Babylon Chain launched last year, introducing “staking” functionality to Bitcoin holders, transforming BTC into a yield-generating asset that users no longer just sit and “hodl”. Bitcoin staking paved the way for BTC to be used to secure third-party proof-of-stake blockchains using the economic power of the Bitcoin blockchain. Now, the next evolution of this has arrived with Bitcoin restaking.
With Bitcoin restaking, it’s possible for those who stake BTC to earn rewards to utilize their idle tokens locked in Babylon smart contracts to reuse those tokens and secure additional decentralized applications.
Restaking BTC
When users stake tokens, be it ETH or BTC or something else, those assets generally sit idle in the validator’s smart contract, earning rewards while they’re locked up. Restaking was conceived as a way to put those locked tokens back into circulation. Essentially, when users stake crypto, they receive a “liquid staking token” as a kind of receipt for their locked tokens. They can then use these LST tokens as they wish – trading them for other tokens, depositing them as collateral for a loan, providing DeFi liquidity, or “restaking” with other protocols.
The first restaking protocol was EigenLayer on Ethereum, which allows ETH stakers to take their LSTs and use them to secure “Actively Validated Services”, which are decentralized applications that lack economic security. In return for restaking, users are rewarded with additional yield. So not only do they earn rewards on their staked ETH, but also rewards for their restaked LSTs.
On Ethereum, there are two kinds of restaking – native and liquid. Native restaking is only available to Ethereum validators, who must utilize smart contacts to manage the assets staked on their node. Liquid restaking is for everyone else and involves depositing LSTs with protocols such as EigenLayer.
On Bitcoin, the main protocol for restaking is called SatLayer, which allows users to restake Bitcoin-based LSTs such as stBTC, LBTC, and FBTC from Babylon and other Bitcoin staking platforms, such as Lorenzo Protocol and Ignition FBTC, and maximize their rewards.
These Bitcoin LSTs are granted to Bitcoin stakers on a one-to-one basis. So if, for example, Dave stakes 10 BTC with Babylon, he’ll receive 10 stBTC in return. He can then take those stBTC tokens and deposit them into secondary markets within the DeFi ecosystem, trade them on an exchange, and now he also has the opportunity to restake them through SatLayer. All the time, Dave’s original BTC will remain staked in Babylon’s smart contract, earning rewards. It’s just that he regains liquidity with the stBTC.
SatLayer uses these restaked BTC assets to secure what it calls Bitcoin Validated Services, which are similar to the AVSs supported by EigenLayer on Ethereum. By running a BVS on SatLayer, dApps can tap into the cryptoeconomic security of the Bitcoin blockchain.
Although it only launched late last year, SatLayer has attracted a significant amount of capital, with more than $283 million in total value locked, according to DeFiLlama.
Maximizing Restaking Rewards
SatLayer is an attractive option for Bitcoin DeFi fans, because it increases the capital efficiency of BTC, enabling them to reinvest staked assets and essentially double the return on investment. By staking BTC on Babylon, investors can earn an APR of 2.3% that’s paid out in the native tokens of the PoS blockchains they secure. In addition, they also earn “Babylon points”, which are currently of limited value but could entitle holders to receive additional crypto via an airdrop in the future.
When users restake with SatLayer, they gain even more yield on their original staked BTC, maximizing the passive income they generate from their investment while boosting the overall Bitcoin ecosystem. They’ll also earn additional Babylon points because SatLayer was chosen by Babylon as its official restaking partner.
The mechanics of restaking can be a bit complicated, but just like regular DeFi, investors can utilize multiple protocols to “farm” increased rewards. SatLayer discusses several rewards farming strategies in a blog post, showing how it’s possible to stake and restake BTC LSTs through protocols including Babylon, Lombard, Ignition FBTC, Solv, Bedrock, PumpBTC, and Lorenzo Protocol to obtain the maximum rewards.
Through its BVS’s, SatLayer solves what is commonly known as the “cold start” problem, where certain kinds of dApps, such as Layer-2 networks, bridge protocols, and data availability layers, are initially insecure because they haven’t attracted enough staked capital of their own. By utilizing a BVS, they don’t need to worry about building up a network of validators, as they can immediately access the security foundation of Bitcoin.
If you’re already staking BTC, or you’re looking for a way to put your BTC to work, you can check out SatLayer’s step-by-step guide on how to stake and then restake your tokens and start earning some very compelling rewards.
