New Startup Allowing Bitcoin Stake on Proof-of-Stake Networks
One fundamental truth is that proof-of-stake networks, such as Ethereum, and proof-of-work networks, such as Bitcoin, are like water and oil—they simply don’t mix without compromises like wrapped tokens and blockchain bridges.
However, Babylon, a startup led by a Stanford professor and a former Dolby engineer, aims to challenge this notion. The company endeavors to enable users to stake Bitcoin (BTC) to validate nodes on various proof-of-stake networks, including Ethereum, Solana, and Polygon. Against all odds, Babylon is making remarkable progress towards this seemingly improbable goal.
Recently, the company raised an impressive $18 million in a funding round co-led by Polychain Capital and Hack VC. Notable participants in the funding round include Framework Ventures, Polygon Ventures, OKX Ventures, and Castle Island Ventures. Additionally, Babylon is currently in discussions with multiple blockchain networks, including Polygon, to integrate its services, as confirmed by a Polygon Labs spokesperson.
Unraveling the Possibility of Staking BTC on Proof-of-Stake Networks
But how can someone stake actual BTC, not a wrapped token, on a proof-of-stake network? Proof-of-stake networks like Ethereum leverage smart contracts to govern the staking process, which rewards users who deposit a certain amount of ETH with gradually accrued rewards.
These ETH deposits are crucial for validating transactions on the Ethereum network. The staking process itself involves a complex web of automatic if/then conditions executed by a smart contract.
However, smart contracts are not natively supported on the Bitcoin blockchain. Nevertheless, Babylon claims to have found a solution.
Breaking the Barrier with Bitcoin’s “Time Lock”
Part of the solution lies in Bitcoin’s “time lock” mechanism, which enables users to deposit BTC for a specific period and withdraw it afterward without relying on a third party.
David Tse, a co-founder of Babylon and an engineering professor at Stanford, identified the major challenge of staking as collateral. Traditionally, a smart contract either releases collateralized funds to a staker if all conditions are met or burns/slashed those funds if not. Tse’s team discovered a way to implement this process on the Bitcoin network without smart contracts.
Using the existing Bitcoin scripting language, the team devised a method to effectuate the slashing of collateral.
Unlocking Access to Bitcoin’s Security
Any proof-of-stake blockchain can leverage the $838 billion worth of highly secure Bitcoin already in circulation to validate its transactions. This innovation could potentially lead to deflation for proof-of-stake networks, as they would no longer need to issue as many new tokens to incentivize validation.
As an example, Tse highlighted the Cosmos hub, which currently inflates its token by 10% to pay for security. Babylon’s technology has the potential to disrupt this approach.
To integrate Babylon’s technology, proof-of-stake blockchain ecosystems must grant their consent. Currently, the company’s vision remains theoretical. Nevertheless, Babylon is engaging in discussions with major proof-of-stake blockchains like Polygon, and it has received support from industry leaders, including Polygon co-founder Sandeep Nailwal.
Nailwal stated that Babylon’s vision aligns with their commitment to fostering decentralized ecosystems, offering diverse options for communities to choose from.
If and when proof-of-stake networks such as Polygon adopt Babylon’s novel technology, it may redefine the parameters for staking BTC on their chains as opposed to the native token of the network.
For instance, Ethereum may loosen the requirement of staking the minimum amount of BTC equivalent to 32 ETH, the current stipulation in the system.
Regardless, the appeal of receiving a passive and guaranteed return on Bitcoin will undoubtedly be highly attractive to BTC holders worldwide.