Bitcoin Staking/Restaking Research: Project Landscape and Trend Analysis

11 min read6 days ago

The crypto bear market turns once more.

It is only fitting that we write something related to bitcoin on this occasion. With many restaking protocols making news, they have given us plenty of material to discuss.

In today’s article, we will take you through the transformation of Bitcoin’s positioning behind the Bitcoin staking/restaking track, the utility of BTC liquid staking, the active players, and future trend predictions.

Tldr;

The core of Bitcoin is stability and security, but amidst the popularity of Ordinals, Bitcoin NFTs, inscriptions, etc., the Bitcoin community is experiencing a Bitcoin renaissance, with entrepreneurs attempting to build the Bitcoin layer and ecosystem.
Bitcoin is a permissionless protocol that anyone can build on, including those who wish to establish a Bitcoin-driven financial system and credit system.
Bitcoin staking and restaking may follow a similar path, where the main projects (such as Babylon) continually build the “orthodox” foundation, while numerous liquid restaking protocols compete and define their roles, eventually expanding the boundaries to form a networked ecosystem.
Currently, the restaking track includes projects like Babylon, Lorenzo, Pell Network, OrangeLayer Protocol, Chakra, Bedrock, and Lombard, with dozens more expected to enter the field.
This track is still on the verge of a major breakout. Currently, Babylon temporarily leads the local restaking industry, but new players with technological innovation and iteration are still worth watching.
The important goal of the projects is to find the path with the lowest incentive cost, establish effective incentive and transmission mechanisms, acquire sufficient TVL, and eventually create a flywheel effect.

The Starting Point of Leverage: Making BTC More Capital Efficient

Before discussing the Bitcoin staking and restaking track, I want to outline the evolution of Bitcoin’s positioning and identity since its inception:

2008–2017: Peer-to-peer electronic cash system, emphasizing its payment function, but Bitcoin’s performance (TPS) limited the scalability of this function. Based on this, the Lightning Network (LN) made significant explorations in Bitcoin payments, but it ultimately did not succeed.
2017–2023: Digital gold, serving as an asset to hold, an inflation hedge, and providing a currency denomination similar to the dollar, mainly functioning as a store of value/medium of value.
2023-present: The rise of the Bitcoin Renaissance and the construction of the Bitcoin trend, accelerating the exploration of Bitcoin’s performance limitations (scalability, smart contract programmability), attempting to build the Bitcoin Layer and Bitcoin Economic.
2024-present: Bitcoin recognized as a financial asset by traditional financial institutions, with BTC spot ETFs involving more investors.

The core of Bitcoin is stability and security, focusing on a single use case, but things always change.

Let’s fast forward to 2023 and 2024, where assets like Ordinals, Bitcoin NFTs, memes, inscriptions, and Runes start to go wild. Investors enjoying the skyrocketing prices of these assets propose a “new” Bitcoin, turning Bitcoin from a “medium of value” into a “culture.” Based on the consistency of the Bitcoin spirit (though somewhat far-fetched), they attempt to provide a pricing framework to re-evaluate Bitcoin’s value and naturally create a demand for credit and income for Bitcoin holders.

*We Wanna Hold Bitcoin, Not Just Hold Bitcoin.*

Adhering to the principle that existence is reasonable, it is unrealistic to expect Bitcoin gain products to disappear. Therefore, we no longer judge Bitcoin maximalists or the culture of Bitcoin fundamentalism, because Bitcoin is a permissionless protocol that anyone can build on, including those who wish to establish a Bitcoin-driven financial system — which inevitably introduces credit and leverage.

At this stage, the narrative of this track can basically return to “making BTC more capital efficient.” According to Mikhil Pandey (Co-founder and Chief Strategy Officer of Persistence Labs), the obstacles to making Bitcoin more capital efficient can be roughly materialized into the following factors:

Lack of sustainable yield opportunities
Friction of risk-averse holders to ‘move’ BTC
Missing institutional-friendly yield products
Unknown security risks of moving BTC away from the Bitcoin network
Opposition from some OG Bitcoiners

Undeniably, the track of obtaining more diversified returns based on Bitcoin is still in its early exploratory stage, especially after the collapse of centralized institutions like Celsius, BlockFi, and FTX in 2022, where centralized gain platforms/projects for crypto assets need to rebuild more trust during market expansion.

Understanding Bitcoin Staking/Restaking Protocols

To understand Bitcoin staking, we need to first understand how staking is generated and where the returns come from.

The biggest feature of Bitcoin, Ethereum, and Solana blockchains is that they build a trustless network. Miners and nodes globally update the entire network state (data, transactions, balances, etc.) based on certain consensus rules and maintain consistency. Among them, PoW networks rely on computing power (mining), while PoS chains require blockchain validators to stake tokens before proposing or voting on blocks. This allows PoS protocols to hold violators accountable and confiscate their staked tokens as punishment. Of course, honest participants will receive block rewards, and this mechanism aims to maintain and achieve network consistency.

