Original | Odaily Planet Daily (@OdailyChina)

Author | Golem (@web3_golem)

Yesterday, the first phase of the Bitcoin staking protocol Babylon, Cap-2 staking, ended. Although the staking lasted only 10 blocks, nearly 23,000 BTC participated in the staking. However, based on the community discussion heat and on-chain transaction fees, the staking for Babylon Cap-2 phase was noticeably much quieter. What caused the difference before and after? Who is still crazily staking BTC?

Odaily Planet Daily will analyze the above questions in this article and statistically review the staking situation of mainstream Babylon re-staking protocols in Cap-2, and finally briefly discuss whether the growth of the re-staking ecosystem poses risks to user fund safety and the development of the Babylon ecosystem.

Why is the Cap-2 staking so quiet?

Looking back at the Babylon Cap-1 phase staking, users pushed the Bitcoin network transaction fees above 1000 satoshis/byte to stake BTC into Babylon, with transaction gas costs exceeding 4% of the principal. Ultimately, the staking cap of 1000 BTC was reached in just over 3 hours, with approximately 12,700 participating addresses.

In contrast, the Cap-2 phase staking was much quieter on-chain. Although the total staking amount was 22,891 BTC and the number of participating addresses was 12,570, the average network transaction fees during this period only maintained at a maximum of 30 satoshis/byte. The reasons for this difference are mainly as follows:

Changes in Staking Rules

In the Cap-1 staking rules, there was not only a staking hard cap, but also a maximum limit of 0.05 BTC and a minimum limit of 0.005 BTC for each staking transaction. In comparison, the Cap-2 staking removed the staking cap and changed to a "limited time unlimited quantity" staking mechanism, with a staking period of 10 blocks (864790-864799), while increasing the single staking limit from 0.05 BTC to 500 BTC.

The limited time unlimited quantity mechanism can alleviate users' FOMO emotions to some extent, allowing them to stake according to the time progress. The change in the single staking limit may not significantly affect independent retail stakers, but it has a considerable impact on some re-staking protocols and institutions. This is because their staking volumes are often large, and a low single staking limit would force them to trade more frequently, leading to easier on-chain congestion. The single staking limit of 500 BTC in the Cap-2 phase meets the needs of institutions and re-staking projects.

Therefore, the change in staking rules is the main reason for the "quiet" on-chain staking in Babylon Cap-2.

Staking Points Being Diluted

In Cap-1, due to the 1000 BTC staking cap, the 3125 points generated per block were distributed more significantly according to the staking ratio. For example, if an address staked 0.05 BTC, it could earn 3125 * 0.05 / 1000 = 0.15625 points for each Bitcoin block that passed. The "head mining" benefits were also the biggest reason for the FOMO in Cap-1.

However, under the unchanged point distribution mechanism, after the Cap-2 launch, the points generated per block increased to 10,000. If an address still staked 0.05 BTC, it would now earn 10,000 * 0.05 / 22,891 = 0.0209 points for each Bitcoin block that passed.

It can be seen that after the Cap-2 staking began, the staking points were severely diluted, which to some extent would also affect users' enthusiasm for participation.

Staking is Already the Domain of Institutions and Projects

According to statistics, the number of addresses participating in Cap-1 staking was 12,700, while the number of addresses participating in Cap-2 staking was 12,570, showing no significant increase and even a slight decrease in the number of addresses.

In Cap-1 staking, according to official disclosures, about 80% of the 1000 BTC staking amount came from liquid staking token (LST) projects, while about 20% came from native stakers. In Cap-2 staking, the proportion of re-staking projects further increased. According to Odaily Planet Daily statistics, the proportion of mainstream re-staking projects has approached 90%, while the proportion of native stakers may have fallen below 10%.

The main battlefield for Babylon staking undoubtedly belongs to institutions and re-staking projects, which use custodians and some transaction final confirmation service providers for professional staking. For users who have long deposited BTC into re-staking platforms, the entire process does not require direct participation or even attention; they only need to collect rewards at specific times. Therefore, the Cap-2 staking appears "quiet" to some extent because of the continuous development and growth of the Babylon re-staking ecosystem, which provides convenience for users.

Who is Staking BTC the Most Crazy?

Odaily Planet Daily has compiled the staking situation of the current seven mainstream Babylon re-staking protocols in Cap-1 and Cap-2.

Based on the data in the table, overall, these seven re-staking protocols accounted for over 80% of the total staking share in Cap-1, while in Cap-2, the share increased to about 90%.

Among them, the protocol that staked the most BTC in Cap-2 is Lombard, which staked a total of 7,166 BTC, accounting for 31.66% of Cap-2. Previously, Lombard did not choose to stake BTC into Babylon due to excessive transaction fees. As of now, the BTC deposited by users on its platform is 8,081.8 BTC, with a platform staking rate (the ratio of BTC staked in Babylon to BTC deposited by users on the platform) exceeding 88%.

Additionally, protocols with a platform staking rate of 100% include Solv, Chakra, and pSTAKE.

Have Re-staking Protocols Betrayed the Original Intent of Babylon?

Babylon has developed a trustless and self-custodial solution that allows users to safely stake their BTC while earning rewards for providing security to the POS system.

The Babylon ecosystem's re-staking protocols act as "staking intermediaries" between users and Babylon. Users first deposit BTC into the re-staking platform, and when Babylon staking opens, they utilize business and technical expertise to help users stake BTC into Babylon. In terms of rewards, users can enjoy dual point rewards from both the platform and Babylon.

From the perspective of returns and convenience, it is understandable for users to engage in re-staking. On one hand, re-staking allows users to enjoy rewards from both the re-staking platform and Babylon, even if they do not stake BTC into Babylon, they can still enjoy the staking rewards from the platform; on the other hand, due to the complexity of Babylon's staking rules and timing, re-staking protocols can save users energy and time effectively.

However, from a safety perspective, is it worth sacrificing some security for returns and convenience? Does it even contradict Babylon's narrative of being trustless and self-custodial for BTC?

Currently, all Babylon re-staking protocols use custodial solutions. Previously, Bedrock suffered an attack that caused approximately $2 million in losses on DEX. Although the official later repaired and compensated users, this incident raised concerns about the security of re-staking protocols. Will there be other black swan events in the future? When users' staking principal is threatened, the points earned from staking may become as worthless as "happy beans."

"Not your keys, not your coins." Babylon attempts to unleash the potential of BTC without breaking this principle, but if the security of re-staking protocols within the ecosystem is not prioritized and upgraded, or if the proportion of native staking remains low, the problem may return to square one.

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