The Three Facets of Babylon Genesis

Babylon Genesis is set to launch as the first Bitcoin Secured Network (BSN) that derives crypto-economic security directly from Bitcoin through the Babylon Bitcoin staking protocol. Babylon Genesis is a standalone Layer 1 with advanced security features, and will also serve as a control plane and a liquidity hub for other BSNs, enabling them to integrate with Bitcoin’s security and liquidity. The goal of this Blog is to introduce Genesis in the context of the broader Babylon ecosystem.

1. State of the Babylon Ecosystem

The goal of the Babylon protocol is to enable bitcoin holders to provide security and liquidity to Bitcoin Secured Networks (BSNs) and, in return, get the opportunity to earn validation rewards from those networks.

The underlying breakthrough technology is Bitcoin staking [1], which enables bitcoin holders to trustlessly lock and use their bitcoins to secure Proof-of-Stake (PoS) chains and rollups. 

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Since the launch of Phase 1 of the Babylon Mainnet in August 2024, more than 57,000 bitcoins have been staked through the Babylon protocol, locked in self-custodial staking contracts on the Bitcoin chain. At the same time, a thriving ecosystem of projects is integrating the Babylon protocol, including:

• Liquid staking protocols, which mint liquid-wrapped assets backed by the bitcoins staked on the Babylon protocol, thus allowing bitcoin holders to enjoy liquidity while providing security;
• Wallets and custodians, which allow their users to stake their bitcoins;
• Bitcoin Secured Networks (BSNs), which have committed to integrate the Babylon protocol, including both L1 and L2 networks;
• Finality Providers, which have received the bitcoin delegation and will validate the BSNs backed by the staked bitcoins;

Infrastructure providers, which integrate Bitcoin staking with 3 BSN stacks: 1) Cosmos (L1’s), OP-Stack (L2’s) , Arbitrum Stack (L2’s), as well as extend the Babylon Bitcoin staking functionality.

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An important development is the emergence of a Bitcoin liquidity layer on top of the Bitcoin staking layer: Once there is a venue where bitcoins are locked and staked, protocols emerge to create liquidity and new use cases from those staked bitcoins. We have seen this development in other ecosystems like Ethereum, and we are now seeing it in Bitcoin as well.

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2. Multi-Phased Launch

The Babylon protocol is being launched in three phases:

• Phase 1: Bootstrap of the supply side of the Bitcoin security and liquidity marketplace. Over 57,000 bitcoins have been staked.
• Phase 2: Launch of the first BSN: Babylon Genesis
• Phase 3: Launch of the other BSNs, completing the demand side.

We are now near the end of Phase 1 and about to launch Phase 2.

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3. The Three Facets of Babylon Genesis

Babylon Genesis is a multi-faceted blockchain and we will explore it from three perspectives:

• A Bitcoin-secured Layer 1 which uses cutting-edge technologies such as Bitcoin staking and Bitcoin timestamping to leverage Bitcoin security;
• A control plane that coordinates the other BSNs with Bitcoin so that they can efficiently receive Bitcoin security and liquidity with minimal integration efforts;
• A liquidity hub that manages Bitcoin liquidity through on-chain applications that are secured by Babylon Genesis

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3.1 Genesis: A Bitcoin-secured L1

The First Network Secured by Bitcoin Staking

The concept of Bitcoin security sharing is almost as old as Bitcoin itself. In 2010, Satoshi Nakamoto himself proposed the concept of merge mining which allows Bitcoin miners to reuse their mining power to secure other blockchains. Chains like Namecoin, Dogecoin and Rootstock (RSK) are examples that use merge mining. However, merge mining suffered from two significant problems:

• Merge mining is only suitable for securing Proof-of-Work (PoW) chains. Most new blockchains nowadays are Proof-of-Stake (PoS) on which merge mining is not applicable.
• Nothing-at-Stake: Merge mining allows a Bitcoin miner to attack the merge-mined chain without attacking Bitcoin itself. Since a miner’s main vested interest is in Bitcoin itself, it can easily attack the merge-mined chain at little cost. 

Bitcoin staking is a breakthrough technology invented in 2023 by the Babylon team to simultaneously solve these two problems [1]. Instead of using the work that secures Bitcoin to secure another PoW blockchain, Bitcoin staking uses the asset that is secured by the work to secure a PoS chain. Bitcoin becomes a true slashable asset, thus solving the Nothing-at-Stake problem of merge mining.

