Bitcoin staking is becoming a reality, and it's not just for proof-of-stake networks anymore. Thanks to Babylon, holders can now lock up their BTC. Soon, this BTC will help secure and earn yield from multiple staking blockchains at once. This shift is significant for the entire crypto ecosystem, especially for Bitcoin layer-2 networks that are just starting out.

David Tse, co-founder of Babylon, shared, “Bitcoin L2s are definitely a very important part of our customers.” He explained that Bitcoin staking provides a way for these layer-2s to gain security from Bitcoin itself.

Since the launch of Bitcoin's Ordinals protocol in early 2023, there’s been a surge in developer activity. The introduction of the “BitVM” framework last October has led to many new ideas for decentralized Bitcoin layers.

The term “Bitcoin L2” gets tossed around a lot, but it generally refers to systems that build on top of Bitcoin. These systems either complement Bitcoin, inherit its security, or use BTC as a currency—or a mix of these features. Babylon takes this a step further by ensuring that security comes from BTC the asset, not just the network.

“Bitcoin L2 is a very important source of demand for us,” Tse noted. “They want to get liquidity from Bitcoin, and they want to get security from the most secure chain in the world.”

Tse mentioned that he’s already talking with Build On Bitcoin (BOB), a hybrid Ethereum and Bitcoin layer-2, about possibly introducing Bitcoin staking to their network. Importantly, Babylon's Bitcoin staking doesn’t require a “wrapped” or bridged version of BTC on another blockchain. All staked coins stay on layer-1 and are fully controlled by the owners’ Bitcoin private keys.

Earlier this month, Babylon launched Phase 1 of its staking mainnet. This allows users to lock up their BTC for future staking. Initially, they capped the system at 1,000 BTC, which was less than the demand they had already seen. This led to an on-chain race among users eager to get their staking deposits processed first, causing Bitcoin network transaction fees to spike unexpectedly.

Tse explained, “The 1,000 Bitcoin cap is very much for security reasons. We expect as the cap increases, the competition in terms of gas fees will be lower.”

Accessing Bitcoin staking will be much simpler than on altcoin chains. Unlike Ethereum, where you need at least 32 ETH to stake solo, Babylon’s delegated staking lets validators handle the technical side of running the network. There are no minimums, other than the cost to process the transaction.

Once staked, Bitcoin can generate what Babylon calls “safe yield,” potentially across multiple blockchains. The main risk is slashing risk at a protocol level if the validator you trust acts dishonestly.

Babylon could potentially put hundreds of billions of dollars in currently idle BTC to work. This could enhance Bitcoin’s role as a store of value. When asked if BTC staking could threaten the value of altcoins that used to offer this feature, Tse was optimistic.

He suggested that Babylon might save proof-of-stake chains from needing to dilute their native assets quickly. By securing their networks with BTC capital, they can avoid high yields that make their tokens unhealthy.

Tse envisions a future where staking on Bitcoin is as popular as it is on Ethereum, where about 28% of the circulating supply is currently staked. However, that staked capital would still be accessible through liquid staking tokens, allowing users to engage with other emerging Bitcoin applications like lending, borrowing, and trading.

“I think that’s why staking is such a fundamental use case of an asset,” he concluded, “and that’s why we’re excited to offer this to the biggest asset.”