Introduction

Few technologies are built on such uncompromising ideals as Bitcoin is. Any attempt to extend Bitcoin’s utility has always faced the critical hurdle of preserving decentralisation, security or self-custody. At the intersection of Bitcoin’s sleeping potential and growing adoption, Babylon Labs emerged.

Babylon led the development of Bitcoin-native staking, which unlocked a trustless and self-custodial way of earning yield for Bitcoin holders. This greatly transformed the capital efficiency of Bitcoin. An asset that previously had a reputation as a passive store of value now turns into an active opportunity to generate yield.

Let's explore why staking has historically been out of reach for Bitcoin holders, examine how Babylon introduced the first native restaking Protocol on Bitcoin, challenges and future potential.

Why Bitcoin couldn’t be restaked until now

Bitcoin uses a Proof of Work mechanism, not a Proof of Stake one. This fundamental design choice explains why "restaking" Bitcoin wasn't possible until recently.

Restaking goes one step further than staking by enabling the validation of several decentralised networks with the same stake. Unlike Proof of Stake chains, Bitcoin doesn't natively support smart contracts with its Proof of Work mechanism. On Ethereum, these smart contracts allow protocols like EigenLayer and Symbiotic to automate restaking and slashing securely.

Liquid staking and restaking have previously only been associated with Ethereum and early attempts to make Bitcoin generate yield, relied on bridging BTC to other chains or converting it into synthetic tokens. But these approaches faced their own problems: The bridging implied a major security risk, and moving assets out of the BTC ecosystem clashed with Bitcoin’s core values.

One of the most prominent examples is Wrapped Bitcoin (WBTC), an ERC-20 token backed 1:1 by BTC and issued through a centralized custodian. While WBTC allowed Bitcoin holders to access Ethereum-based DeFi, it required full trust in third-party custodial control, which introduced critical points of failure.

Although WBTC is the largest wrapped BTC token, it still represents a tiny fraction of the global Bitcoin supply (approx. 0.65%).

In contrast with Ethereum, which is used to secure multiple Layer 2s and a multitude of other networks via restaking, Bitcoin holders are missing out on the ability to use their economic power to secure other networks and yield opportunities available on PoS chains. This is where Babylon comes into play. The innovation that EigenLayer represented for Ethereum, Babylon represents for Bitcoin.

Introducing Babylon

Babylon started with the conviction that Bitcoin is the most resilient and decentralized asset. The company was able to raise $70M in its pre-launch round in 2024 and over $5 billion in TVL on its protocol.

Babylon was the first project that overcame the technical barriers to enable sharing Bitcoin's economic security with other PoS blockchains. They created a Bitcoin staking protocol that not only allows self-custodial staking without bridging, but also one that does not depend on trusting an intermediary. Babylon's goal is to combine the core values of Bitcoin like security and decentralisation with the scalability of PoS blockchains.

Babylon consists of two major "protocols": The Timestamp Protocol and the Bitcoin Staking Protocol.

Timestamp Protocol

The first protocol developed is the Timestamp Protocol. It is a way to prove that data from another blockchain existed at a certain time by using the security of the Bitcoin blockchain. When a smaller blockchain creates new blocks, Babylon collects cryptographic summaries of those blocks and combines them into a checkpoint. Time stamping thus allows the synchronization of PoS blockchain with the Bitcoin Blockchain, in which Babylon plays the role of an aggregator. This helps to prevent attacks like double spending using Bitcoin's security.

Bitcoin Staking Protocol

The second important protocol is called Bitcoin Staking, which allows BTC holders to publicly lock BTC on the Bitcoin blockchain itself. Babylon then uses this commitment to let the Bitcoin holder act as a validator, helping secure other blockchains in exchange for rewards. Importantly, the BTC never leaves the Bitcoin network, and the user keeps full control and custody. The BTC can’t be spent until the staking period is over, something referred to as time-lock. Babylon does not wrap BTC on Ethereum and there are no bridges involved, reducing the risk.

Combining both protocols is what makes it possible to keep BTC staked on the Bitcoin blockchain without the need to trust third parties and for BTC holders to earn yield. In essence, the Babylon protocol aims to establish a marketplace connecting BTC holders with Proof-of-Stake blockchains. BTC owners choose which consumer chains to allocate their tokens to based on offered yields. Some chains may be newer or riskier and offer higher yields to attract more security.

Use cases and Opportunities

For Bitcoin holders, Babylon represents an opportunity to earn passive income on their BTC without needing to sell, wrap, or bridge their assets to other chains, maintaining self-custody and minimizing risk. For asset managers and treasurers, it means unlocking a new approach to their management and becoming active contributors to their portfolio growth. There are 3 phases to Babylon's launch strategy.

In Phase 1, called “Bitcoin Locking”, a select group of users participated in staking 1,000 BTC without slashing risk, but no rewards either.

Phase 2, called “Babylon Genesis Launch”,  included complete feature implementation with slashing and $BABY tokens as rewards. At the time of writing, Babylon has been in Phase 2 since April 2025.

In Phase 3, known as “Bitcoin Multi-Staking”, BTC is used to simultaneously secure multiple PoS blockchains, generating rewards from various sources. In this final phase, Babylon Genesis acts as the control center that links Bitcoin stakers and the Babylon Secured Networks (BSNs), something that makes the entire system scalable, efficient, and secure.

Challenges and Limitations

It is important to understand that Babylon's yields aren't guaranteed. Currently, stakers receive only points as rewards. This is because various Proof-of-Stake (PoS) blockchains are expected to purchase the security offered by Babylon. If none of them find this security valuable enough to pay for, then actual financial returns for stakers will remain close to zero. Babylon is working on integrating more BSNs this year, but even then, it is not assured whether or when they will generate rewards.

One of the main risks associated with Babylon is the potential for BTC centralization, similar to concerns seen with the Bitcoin ETF. The creation of a reward system based on Proof of Stake (i.e., holding capital) is seen unfavorably by some. They often compare it to government bond systems because it rewards passive asset holding rather than actual work.

Looking Ahead

Babylon represents a significant step towards using Bitcoin’s economic potential, transforming it from a passive store of value into an active participant by securing the broader blockchain ecosystem. Challenges particularly around adoption and guaranteed returns remain in the early phases of the project. By enabling native staking and restaking without bridges or custodians, Babylon aligns closely with Bitcoin’s foundational principles while introducing new opportunities for yield generation. As the protocol moves forward into its third phase, “Bitcoin Multi-Staking”, it holds the promise of scaling this vision.