babylon’s Bitcoin Staking Protocol enables Bitcoin to secure decentralized systems through trustless, self-custodial staking. Bitcoin holders can stake their Bitcoin for PoS systems without needing third-party custody, bridges, or wrapping. This protocol offers economic security guarantees to PoS systems, allowing for slashing if necessary, and ensures efficient stake unbonding to enhance liquidity for Bitcoin holders. It’s designed to be modular and compatible with various PoS consensus protocols, serving as a foundation for building restaking protocols.

These protocols form a solid foundation for Babylon, providing the ability to stake BTC and exchange data between Bitcoin and chains that use BTC as security collateral.

How does staking work?

Before describing the entire flow, let’s briefly talk about the staking process's cornerstones: the Finality Providers' role, a time lock, and an EOTS signature.

Finality Providers

Babylon introduces an additional layer of finality that can be added on top of CometBFT or other consensus protocols. Finality Providers are responsible for voting in a finality round on top of these consensus protocols.
Finality Providers can receive voting power delegations from BTC stakers and earn commissions from the staking rewards denominated in the tokens of the networks they support.

If a Cosmos chain decides to integrate with the Babylon Bitcoin Staking Protocol, they need to onboard Finality Providers in addition to their existing set of validators. Additionally, they must incentivize Finality Providers to secure the network by providing additional rewards.

This dual-layer security system creates a strong shared security that can be used by various PoS systems. By combining the efforts of current validators and Finality Providers, Babylon offers a solid foundation that PoS systems can use to boost their own security. This shared security strengthens the Babylon network and provides a reliable security setup for other networks and applications that connect with Babylon.

A Time Lock 

A UTXO time lock is a feature of the Bitcoin blockchain that ensures certain coins can't be used until a specific time or block height is reached. Since Bitcoin doesn't have smart contract functionality, developers use UTXO scripts to create these time locks. To set up a time lock on a UTXO, users need to utilize Bitcoin's script language. Bitcoin scripts define the conditions under which a transaction output can be spent. In the case of a time lock, the script includes specific opcodes (operations) that enforce the time-based restriction.

Using time locks, Babylon can maintain a secure and trustless staking environment, giving users confidence that their staked assets remain controlled until the time lock conditions are met. This approach not only secures the funds but also enhances the overall integrity of the staking process.

EOTS Signature

An EOTS (Extractable One-Time Signature) is a cryptographic feature used by Babylon to enhance the security and integrity of its staking process. EOTS signatures are built using Schnorr signatures, which prevent finality providers from double-signing. In the context of Babylon, an EOTS signature ensures that if a finality provider attempts to sign two conflicting blocks, their secret key is revealed. This exposed secret key can then be used to penalize the malicious actor by triggering a slashing mechanism.


Babylon employs EOTS signatures to ensure that Finality Providers validate blocks correctly and honestly. When a user like Alice stakes her Bitcoin, she relies on a Finality Provider to validate blocks using her staked BTC as collateral. If the Finality Provider behaves maliciously, for example, by signing the same block twice, the EOTS signature mechanism kicks in. Observers can detect the double-signing, reveal the provider’s EOTS secret key, and use this information to initiate a slashing transaction.

Here’s how the EOTS signature is involved in the staking process:

  1. Generating an EOTS Key Pair: The Finality Provider creates a pair of keys: a secret nonce and a public nonce.
  2. Public Declaration: The Finality Provider announces in advance that for chain-X at block height-1000, this public nonce will be used to verify her vote. This ensures that only votes signed with this specific nonce will be accepted.
  3. Signing the Block: After verifying block-1000 and being satisfied with it, the Finality Provider uses the secret nonce and her EOTS secret key to sign the block. She then publishes this signature as her vote.
  4. Verification: The other participants can verify the vote using the finality provider’s EOTS public key and the pre-declared public nonce.

Using EOTS signatures, Babylon adds an extra layer of security to its staking process. This mechanism guarantees that any attempt by a finality provider to act dishonestly is met with immediate consequences, such as slashing the staked BTC. This approach protects Alice's funds and maintains the integrity and trustworthiness of the entire Babylon staking system.

