Research Series — BTCFi: An Overview of the Restaking Ecosystem
Bitcoin’s potential to generate yield has always been limited by its proof-of-work (PoW) consensus, especially when compared to proof-of-stake (PoS) consensus. Bitcoin lacks a native mechanism for staking, however, the rise of BTCFi is changing that by enabling new ways to earn yield from Bitcoin without compromising its security.
The BTCFi ecosystem can be broadly divided into two parts: BTC layer and Restaking, along with asset protocols like ARC20 and BRC20. In this article, we will explore how new players in the BTCFi are set to reshape the landscape of Bitcoin Restaking and compare their key advantages.
The Current Landscape of Bitcoin Restaking
Bitcoin restaking is not a new topic in this cycle, with well-known players like BounceBit, Coredao, and Stakelayer, as well as the recent buzz on Babylon and Symbiotic.
First, let’s dive into Babylon’s fundamental innovations. Babylon’s approach to BTC staking includes several key innovations designed to enhance security and user experience, setting it apart from other protocols:
Remote Staking: Babylon uses Bitcoin’s UTXO model and script system for staking, slashing, and rewards distribution. A major benefit is that users staking BTC on Babylon do not face slashing penalties — only the node operators do. This means users’ BTC is safe, with no risk of loss, other than the inability to unlock staked funds early, making it one of the safest staking protocols in the market.
Timestamp Server: Babylon’s Timestamp Server records events from PoS chains on Bitcoin’s mainnet, providing tamper-proof timestamps. While Bitcoin’s mainnet ensures these records can’t be altered once placed on the blockchain, the accuracy of the timestamp itself still depends on Babylon’s PoS network.
Three-Layer Architecture: Babylon’s architecture is structured in three layers — Bitcoin as the base, Babylon in the middle, and PoS chains on top. Babylon records PoS chain checkpoints onto Bitcoin’s blockchain, ensuring data immutability. The use of Cosmos as the middle layer enhances its scalability and flexibility, attracting node operators and allowing native BTC staking to provide weight to Babylon’s PoS network.
While Babylon is leading in the native BTC staking space, it is not the only protocol exploring re-staking. Let’s take a look at how other protocols currently making waves in Bitcoin re-staking.
Symbiotic: Co-founded by Lido and Paradigm, Symbiotic is seen as a direct competitor to EigenLayer. Symbiotic has recently announced support for Bitcoin re-staking, though it currently only accepts WBTC for staking. Unlike Babylon, which offers native BTC staking, Symbiotic requires users to transfer their BTC to a third-party custodian address. So far, Symbiotic has staked 1,630 WBTC, and like Babylon, it offers reward points to incentivize participation.
CoreDAO: CoreDAO offers two approaches to staking. One is native staking, where BTC holders can delegate their BTC to Core validators without moving their BTC. Users simply send a time-locked transaction to themselves and earn CORE token rewards. The second option is custodial, where users send their BTC to a locker address and mint coreBTC on the CORE chain. For now, CoreDAO only supports the custodial option.
The three projects discussed aim to bring more applications to the Bitcoin ecosystem, fostering cross-chain communication and data sharing between Bitcoin and other blockchains. By leveraging a modular approach, these re-staking platforms share the security of the underlying network and empower AVS, providing the infrastructure necessary for broad application, significantly improving BTC chain efficiency and performance.
Strengths:
- Babylon and CoreDAO use Bitcoin’s timestamp mechanism to shorten the staking process for PoS chains.
- Symbiotic, backed by Lido and Paradigm, has an advantage in protocol collaboration and ecosystem development.
- Babylon implements native Bitcoin staking, achieving trustless Bitcoin staking.
Weaknesses:
- CoreDAO and Symbiotic still rely on third-party custodians to address trust assumptions.
- Babylon’s PoW + PoS architecture has limitations in security logic, as it passively relies on the Bitcoin network for record-keeping and cannot actively utilize Bitcoin’s security.
Unlike Ethereum re-staking platforms, Bitcoin re-staking platforms have not yet directly transferred Bitcoin’s network security to their respective PoS networks. This is a key area for future development.