Babylon Genesis will be the first blockchain that is secured by Bitcoin staking. Its PoS consensus is built on the CometBFT stack, with Bitcoin staking added in a modular way by means of a finality gadget. Babylon Genesis’ security derives from dual-quorum staking: 100 CometBFT validators running CometBFT consensus, together with 60 Bitcoin-staked Finality Providers adding Bitcoin-finality signatures. 

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A Phase 1 Bitcoin staker can register with Babylon Genesis and start securing it after the Launch. If all of the current Phase 1 stakers were to register now, Babylon Genesis’ staking market cap would rank #10 among all PoS chains. And this is only with 0.27% of Bitcoin’s market cap: a testimony to the sheer size of the Bitcoin asset.

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Bitcoin Timestamping

Another core piece of technology implemented on Babylon Genesis is Bitcoin timestamping: hashes of the Babylon Genesis blocks signed by the validators are committed to the Bitcoin chain roughly once every hour. These timestamps synchronize the Babylon Genesis chain with Bitcoin, and provide several important security benefits:

• They protect against long-range attacks if a new long malicious fork of the Genesis chain were to be created. Timestamping allows clients to have a unified view of all forks of Genesis and their timestamps, thus making consistent fork choices. This long-range security complements the short-range security offered by Bitcoin staking.
• They enable fast and safe unbonding of both the BABY stake and the Bitcoin stake. Consequently, the unbonding time of  BABY stake is 300 Bitcoin blocks  (~50 hours), much shorter than most other blockchains. The unbonding time of Bitcoin stake is 1008 Bitcoin blocks (~ 7 days). 

3.2 Genesis: A Control Plane

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In networking, the control plane is a key piece of infrastructure which serves a coordination role and routes information flow in a network. In addition to being a BSN itself, Babylon Genesis acts as a control plane for the entire two-sided marketplace, coordinating information flow between the Bitcoin chain and the other BSNs. These BSNs will come online in Phase 3 of the launch. Specific coordination functions of Genesis include:

• Babylon Genesis provides Bitcoin timestamping for other chains by allowing them to timestamp to Genesis, thus avoiding the need for individual BSNs to build their own infrastructure, reducing the aggregate fees.
• Layer 1 BSNs use cross-chain protocols for synchronizing with Genesis on BTC staking/timestamping related information. The Finality Providers submit finality signatures to the BSN for the finality round.
• Layer 2 BSNs read BTC staking information from Genesis directly and use Genesis as a data availability layer for finality signatures.

Babylon Genesis generates protocol revenue from providing such coordination service. In particular,

• BSNs will share a part of their protocol rewards to Babylon Genesis for using the coordination service.
• The BSN integration promotes on-chain activities on Babylon Genesis, leading to more transaction fees paid to Babylon Genesis.

Babylon Genesis will programmatically distribute the protocol rewards to its native stakers, validators, BTC stakers, and finality provider according to the embedded tokenomic rules.

3.3 Genesis: A Liquidity Hub

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The emergence of a Bitcoin liquidity layer on top of the Bitcoin staked layer gives Babylon Genesis an opportunity to become a liquidity hub in addition to being a security control plane for the entire Babylon ecosystem. 

During Phase 2, Genesis will have DEX, restaking, vault, and BABY LST minting functionality live on-chain. BTC LST holders will be able to bridge their assets to Genesis and participate in BTCFi while reaping all of the benefits of Genesis being Bitcoin secured. 

Phase 3 significantly expands Babylon Genesis, transforming it into a vibrant ecosystem. Specifically, other Bitcoin Secured Networks (BSNs) will be onboarded and EVM compatibility will be integrated to power liquidity primitives—particularly BTC LSTs. Here's some of what's ahead ahead and what we expect from independent third parties building on Genesis:

• DEXs: Enable trading and stable-swap pools tailored for BTC LSTs.
• LST Minting: Mint BTC LSTs directly onto Genesis with no bridging required.
• BTC-based Lending Protocols: Improve liquidity and capital efficiency for the staked BTC assets.
• Restaking: Secure a variety of dapps through flexible slashing conditions. 
• Incentive Markets: Manage and coordinate rewards across Genesis dapps and BSNs.
• Vaults: Simplify user experience by tokenizing DeFi interactions and yield strategies.
• Genesis Reward Hub: facilitate reward distribution for Bitcoin stakers active in various BSNs.

Having these liquidity primitives exist directly on Genesis will allow BSNs to leverage BTC liquidity regardless of being directly connected to other BSNs or Ethereum. This offers a Bitcoin secured path for BTC liquidity and limits the need to rely on less secure bridges.  

