Babylon Bitcoin Staking Mainnet Launch: Phase-1

1. Phased Launch of Babylon Bitcoin Staking

Babylon Bitcoin staking protocol connects bitcoin holders with the demand for network security from Proof-of-Stake systems like PoS chains, L2s, Data Availability layers, oracles, and others. It does so without a trusted intermediary.

The protocol will be launched in three phases.

1.1 Phase-1: Bitcoin Locking

During this phase, bitcoin holders initiate the staking process by submitting Bitcoin staking transactions to the Bitcoin blockchain.

Each transaction locks the designated bitcoins within a secure, self-custodial Bitcoin staking script. Stakers also specify key parameters, including the public key of the finality provider they’ve chosen to delegate their PoS voting power to. This prepares the locked bitcoins to actively participate in PoS consensus validation in the subsequent phases.

Of note, if the staker also holds the associated finality provider’s private key, this delegation is considered a self-delegation. In either case, only the voting power is delegated. The staked bitcoins are not transferred to the finality provider.

1.2 Phase-2: Bitcoin Staking Activation

In this phase, a Babylon PoS chain will be launched to receive crypto-economic security from the bitcoins locked in Phase-1.

Upon launch, the finality providers with adequate delegations from Phase-1 will participate in Babylon PoS chain’s consensus by determining the finality of its blocks. The Babylon PoS chain will also enable the Bitcoin timestamping protocol for the cross-chain time synchronization needed for the security of Bitcoin staking.

1.3 Phase-3: Bitcoin Multi-Staking Activation

In this phase, the Babylon Bitcoin staking protocol will evolve into a marketplace for shared security, enabling any PoS systems to utilize Bitcoin staking security.

Bitcoin holders gain the ability to natively stake the same bitcoins across multiple PoS systems simultaneously, allowing them to earn multiple staking rewards. The Babylon PoS chain will act as the control plane that facilitates Bitcoin staking for all PoS systems.

2. Phase-1 Details

2.1 Maximum Staking Time and On-Demand Unbonding

During Phase-1, every stake is set with a maximum staking time (i.e., the time-lock in the Bitcoin staking script) of 64,000 Bitcoin blocks , which is approximately 15 months. This means that each stake will automatically expire and become available for withdrawal after this time period.

However, stakers can unbond their stake on-demand anytime before its expiration. There will be an on-chain unbonding period of 1008 Bitcoin blocks (roughly 7 days and defined in the unbonding Bitcoin script), after which the stake will expire and become available for withdrawal.

2.2 Transactions Involved

All transactions in Phase-1 are Bitcoin transactions, and include:

• Staking: To stake, Bitcoin stakers generate Bitcoin staking transactions and submit them to the Bitcoin blockchain.
• Unbonding and early withdrawal: To unbond and withdraw a stake before its expiration, a staker will generate an unbonding transaction followed by a withdrawal transaction.
• Automatic expiration and withdrawal: A stake will automatically expire after 64,000 Bitcoin blocks unless it was unbonded previously by the staker. To withdraw an expired stake, a staker will generate a withdrawal transaction.

There are no other transactions or messages the stakers need to sign in Phase-1.

In particular, stakers will not sign a consent to PoS slashing. Thus, there is no slashing of staked bitcoin during Phase-1.

2.3 Initial Total Staking Cap

For security reasons, there will be an initial total staking cap of 1,000 bitcoins. This cap will be relaxed as Phase-1 progresses.

First-come-first-served: Every stake is accepted on a first come, first served (FCFS) basis based on their order on the Bitcoin blockchain, until the cap is reached.

Overflow and no-queuing: Stakes that arrive once the cap is reached will be treated as overflow, and should be unbonded and withdrawn. There is no staking queue, meaning that if the cap reopens once previously accepted stakes are unbonded, overflow stakes will not automatically fill the cap. Instead, new staking transactions must be submitted to refill the newly available cap capacity. This queue-less design is intended to discourage users from keeping overflow stakes in the system.

2.4 Limits Per Staking Transaction

Along with the initial 1,000 bitcoins total staking cap, there are also limits per staking transaction:

1. Minimum stake: 0.005 bitcoins. This is to ensure that the staking amount can cover the unbonding transaction fee (0.00064 bitcoins which will go to the Bitcoin miner) and withdrawal transaction fee (customizable by the staker).
2. Maximum stake: 0.05 bitcoins. This intentionally small maximum is meant to encourage broad participation. It ensures that the entire cap will need at least a few Bitcoin blocks worth of staking transactions to fill. This prevents a single entity from buying out one Bitcoin block and taking the entire cap, squeezing everyone else out in the process.

To further promote broad and genuine participation, excessive stake splitting is discouraged.

2.5 Point System and Commissions

There will be no direct staking reward given during Phase-1 as there is no active PoS chain yet. Instead, a point system will measure each staker’s activities, tracked by the staker’s public key.

During the initial 1,000-bitcoin cap, 3,125 Babylon points will be allocated per Bitcoin block. The 3,125 points will be allocated proportionally among all active stakes within that block. Stakes with a different status, such as overflow, unbonding, unbonded, and withdrawn, will not receive any points.

For each active stake, both its staker and finality provider will receive points, with the finality provider taking a cut based on its commission rate.