Let's imagine that Alice decides to stake her coins. What steps should she take?

Creating a Staking Transaction 

When signing the transaction, Alice makes four essential steps:

  1. Creates a time lock for her BTC for a specified time range.
  2. Chooses a Finality Provider to validate blocks and use Alice's BTC as security collateral.
  3. Pre-signs a slashing transaction: Alice approves the transaction to be slashed if the finality provider she chooses acts maliciously. The finality provider's secret key is the only thing needed to broadcast this transaction. Bitcoins are slashed by sending them to a Bitcoin burn address like 0000…0000.
  4. Links a Cosmos-based wallet for receiving rewards.

Block Validation

After staking BTC, the Finality Provider starts validating blocks to secure the PoS systems using the BTC delegated by Alice. There are two main scenarios for the finality provider:

  1. Acts Correctly—If the Finality Provider acts correctly and validates blocks without double-signing or being offline, the provider receives rewards for validating blocks, which Alice can claim. The Finality Provider can charge a fee for its validation services.
  2. Acts Maliciously – If the Finality Provider acts maliciously, it can lead to a slashing transaction. Here’s how it can happen:
    1. For example, the Finality Provider acts maliciously by signing one block twice.
    2. Whoever sees both votes can decrypt the provider’s EOTS secret key.
    3. A special covenant committee signs the pre-signed slashing transaction created by the staker using the finality provider’s EOTS secret key.
    4. The slashing transaction is broadcast to the network, and a portion of BTC is sent to a burn address like 0000…0000.
    5. The remaining portion is returned to Alice.

Because of Babylon's approach's beauty, BTC is always held in Alice's account. If slashing occurs, her Bitcoin can only be withdrawn or sent to a burn address. The EOTS secret key is required to slash Alice's transaction, which can only be revealed if the validator acts maliciously. This architectural approach provides confidence that the whole process is secure and trustless, ensuring that Alice maintains control over her assets at all times. 

Alice's most important decision is choosing a provider with enough experience in the validating industry to secure her BTC without the risk of slashing it.

Why is Babylon's BTC staking approach different from alternatives?

BTC holders can find different BTC staking solutions on the market. The most popular ones are Bitcoin L2s. If users want to stake their Bitcoins, they typically need to bridge Bitcoin using bridges, mint BTC derivatives on the receiving network, and find a protocol that allows them to stake their coins.

Most Bitcoin Layer 2 solutions don't use BTC as collateral for supporting PoS chains. Instead, they provide yield to BTC holders through additional emission, liquidity provision, or lending mechanisms.

Babylon's approach is more secure because it doesn't involve bridging or minting synthetic BTC. The source of yield is always clear, as it comes from supporting PoS networks, which reward validators with their coins.

We believe in the Bitcoin staking narrative and are committed to helping the Babylon Foundation use idle Bitcoin capital to fortify PoS systems. We will continue sharing content about this. Stay tuned for updates!

How to Participate?

If you're interested in participating in the launch of Babylon, we recommend two main directions for involvement:

  1. Testnet Participation: Engage with the Babylon testnet by staking your SignetBTC directly on Babylon's official website. This allows you to familiarize yourself with the platform's features and functionalities without risking real assets.
  2. Support for Large Bitcoin Holders: If you hold significant Bitcoin, don't hesitate to contact our team. We can provide tailored validator solutions that will be optimal for you when the mainnet launches.

The Babylon Testnet-4 has already been launched, and the mainnet launch is anticipated by the end of the first half of the year. This new testnet focuses on the security of staked Bitcoins by testing user interactions with the BTC Signet test network. The Babylon team is actively monitoring updates and feedback from the community to ensure the network's robustness and security before the mainnet launch.

About P2P Validator

P2P Validator is a world-leading non-custodial staking provider, securing over $7 billion from over 10,000 delegators/nominators across 40+ high-class networks. We have actively participated in the Babylon Chain activities since the beginning.


Do not hesitate to ask questions in our Telegram chat or contact Alik via [email protected]. We are always open to communication.


Web: https://p2p.org

Twitter: @p2pvalidator

Telegram: https://t.me/P2Pstaking

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