Babylon Staking
An outline of the Babylon Bitcoin Staking Protocol
Babylon is the first to build a permissionless non-custodial Bitcoin staking protocol. The Babylon Bitcoin staking protocol is a cross-chain staking protocol that uses BTC to secure PoS networks. Networks secured by Bitcoin are called BSNs, or Bitcoin Secured Networks. The Lombard Protocol is a liquid staking protocol built on top of Babylon. Lombard stakes users BTC into Babylon, and issues a derivative token called LBTC (Liquid Bitcoin). Staking BTC directly through Babylon leaves funds illiquid. Staking BTC through Lombard leaves funds liquid, enabling LBTC to be freely moved and entered into further DeFi positions to accrue additional yields, while still maintaining all the benefits of BTC staked directly into Babylon. For more information on the different types of BTC derivatives, check out this blog. When staking BTC through Babylon or Lombard, the staked BTC is delegated to a Finality Provider. A finality provider is a type of finality gadget used in Nakamoto inspired blockchains: providing finality to transactions on the blockchain after they have been decidedly verified, and thus ensures robust security for the blockchain network. This Finality Provider acts as the validation layer for any Bitcoin Secured Network (BSN). Presently, the Babylon Chain is the only BSN, but more BSNs will be available soon. Rewards are paid to users for securing a BSN, and a commission on the reward is charged by the Finality Provider.
In the Babylon Bitcoin Staking protocol, only the Babylon Chain posts data to the Bitcoin network. All other BSNs will post their data to the Babylon Chain — acting as an aggregation layer — which will be, in turn, batched and posted to the Bitcoin network. This timestamping of BSN data to the secure Bitcoin network is, in part, what makes Babylon's staking protocol so safe.
Overview of how Lombard stakes BTC into Babylon
Babylon's Mechanism for Finality Providers:
Registration: Finality Providers register themselves on Babylon's platform. Get KYB approved.
Selection of Finality Gadgets: Finality Providers select which Finality Gadgets (IBC connected CosmWasm contracts and CosmosSDK modules) they want to maintain. By doing so, they earn rewards for their maintenance efforts. The rewards are shared with BTC stakers.
Staking BTC to Lombard's Finality Providers:
Consortium Initiation: The Security Consortium initiates the process by staking BTC to Lombard's Finality Providers.
Creation of Staking UTXO:
Self-Custodian Vault: The sent BTC amount is locked in a self-custodian vault, creating a special staking UTXO (Unspent Transaction Output) with two spending conditions:
Timelock: Specifies a period after which the Consortium can use their secret key to withdraw the staked BTC.
EOTS (Extractable One-Time Signature): Allows the slashable portion (pre-defined) of the UTXO to be burned through a special EOTS.
Signing with CubeSigner: The UTXO is then signed using CubeSigner. This ensures that the UTXO is securely locked and can only be spent under the specified conditions (Timelock and EOTS).
Broadcasting to Bitcoin node: After signing, the transaction is broadcasted to a Bitcoin node, eventually making it part of the Bitcoin blockchain. This step finalizes the staking process.
Finality Round: An additional signing round takes place after the base consensus protocol:
Finalization Condition: A block is considered finalized only if it receives EOTS signatures from over 2/3 of the Bitcoin stake.
Consensus and Safety:
All safety violations of the consensus are reduced to double signing in this round.
If there is a safety violation (i.e., more than 1/3 of the Bitcoin stake signs two blocks at the same height using EOTS), the secret keys of those stakers can be extracted.
Slashing Mechanism: The EOTS signature scheme (implemented by Schnorr signatures) is natively supported by Bitcoin, and therefore the extracted secret keys can be used to slash the staked bitcoin of those who double-signed, ensuring network integrity.
For more information a more comprehensive overview of the Babylon Staking Protocol, check out this blog.
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