The ecosystem of Bitcoin Restaking
Several protocols are already aligning themselves to integrate with Bitcoin Restaking ecosystem. These projects are designed to enhance the liquidity and utility of staked BTC assets.
Solv Protocol: Solv has developed a liquidity layer for BTC assets across multiple chains, including bridging WBTC on Arbitrum, BTCB on BNB, and BTC.b on Avalanche to its platform. Users can earn XP points on Solv by holding solvBTC, interacting with lending or stablecoin protocols, or adding liquidity to solvBTC pools. Additionally, users can bridge to Babylon via Solv’s vaults to earn more points, despite Babylon’s mainnet not yet being live.
Bedrock: Currently leading Babylon’s first pre-staking round with around 30% of shares, Bedrock supports staking WBTC to mint uniBTC. Users can expect to earn rewards from both uniBTC and Babylon staking once the mainnet launches, along with potential airdrop rewards through Bedrock’s Diamonds.
Stakestone: Though not yet live, Stakestone is expected to follow a model similar to ETH-STONE. Users will stake native BTC into Babylon and mint yield-bearing STONEBTC for cross-chain liquidity. The primary incentive here will be to earn points from various ecosystems, such as 2x Scroll points.
Lorenzo: Like Solv, Lorenzo is a gateway into Babylon’s staking ecosystem. Lorenzo offers liquid staking and re-staking via a principal-interest separation model. Users stake BTC or BTCB to receive stBTC, a liquidity principal token, and YAT, a yield token. This dual-token system allows users to earn native Babylon staking rewards while also accumulating points from Lorenzo.
Lombard：Lombard allows users to stake BTC through Babylon on the Bitcoin network, and Lombard manages the re-staking process. When users stake BTC, Lombard mints an equivalent amount of LBTC on Ethereum:
- The original BTC remains staked in Babylon, and the staking rewards are automatically reflected in the LBTC token.
- Users can then use LBTC to participate in various DeFi activities, allowing them to earn additional yield while still benefiting from the BTC staked on Babylon.
This approach enables seamless integration between Bitcoin staking and Ethereum-based DeFi, offering flexibility for users who want to maximize their returns on both networks.
PumpBTC：It allows users to stake WBTC, BTCB and receive pumpBTC in a 1:1 ratio. The unique aspect of PumpBTC is that third-party custodians like Cobo and Coincover handle the re-staking process. These custodians delegate the equivalent BTC to Babylon, where it earns yield for the users. The rewards generated from staking are directly reflected in the pumpBTC token, meaning users can benefit from Babylon’s staking rewards without interacting with the protocol directly. This simplifies the staking process and provides an additional layer of security by using trusted custodians.
Pell Network: Pell is the first general security network built on Bitcoin re-staking and operates on Babylon’s AVS network. Within three weeks, Pell’s TVL has surpassed $200 million, with over 410,000 unique addresses. Pell offers four types of re-staking, ranging from native BTC re-staking to staking LP tokens that include liquid-staked BTC derivatives. Pell’s AVS architecture is a key differentiator, allowing it to capture significant revenue streams from middleware, DA layer, oracles, modular chains, and more.
Conclusion
As mentioned at the beginning of the article, turning Bitcoin into a yield-generating asset is highly significant. Bitcoin restaking is an important complement to Bitcoin’s “digital gold” definition, greatly unlocking the liquidity of this “gold.”
Unlike Ethereum’s ecosystem, protocols like Babylon, Symbiotic and Coredao don’t have the pre-existing infrastructure to build on, which presents both risks and opportunities compared to Etherfi, Renzo, and Puffer in the EigenLayer ecosystem. We also need to pay attention to the development of entry protocols in these Bitcoin restaking platforms’ ecosystems.
When it comes to asset entry, i.e., LST/LRT, we see Solv focusing on combining CeFi and DeFi and leveraging Layer 2 for multiple rewards; Lombard has prioritized security and flexibility, attracting capital attention; and Lorenzo is the only LST project in the market that offers users a dual incentive system with YAT and points.
In short, BTCFi is still in its early stages, with rapid advancements in both technology and ecosystem development, and we will be closely monitoring this space.
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