The second phase of Babylon's staking attracted over $1.2 billion in funds, and the re-staking projects have become the market makers.

Yesterday, the Bitcoin staking protocol Babylon completed the second phase (Cap-2) of its staking activities. Although this staking lasted only 10 blocks, it still attracted nearly 23,000 BTC participation. Compared to the first phase, this staking was significantly calmer in terms of community discussion intensity and on-chain transaction fees. What exactly caused this difference? Which entities are still actively participating in BTC staking? This article will analyze these questions and explore the potential risks that may exist in the development process of the restaking ecosystem.

Reasons for the calm in Cap-2 stage stake

Looking back at the first phase of Babylon (Cap-1) staking, users raised Bitcoin network transaction fees to over 1000 satoshis/byte to participate in the staking, with transaction 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 on-chain activities during the Cap-2 phase were much calmer. Although the total amount staked reached 22,891 BTC and the number of participating addresses was 12,570, the average network transaction fee during this period only maintained at a maximum of 30 satoshis/byte. The main reasons for this difference are as follows:

1. Stake rules change

Cap-2 staking adopts a "limited time unlimited quantity" mechanism, removing the staking limit, with a staking period of 10 blocks. Meanwhile, the single staking limit has been increased from 0.05 BTC to 500 BTC. These changes alleviate users' FOMO emotions and are more suitable for the needs of institutions and re-staking projects.

2. stake points are diluted

In Cap-1, each block generates 3125 points, distributed according to the staking ratio. In contrast, Cap-2 generates 10000 points per block, but the total staking amount has significantly increased, causing the points earned per unit of stake to be severely diluted, which affects user participation enthusiasm.

3. The staking entities are shifting towards institutions and project parties.

Cap-2 staking is in progress, with mainstream re-staking projects accounting for nearly 90%, while the proportion of native stakers may be less than 10%. The main battlefield for Babylon staking now belongs to institutions and re-staking projects, which utilize professional custodians and transaction confirmation services for staking, reducing the necessity for ordinary users to participate directly.

Performance of Major Re-Staking Protocols

Statistics show that the current mainstream 7 Babylon re-staking protocols have a staking share of about 90% in Cap-2. Among them, Lombard performs the best, with a total of 7166 BTC staked, accounting for 31.66% of the total in Cap-2. It is worth noting that Lombard did not participate in staking in Cap-1 due to high fees. Currently, the staking rate on the Lombard platform (the ratio of BTC staked in Babylon to BTC deposited by users on the platform) exceeds 88%.

In addition, the staking rates of platforms such as Solv, Chakra, and pSTAKE have all reached 100%, demonstrating the important position of re-staking protocols within the Babylon ecosystem.

The Development and Risks of Re-staking Agreements

Babylon was originally designed to provide a trustless and self-custodial staking solution, allowing users to securely stake BTC and earn rewards. However, the rise of re-staking protocols seems to contradict this initial intention.

From the user's perspective, choosing to participate in the staking protocol can yield dual rewards (platform and Babylon's points rewards) and enjoy convenient staking services. However, this also means that users need to deposit BTC into a third-party platform, sacrificing a certain degree of security and self-custody.

The re-staking protocol currently commonly adopts a custody solution, which has raised some security concerns. For example, the previous attack on Bedrock resulted in a loss of approximately $2 million, causing users to worry about the security of the re-staking protocol. If users' staking principal is at risk, then the rewards earned will also lose their meaning.

The principle of "Not your keys, not your coins" has always been a core value of the Bitcoin community. Babylon seeks to unleash the potential of BTC without violating this principle. However, if the security of the staking protocols within the ecosystem is not prioritized and improved, or if the native staking ratio continues to decline, Babylon may face risks that contradict its original intention.

As the Babylon ecosystem continues to develop, how to strike a balance between convenience, yield, and security will become an important issue that project parties and participants need to face together.