4. Technology Ahead: Trust-Minimized Bitcoin-Genesis Bridge 

Babylon Genesis is secured by Bitcoin staking and Bitcoin timestamping, and therefore it has a high level of security as an L1 blockchain. To serve as a liquidity hub, the security of the bridges that bring liquidity in and out of the chain is equally important. For bridging to other programmable chains—like Cosmos zones—trust-minimized bridges such as IBC already exist. However, no trust-minimized bridges currently exist for Bitcoin, and this limits the security of bringing Bitcoin liquidity into Genesis. Building the software infrastructure for a  trust-minimized Bitcoin-Genesis bridge is a top priority in the coming months. 

4.1 Applications

In addition to being a conduit for bringing Bitcoin liquidity into Genesis, there are three specific applications of such a bridge:

• Trust-minimized LSTs: while the Babylon Bitcoin staking protocol is trustless, today’s LSTs that are built on top of it are all trusted, requiring a multi-sig committee to bridge the staked bitcoins and mint a wrapped bitcoin on the destination chain. Hence, the Bitcoin liquidity layer has additional trust assumptions compared to the staking layer. A trust-minimized bridge integrated with the underlying staking protocol would create the infrastructure to build trust-minimized LSTs.

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• Bitcoin staking for dapps: the Babylon Bitcoin staking protocol slashes for equivocations, and this is sufficient for securing PoS chains and rollups. To secure dapps, more general slashing conditions are required. Current solutions require first bridging the bitcoins to a chain such as Babylon Genesis where the wrapped asset is locked in a smart contract with programmable slashing conditions. These solutions however suffer from the security bottleneck of existing Bitcoin bridges. With a trust-minimized Bitcoin bridge, these solutions can be upgraded to approach the trustlessness of native Bitcoin staking.
• Shared bridge for other BSNs: Just like Babylon Genesis acts as a shared infrastructure for the staking layer to support other BSNs, the Bitcoin-Genesis bridge can act as a shared infrastructure for the liquidity layer to support other BSNs. Individual BSNs do not need to build their own bridge to Bitcoin, but can share the infrastructure of the Bitcoin-Genesis bridge, such as operators, light clients etc. As such, Babylon Genesis becomes the control plane for liquidity as well as security, helping other BSNs to bring Bitcoin liquidity to their own network.

4.2 Bridge Research and Development

Building a trust-minimized bridge with Bitcoin is a long-standing challenging problem. We have actively done the research and are currently in the process of prototyping such a trust-minimized Bitcoin-Genesis bridge. Our design is based on the BitVM2 architecture [2], but we solved several open problems in that architecture:

• Trust-minimized Bitcoin light client: the heart of any trust-minimized bridge is a light client that can read the consensus state of the counterparty chain. In the case of the BitVM2 bridge, its light client not only has to read the state of the counter-party chain, but it also has to read the state of the Bitcoin chain itself. This is due to the well-known lack of the introspection ability of the Bitcoin scripting language. A Bitcoin light client is needed to perform introspection. The light client in [2], based on the concept of superblocks, is unfortunately insecure. Our research has yielded the first provably secure Bitcoin light client.

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• Crypto-economic covenants via Bitcoin staking: One of the weaknesses of the BitVM2 bridge is the heavy dependence on a signing committee to emulate covenants, which currently do not exist on Bitcoin due to the lack of opcodes such as OP-CAT or OP-CTV. This signing committee has some similarities to multi-sig bridge committees, in the sense that they take custody of the bitcoins and can steal them. Fortunately, due to the BitVM2 proof verification technology, the trust assumption on this committee is reduced from the standard majority-honesty assumption in multi-sig bridges to an existential honesty (1-of-n) assumption, a significant improvement. However, it is this trust assumption that limits the BitVM2 bridge from being trustless. To remove this trust assumption, we came up with a concept of crypto-economic covenants: committee members can be slashed if they attempt to steal funds. In particular, we demonstrated that Bitcoin staking can be used to provide such crypto-economic covenants: staked bitcoins can secure bridged bitcoins.

In the coming while, we will publish research blogs detailing these research advances. Moreover, we will also share with the community our trust-minimized LST and dapps-level Bitcoin staking designs, where the bridge design is optimized for these important use cases. Stay tuned.

References

[1] Babylon team,  “Bitcoin Staking: Unlocking 21M Bitcoins to Secure the Proof-of-Stake Economy”, Bitcoin staking litepaper, July 13,  2023. https://docs.babylonlabs.io/papers/btc_staking_litepaper(EN).pdf

[2] Linus et al, “BitVM2: Bridging Bitcoin to the Second Layers”, whitepaper, 2024.

https://bitvm.org/bitvm_bridge.pdf

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