Successful Case of Taproot Upgrade: Analysis of Babylon Stake Project

Overview

This article will focus on the Babylon Bitcoin staking system. As of now, the system has locked up nearly 24,000 Bitcoins, worth over $1.6 billion. Babylon is not a true Bitcoin Layer 2 network but should be viewed as a system that utilizes Bitcoin's time-lock feature to lock up Bitcoin and earn returns in other tokens.

Despite the large-scale funds locked, the Babylon blockchain or staking system is still under development. The platform is supported by some well-known cryptocurrency venture capitalists and is associated with a certain trading platform, which may explain its ability to attract substantial funds. Babylon aims to become a project similar to EigenLayer in the Bitcoin ecosystem, drawing inspiration from some concepts in the Ethereum ecosystem, such as recursive staking.

Stake Mechanism and the Application of Taproot

The staking process of Babylon requires creating a custom complex transaction, essentially sending Bitcoin to oneself. The transaction includes a custom OP_Return output that provides staking details, such as the validator used and the reward sending address.

The truly interesting part lies in the redemption process. Babylon cleverly utilizes Tapscript and multiple spending paths within the Taproot tree. In a normal "cooperative exit" scenario, a signature from the staker and a multi-signature from 6 out of 9 Babylon alliance members is required.

The complete Taproot tree diagram shows three redemption scenarios:

1. Time Lock: Requires the staker's signature and a 15-month time lock.
2. Unlock on demand: Requires the signature of the staker and the approval of the alliance.
3. Forfeiture: Requires the signature of the staker, alliance approval, and an additional signature from the "finality provider".

Confiscation Mechanism

The Babylon plan implements a forfeiture mechanism, but it has not been implemented yet. In the future, stakers may need to pre-sign a forfeiture redemption path, which will introduce real counterparty risk. Currently, Babylon's staking is similar to certain other projects and has no counterparty risk.

The Successful Application of Taproot

Babylon's use of Taproot powerfully counters some criticisms of Bitcoin core developers. Taproot is actually a clever upgrade that enables a variety of new custom spending conditions while enhancing privacy and scalability. Currently, nearly 100,000 bitcoins are stored in Taproot outputs, far exceeding early expectations.

Conclusion

The Babylon project successfully utilized the Taproot feature to attract a total locked value of $1.6 billion, and its usage is not trivial. Although some may question the effectiveness of proof of stake and re-staking, the adoption of Taproot must start somewhere. Regardless of opinions on Babylon, Taproot is being widely used, proving that it is a successful and clever upgrade. Considering the various constraints faced by Bitcoin developers, this achievement is commendable.