The competition to “stack sats,” or accumulate Bitcoin, is ramping up as some eager crypto users are in search of a yield and points.
Recently launched bitcoin staking protocol Babylon has attracted roughly $1.5 billion worth of BTC from liquid staking providers and WBTC.
On Tuesday, Oct. 8, Babylon reopened its cap for roughly 10 Bitcoin blocks after rolling out the first phase of its mainnet on Aug. 22, 2024, when the protocol had an initial cap of 1,000 BTC. Per Babylon’s staking dashboard, roughly 22,891.6 BTC came into the protocol in those 10 blocks on Oct. 8.
During that time, Babylon drew bitcoins that were initially used as backing for wrapped bitcoin (WBTC), a tokenized representation of BTC on other blockchains, as well as from liquid staking token providers that are allowing customers to use WBTC directly to stake.
Using WBTC for Direct BTC Staking
Most of the interest in Babylon is coming from providers of liquid staking tokens that take WBTC as collateral. “We observed once again during Babylon Cap 2 that most staking activity was driven by [liquid staking token] providers, who confirmed their position as the major BTC delegators,” wrote Alessandro Maci, who works at product at staking infrastructure firm P2P.org, which is also the 8th largest finality provider for Babylon with 565.9 bitcoins.
A Babylon finality provider is an entity in the ecosystem tasked with a number of roles such as ensuring transaction finality on proof-of-stake networks that use BTC in their security models.
“Many of these platforms enable users to deposit WBTC into vault addresses, minting corresponding LSTs. In this process, WBTC acts more as collateral for the synthetic asset rather than being unwrapped for direct BTC staking,” Maci told Unchained via Telegram.
Liquid staking tokens are cryptocurrencies that represent the amount of tokens staked plus the rewards from securing a proof-of-stake network. Liquid staking is the largest category in the decentralized finance ecosystem by total value locked at nearly $41.7 billion.
Unwrapping WBTC to Stake
Others are taking Bitcoin out of WBTC to stake. Between Oct. 3 and Oct. 7, five addresses that custody the bitcoins backing WBTC collectively made several transfers of nearly 2,351 bitcoins ($145 million) to an address labeled by onchain data provider Arkham Intelligence as belonging to WBTC merchant and crypto trading firm Amber Group.
While a spokesperson from Amber Group was unable to comment on whether the address identified by Arkham that received over $145 million of BTC belonged to Amber Group, the spokesperson indicated that their clients’ curiosity about Babylon has diverted attention from WBTC. Amber Group is also a Babylon finality provider.
“We observed a growing interest among [over-the-counter] clients in unwrapping WBTC to participate in Babylon Phase 1 Cap 2, which took place overnight,” the spokesperson from Amber Group told Unchained, referring to the second entry period on Oct. 8 in its phased rollout.
Among the top finality providers by total delegation from stakers, Amber Group placed 10th with nearly 500.4 BTC, more than a fifth of the BTC transferred from WBTC to Amber Group between Oct. 3 and Oct. 7, the days leading up to the opening of the latest phase for staking on Babylon.
So far the stakers are not earning yield yet, but instead accumulating points.“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,” a Babylon blog post stated.
Babylon’s Cap Reopening Coincides with BitGo’s Custodial Change
Also on Oct. 8, WBTC custodian BitGo ended its 60-day transitional period to change its custodial operations which now are partially managed by TRON founder Justin Sun and the TRON ecosystem.
Because of Sun’s checkered past, some in the crypto space, such as those working for the Sky Protocol previously known as MakerDAO, raised issues about the new custodial operations. However, WBTC still dominates the wrapped bitcoin market holding over 150,288 bitcoins worth about $9.3 billion in hundreds of different wallets.
As for how much Babylon has eaten into WBTC’s market share, the amount of WBTC unwrapped and dedicated to Babylon’s staking program is not substantial, according to Julio Moreno, head of research at blockchain analytics firm CryptoQuant.
“WBTC total supply has declined by 2K Bitcoin so far [in] October to 150K Bitcoin, meanwhile the last staking phase on Babylon got [around] 22K Bitcoin staked, so if some WBTC is going to Babylon it is not a large amount,” Moreno wrote to Unchained via Telegram.