Example: Once the 1,000-bitcoin cap is filled, an active stake of 0.05 bitcoins will earn 3,125*0.05/1,000 = 0.15625 points per Bitcoin block. If the finality provider charges a 5% commission, the staker will earn 0.15625*0.95 = 0.1484375 points per Bitcoin block and the finality provider will receive 0.15625*0.05 = 0.0078125 points per block while the stake is active. Over 4,000 Bitcoin blocks (about a month), assuming the cap stays full, then the staker would accumulate 4,000*0.1484375 = 593.75 points and the finality provider would accumulate 4,000*0.0078125 = 31.25 points from this stake.

The 3,125 points per Bitcoin block only applies during the initial 1,000-bitcoin cap. This, along with the staking cap, may be subject to future adjustments during Phase-1.

Legal Note: points are not, and may never convert to, accrue to, be used as basis to calculate, or become any tokens or other digital assets. Points are virtual items with no monetary value. Points do not constitute any currency or property of any type and are not redeemable, refundable, or eligible for any fiat or virtual currency or anything else of value. Points are not transferable, and you may not attempt to sell, trade, or transfer any points, or obtain any manner of credit using any points. Any attempt to sell, trade, or transfer any points will be null and void, except as we may explicitly state otherwise in a written update to these rules on our website. We reserve the right to cancel, change, discontinue, limit, modify, or withdraw our points program (including the frequency, criteria, calculation or eligibility for earning such points), at any time with or without notice and regardless of any particular accumulation of points. Points may not be available in your jurisdiction.

You agree not to engage in any manipulative, fraudulent, dishonest, or abusive activities in connection with points or any distribution of digital assets by us or our affiliates. This includes, but is not limited to, creating multiple accounts to claim additional points or digital assets, using bots or scripts to automate claiming, or participating in any schemes that artificially inflate the number or perceived value of points or digital assets. We or our affiliates may terminate any or all of your points due to such activities, or for breaching any license granted by us, and may disclose privately and publicly why such action was taken.

2.6 Covenant Committee

In Phase-1, the covenant committee is a multi-signature verification scheme to secure the on-demand unbonding process. The committee’s task is to co-sign unbonding transactions submitted by stakers, allowing the committee to verify the transaction’s correctness and security.

Note that, the covenant committee cannot steal the staker’s bitcoins, nor prevent the stake from expiration and becoming withdrawable, even if the committee is compromised.

The covenant committee operates as a 6-out-of-9 multi-signature scheme (meaning that 6 out of 9 keys are needed to sign the unbonding transaction after the staker submits an unbonding transaction), with each key being held by reputable entities from different sectors of the industry:

• AltLayer (1 key) — Rollup-as-a-Service provider
• Babylon Labs (3 keys) — The core development team behind the project
• CoinSummer Labs (1 key) — Affiliated with a top staking service provider (StakeFish) and a top mining pool (F2Pool)
• Cubist (1 key) — Secure staking infrastructure provider
• Informal Systems (1 key) — Cosmos ecosystem validator
• RockX (1 key) — PoS validator and liquid staking provider
• Zellic (1 key) — Security auditor

2.7 Ways to Stake

There are a few ways to stake:

• Official web application: The official Bitcoin staking web application (btcstaking.babylonlabs.io) provides a list of verified finality providers for stakers to delegate to. For information about how the finality providers register and are verified for Phase-1, please refer to the finality provider registration guide.
• Third-party services: such as third-party staking websites, custody solutions and APIs.
• Command-Line Interface (CLI) tools: Suitable for technically inclined users.

There are also LST (liquid staking token) protocols that will participate in the Babylon Bitcoin staking mainnet. Please note that by participating in LST protocols, you do not directly participate in the Babylon Bitcoin staking mainnet, as the staking and points are both handled by the LST protocols.

Importantly, we do not review or endorse LSTs, LST code, or any other participants in the ecosystem including any third party services, so exercise caution and do your own investigations and research before using them. As a general rule, stakers must always conduct their own investigations and research before participating in the Bitcoin blockchain or in Bitcoin staking.

Any use of the web application btcstaking.babylonlabs.io, or the Babylon Labs website, or any of the content or materials there will be governed by the Terms of Use posted there at that time.

2.8 Eligibility

Staking is prohibited, and you will not receive points or staking awards, if you are:

(a) a resident or agent of, or an entity organized, incorporated or doing business in any country to which the United States, the United Kingdom, the European Union or any of its member states or the United Nations or any of its member states (collectively, the “Major Jurisdictions”) embargoes goods or imposes sanctions; or if you are, or if you directly or indirectly own or control, any person or entity that is listed on any sanctions list or equivalent maintained by any of the Major Jurisdictions; or

(b) a U.S. Person as defined in 17 CFR § 230.902, or currently or ordinarily located or resident in (or incorporated or organized in) the United States of America, Canada, Australia, or Mainland China.

This list may be updated from time-to-time without notice.

3. Security Audits

The Phase-1 codebase has been audited by the following entities:

• Coinspect: Audit Report
• Zellic: Audit Report
• Cantina: Through a public security campaign, researchers and engineers reviewed the code and reported bugs and issues for bounties. Campaign Report

Please appreciate that plans often need to be updated, revised, modified, or improved after a mainnet launch. Please return here often to check for updates, clarifications, or modifications.