Background

As Bitcoin ETFs become available, the Bitcoin landscape is expanding with Layer2, Inception, and BTC staking options. However, there are some challenges due to BTC's contract limitations.

• Trustless bridge: Existing methods for bridging BTC include centralized multi-signature addresses (like tBTC, WBTC) and sidechains (like Liquid, Nomic) that depend on their own chain's TVL for security. But if the TVL is lower than the value of the managed BTC, there may be security issues.

• BTC staking rewards: BTC operates on a POW mechanism, and staking rewards are currently given in third-party tokens, not BTC, which poses security risks.

Babylon is tackling these challenges by proposing solutions for BTC staking while addressing security concerns. Let's explore Babylon's design details.

Specification

Overview

To make BTC staking security, Babylon does staking directly on the BTC chain instead of using complicated bridging methods. Rewards for staking are given in Babylon's own BBN token or tokens from other projects using its security services, distributed on the BBN chain. Babylon chain is built using the Cosmos SDK.

For more detailed information on each component, refer to the official documentation: https://docs.babylonchain.io/docs/introduction/architecture

Remote Staking

To solve the problem of BTC bridging, Babylon doesn't rely on the usual POS chain multi-signature verification. Instead, it stakes directly on the BTC chain. Staking, unstaking, and slashing are done using UTXO, and rewards are managed on the BBN chain.

While this approach boosts security, it makes things more complex for users. They have to handle transactions on both the BBN and BTC chains, which can be a hassle.

Timestamp & Timelock

To prevent potential attacks, it's important to note that BTC staking happens on the BTC chain, while block voting occurs on the PoS chain. An attacker would need significant resources to launch an attack, but they could slow down the PoS chain's block production, allowing expired stakers to validate PoS blocks. This loophole could let the attacker cancel BTC staking while keeping voting rights on the forked PoS chain. To prevent this and ensure quick staking, the PoS chain must sync closely with the BTC chain, achieved through "Bitcoin timestamping," recording PoS block data on the BTC chain.

Given the high cost of syncing with each BTC block, Babylon optimizes by aggregating timestamps across chains via IBC and then with the BTC chain, ensuring security while reducing costs.

For BTC chain staking, Babylon uses existing UTXO for staking and unstaking. Staking BTC means making a transaction that sets an unlock time via UTXO. Upon reaching this time, the transaction unstakes the BTC.

Slash

Due to Bitcoin's lack of smart contracts, submitting evidence of blockchain harm to the Bitcoin network isn't feasible. To solve this, Babylon introduces a penalty mechanism by revealing the staker's private key. To protect this key, a one-time signature validates a block post-consensus, followed by EOTS-signed voting. A block is confirmed if it gets over two-thirds of staking rights' EOTS signatures, and if blockchain damage occurs, one-third of stakers signing two blocks triggers key extraction, completing the penalty.

Liquid Staking Challenges

Babylon's BTC liquid staking faces complexities and hurdles, especially when compared to Ethereum. These challenges include:

• Trustless staking pool: Babylon's approach of staking directly on the BTC chain bypasses the need for smart contracts. However, establishing a trustless staking pool on BTC is difficult due to its lack of smart contract capabilities. Current solutions often resemble BTC bridging, using multi-signature mechanisms.

• Reward distribution: Converting rewards from BTC staking into BTC is essential for establishing the exchange rate between rBTC and BTC. However, since rewards are stored on the BBN chain, converting them into BTC requires wrapped BTC on the BBN Chain. This approach contradicts BBN's design philosophy.

• Poor user experience: Babylon's security-focused design necessitates multiple signatures and operations across different chains, impacting user experience negatively.

rBTC and BTC Stack of Babylon

The LSaaS Stack is currently integrating BTC Liquid Staking. While the overall technical design is complete, Babylon is still under development and subject to ongoing iterations. Here is the current progress:

• The overall technical architecture design has been completed.

• Integration and development with Babylon Testnet 4 are finished.

• Development of BTC MPC multi-signature integration is underway, utilizing the third-party solution from Cobo.