Introduction
The world of decentralized finance (DeFi) has experienced significant growth on the biggest cryptocurrency network, with Bitcoin staking protocols attracting billions of dollars in BTC. In an interview at the Bitcoin MENA event in Abu Dhabi, Babylon co-founder and chief technology officer Fisher Yu explained how true Bitcoin DeFi came into existence.
The Limitations of Traditional DeFi
According to Yu, until recently, "true Bitcoin DeFi ‘did not exist’". While it is possible to stake or wrap BTC and use it in various decentralized applications (DApps), there was still a trust requirement. Yu emphasized that users had to rely on someone else, which introduced counterparty risk similar to traditional or centralized finance (CeFi).
"When you lend your Bitcoin to someone, you have to give them control over your assets," Yu said. "If the borrower defaults, you can lose your Bitcoin." He also pointed out that bridging BTC to another smart chain required trusting a third party, which could run away with your assets.
The Importance of Trustless Nature in DeFi
Yu highlighted the key advantage of DeFi over CeFi: its trustless nature. "True DeFi" relies solely on users trusting the blockchain or the smart contract within the protocol, eliminating the need for intermediaries.
Babylon’s team claims to have invented Bitcoin staking, enabling native use cases for BTC without requiring users to trust any third party.
Babylon’s Innovative Approach to Bitcoin Staking
"We invented Bitcoin staking so that it is a native use case for Bitcoin," Yu explained. "Similar to holding a Bitcoin or using Bitcoin for simple payment, you only trust Bitcoin and yourself. You do not have to trust anyone else."
Babylon’s team has been working on launching a proof-of-stake (PoS) blockchain secured by the staked BTC. Unlike other blockchains like Ethereum or Solana, Bitcoin staking does not reward stakers in the chain’s native asset; instead, they are rewarded with the native token of the PoS blockchain.
Babylon’s Success with Staked BTC
Babylon has attracted an impressive $3.5 billion in staked BTC, with its mainnet launching in phases. The company started by allowing Bitcoin holders to lock their assets and will eventually launch a blockchain secured entirely by BTC staking.
Yu shared some remarkable statistics: during the first staking cap, the protocol accepted 1,000 BTC (approximately $100 million) within an hour, while the second cap drew 24,000 BTC ($2.3 billion at the time) in just 90 minutes. In some cases, users even staked up to 500 Bitcoin in a single transaction due to the maximum limit.
The Future of DeFi on Bitcoin
On December 10, Babylon opened its third staking cap and announced that it had already attracted $3.5 billion in staked BTC. Yu acknowledged that DeFi on Bitcoin would face similar vulnerabilities to those seen in broader DeFi ecosystems, including hacks and exploits.
"DeFi is trustless, which assumes the code and system run correctly," Yu said. "But if there’s fraud in a code or bridge system, people can lose money." However, he emphasized that past incidents across the DeFi space have taught valuable lessons, allowing Bitcoin DeFi to learn from them and evolve at a faster pace.
Conclusion
The growth of DeFi on Bitcoin has been remarkable, with Babylon’s innovative approach to staking BTC attracting billions in investment. As the industry continues to grow, it will be essential for participants to understand the potential risks and vulnerabilities associated with DeFi. By doing so, they can better navigate this complex space and make informed decisions.
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