In our previous Bitcoin bi-weekly report, we mentioned that Bitcoin staking is the second most unified track in the Bitcoin ecosystem after Bitcoin L2, with a relatively unified consensus among primary market and entrepreneurs. It follows this logic: due to a lack of external economic incentives, the security of many emerging PoS chains (new projects are always emerging, mostly PoS chains) is limited by the scale of on-chain economies, posing control risks. Bitcoin staking and restaking protocols provide security guarantees for PoS networks by introducing Bitcoin, the most consensus asset.

We can obtain some information about this track from the Ethereum ecosystem project EigenLayer and its ecosystem projects.

EigenLayer is an Ethereum-based restaking protocol that allows staked ETH on the Ethereum network to increase network security through restaking. By leveraging already staked ETH on Ethereum, it supports the secure operation of other blockchain protocols and applications, a process called restaking. Restaking allows Ethereum validators to use part or all of their staked ETH to support other Active Validation Services (AVS), such as bridge protocols, sequencers, and oracles. Typically, these services require their own staking and validation mechanisms to ensure network security, but through EigenLayer’s restaking function, they can obtain Ethereum-grade security without attracting a large amount of capital themselves.

EigenLayer has the following features:

Establishes a new security sharing model: Allows different blockchain protocols to share Ethereum’s security infrastructure without having to establish a large validator network, significantly reducing the startup cost of new blockchain protocols. Additionally, restaking increases the overall network’s resistance to attacks, as attacking any protected protocol requires overcoming the added security from restaking.
Enhances ETH capital efficiency: The same ETH can serve multiple networks simultaneously. Users can enjoy the original staking rewards while also earning additional rewards by participating in other AVS protocols.
Lowers participation threshold: Through the restaking mechanism, small stakers can also participate in Ethereum’s network security. Stakers do not need to have the full staking threshold of 32 ETH; individual stakers can participate through Liquid Staking Tokens (LST).
Increases decentralization: Through small stakes, the entire network can reduce reliance on large stakers.

Types and Features of Restaking

Currently, EigenLayer supports two restaking methods: native restaking and liquid restaking.

Native restaking involves Ethereum PoS node validators connecting their staked ETH in the network to EigenLayer to participate in the AVS validation process.
Liquid restaking allows staking certificates issued by LSPs (Liquid Staking Protocols), representing the rights of the original staked ETH, to circulate freely and be used in various decentralized finance (DeFi) protocols without affecting the staker’s staking status and rewards collection on Ethereum. Additionally, it allows LSTs to generate additional income in DeFi protocols or to be sold on the market without waiting for long staking periods, earning EigenLayer platform points and other benefits.

Compared to each other, native restaking does not involve intermediate tokens, reducing risks from token volatility or mismanagement, but liquid restaking has better liquidity, with shorter asset unlocking and transfer times.

Currently, the EigenLayer ecosystem has begun to support multiple AVS and has integrated with several well-known DeFi protocols and other blockchain services. It allows the use of different types of staking proofs (such as LST and native ETH) to support these services, making capital utilization more efficient.

At present, Bitcoin staking and restaking may follow a similar path, where mainstream projects (such as Babylon) continually build the “orthodox” foundation, while numerous liquid restaking protocols compete and define their roles, eventually expanding the boundaries to form a networked ecosystem.

Bitcoin Restaking Ecosystem Mapping

After reviewing most projects in this track, we can identify several common narratives they use to justify their existence and convince the market of their fit. Here are a few familiar phrases, but stay alert:

Bitcoin is the most secure blockchain in existence; no asset has a stronger trust foundation than Bitcoin.
Unlock the economic potential of Bitcoin, making the $1.5 trillion worth of Bitcoin fluid and providing holders with sustainable yield opportunities.
By inheriting Bitcoin’s trustless foundation, we rely on Bitcoin’s original security to gain, or make BTC more capital efficient, thereby building a BTC financial system.
We bridge the gap between PoW and PoS blockchain systems, fully leveraging Bitcoin’s security.
Bitcoin staking derivative assets have a huge market potential, including building collateralized stablecoins, lending and derivative circular loans, structured products, liquidity management protocols, yield management or interest rate swap agreements, and governance rights management protocols.

To gain an in-depth understanding of the current state of the restaking track, we have reviewed several projects and provided brief introductions and reviews.

Babylon

Babylon is an infrastructure/universal middleware for Bitcoin security sharing. The team developed two security sharing mechanisms: the Bitcoin timestamp protocol and the Bitcoin staking protocol, which share Bitcoin security with PoS chains or Layer 2s in a trustless and self-custodial manner, earning corresponding security returns while significantly reducing their own inflation.

Current development stage: Bitcoin Staking Testnet-4 is online.

Brief comments: Most restaking protocols currently choose Babylon as the starting point for project momentum, hoping to leverage more asset layer protocols as “agents” to build more diversified asset sources and cost-sharing. Of course, these projects also need Babylon as a source of returns.

Lorenzo

Based on Babylon, Lorenzo allows Bitcoin holders to convert BTC into stBTC, participating in Bitcoin staking and earning rewards without locking funds. Meanwhile, Lorenzo divides liquid restaking tokens (LRT) into liquidity principal tokens (LPT) and yield accumulation tokens (YAT), planning to build interest rate swaps, lending protocols, structured BTC yield products, and stablecoins in the future. The project focuses on building an efficient Bitcoin liquidity allocation market and liquidity assetization.

Current development stage: Beta mainnet is online.

Current data: Invite-only, Beta mainnet has deposited 1000 BTC.

Brief comments: One of the players, the biggest highlight in market marketing is Binance’s involvement.

Pell Network

Pell Network is an active validation service (AVS) network built on a restaking protocol in the Bitcoin ecosystem. It aims to aggregate BTC and its LSD liquidity assets scattered across various Layer2s into a unified Pell network ledger, thereby creating a decentralized AVS ecosystem service network.

Current TVL: $172M

OrangeLayer Protocol

OrangeLayer is an infrastructure that provides Bitcoin staking, aiming to bring Bitcoin’s cryptoeconomic security to the Ethereum ecosystem and offering broader Bitcoin Protection Services (BPS). Unlike protocols like EigenLayer and Babylon that rely on $ETH or $BTC for security guarantees, OrangeLayer supports converting all forms of Bitcoin (native, wrapped, or pegged) into yield-generating assets.

Current development stage: Testnet stage, mainnet planned for Q3 2024.

Chakra

Chakra is a ZK-driven Bitcoin restaking protocol, with the team proposing the concept of SCS (Settlement Consumer Service) to integrate Bitcoin restaking into the PoS system. The project plans to integrate with Babylon.

Current development stage: Testnet is live.

Current TVL: 257.64 BTC

Bedrock

Bedrock is a liquidity restaking protocol developed by RockX. It currently supports uniETH, uniIOTX, and uniBTC as base assets for restaking operations, allowing holders to gain more benefits from ecosystem integration.

Current TVL: $141.55M

Lombard

Lombard is a Bitcoin staking protocol. Once users stake Bitcoin through Babylon, Lombard will use LBTC tokens to release liquidity and yield representation of staked Bitcoin to unlock liquidity. Lombard intends to integrate LBTC into Ethereum’s DeFi protocols later this year.

Current development stage: Internal testing phase.

In Summary

Some interesting things are happening in the field of Bitcoin.

And I, for one, am excited to see how these building blocks fuse together.Here are some of my summaries and outlooks on the current state of Bitcoin staking and restaking. Of course, given the significant changes in the industry, these views are likely to require constant iteration and change.

Credit can provide a more complex and efficient economic structure, but the current market is still dominated by a few large Bitcoin holders, which constitute most of the TVL. The market lacks activity and requires further education.
It must be noted that the entire track is still in a rapid dynamic change phase. The market positioning and solutions of leading projects are also constantly updating.
Currently, leveraging technical accumulation (Bitcoin Time Stamping and Bitcoin Staking protocol to address Long Range Attack and high inflation and security issues of new projects) and institutional endorsements, Babylon has taken the lead in the upstream of the local restaking industry chain. It is worth noting that Babylon’s stability, security, and efficiency indicators need time to be verified, and restaking protocols are highly dependent on Babylon. We will continue to monitor new players with technological innovation and iteration.
Most protocols entering this track are positioned to provide liquid restaking, directly offering services to providers through flexible and efficient methods. The market is still in a structural adjustment phase, and no leading player with absolute bargaining power has emerged. Dozens of projects are expected to launch in this field in the near future.
Although the market from PoW to PoS is attractive enough, there is still a considerable gap between the two ecosystems, and service providers like EigenLayer have already established strong user mindsets. Whether Bitcoin ecosystem restaking protocols can capture the existing market remains to be seen.
From past experience, Active Verification Services (AVS) are expected to be in the roadmap planning of many protocols. Their most direct differentiation method is to provide exclusive AVS access to restakers, whether through subsidies or customized cooperation agreements. They will gradually build a competitive advantage, and some projects may even establish network effects.
Compared to the Ethereum staking track, the Bitcoin track is still in the pre-explosion stage. In terms of quantity and quality, the Bitcoin ecosystem still needs a certain amount of technical and time accumulation and to cultivate more demand for new chain security microservices.
At this stage, the important goal of projects in this track is to find the path with the lowest incentive cost, establish effective incentive and transmission mechanisms, acquire sufficient TVL, and eventually create a positive flywheel effect.

If you are building in the Bitcoin restaking market, AVS, or related content, we would be happy to connect with you. You can find us here.