Babylon's Fisher Yu Talks Bitcoin Staking, Bitcoin Maximalists, and the Future Native Use Case for BTC

As demand for creative yield techniques grows, Babylon's CTO examines the platform's implications on Bitcoin security and scalability.

Fisher Yu is the co-founder and CTO of Babylon, a Bitcoin-staking technology that has sparked interest among forward-thinking HODLers. He greets me politely and asks how I am and where I am flying in from to attend the first Bitcoin Conference in the MENA region. "Not as far as you," I say, and he chuckles. He has gone thousands of kilometres from Australia to Abu Dhabi.

We make our way through the crowds in the exhibition hall, striking up discussions, checking out exhibits, and listening to experts describe the most recent breakthroughs in Bitcoin mining. It's a sizable throng, and finding a quiet spot to chat is difficult. Fisher remains unconcerned, whereas most individuals in his situation would be constantly checking their watches and rolling their eyes by now.

Finally, we discover a vacant table with two high, crooked chairs that scratch the floor with jarring abrasion and test our centre of gravity when we sit. He checks that I'm comfortable, and I bring the recorder closer, hoping the mounting din doesn't drown out his calm voice.

Enabling HODLers to Earn Money on Their Bitcoin

I ask Fisher to give an overview of Babylon. He replies,

"What Babylon does is to build native use cases for Bitcoin and use it to empower the rest of the decentralized world." I nod, and he smiles. "This sounds quite abstract. Let me provide a concrete example."

He claims there are currently four broad use cases for Bitcoin—holding, transacting, lending, and bridging—"but they are far from equal." He defines "native" use cases as anything on the Bitcoin blockchain that does not involve a third party (such as holding and transacting). Generating yield by loan or performing DeFi by bridging necessitates faith in a third party, whether it is the person who borrowed your Bitcoin or the engineers behind the bridge protocol.

"This implies a much greater level of risk," Fisher explains. "Holding it and making simple payments is very safe, as long as you are honest and the Bitcoin chain is secure." Currently, Bitcoin has only two native use cases—store of value and easy payment. Anything else is not native because it forces you to rely on someone or something else.

However, with millions of Bitcoins lying dormant as an industry of staking, lending, borrowing, LPing, and other means to make yield continue to expand, a rising number of HODLers aims to profit from their idle coins without giving up control.

More Native Use Cases for Bitcoin

To satisfy this growing demand, Babylon is developing new native Bitcoin use cases beyond basic payment and value storage, allowing HODLers to earn incentives and get more out of their Bitcoin than passively keeping. "We wanted to reactivate Bitcoin by inventing a new native use case that does not require any trust from any third party, and what we have already built is called Bitcoin staking."

Just as Ethereum investors can stake their ETH and expand their holdings over time, Babylon allows Bitcoin holders to do the same without relinquishing possession of their assets.

"What we achieved is to make Bitcoin stakeable," he said. "HODLers can stake BTC to secure other blockchains, rollups, and decentralized systems, and provide Proof-of-Stake-like security while earning staking rewards from those systems."

The rewards are earned in the currency of the protocols they stake on, rather than in BTC, and the staked bitcoins are kept in the holders' wallets and never leave their possession. "No one can steal your Bitcoin," Fisher insists, "no one," he adds with emphasis.

What kind of chains can Bitcoin secure? Technically, Bitcoin staking can protect any decentralized system, but Babylon has "limited bandwidth" and is currently focusing on Cosmos chains, Ethereum, and Bitcoin rollups.

The Rise of the Babylon Empire

Babylon created the concept of Bitcoin staking in July 2023 and has been developing it for almost a year, deploying its phase one mainnet in mid-August 2024, which was quickly capped out. Fisher explains, "We just opened a tiny window with a maximum of 1,000 Bitcoin stakes. That was full in one hour," indicating a pent-up demand to earn yield.

The initial staking transactions through Babylon were not substantial. In each transaction, users could only bet up to 0.05 BTC.

You'll need around six BTC blocks to cover those 1,000. They were filled with 5.5 blocks. That indicates that the whole Bitcoin chain had 99% Bitcoin staking transactions to Babylon for that hour." He chuckles: "We hijacked the Bitcoin chain for an hour."

Babylon has attempted to scale its approach since this initial optimistic reaction, opening its second cap in October with a duration-based method rather than size.

"We opened our staking for 10 BTC blocks, which is roughly one hour and a half," he writes, "and decided that we would accept any staking transaction within these 10 BTC blocks." What was the result?

24,000 Bitcoins were staked. Bitcoin's current value corresponds to a TVL of approximately $2.5 billion. My jaw dropped. "Yes, and some stakes staked 500 bitcoins in a single transaction." That's $50 million in one transaction staked on us!"

Understanding the Risks

With Bitcoin's past littered with the skeletons of yield-bearing platforms like BlockFi and Celsius and terrible stories of third parties taking users' private keys to the grave, are there any risks to staking Bitcoin? Somehow, it feels too good to be true.

Fisher points out that, as with any arrangement, there are usual hazards, such as losing your key or forgetting your password, "but those are not specific to our protocol," he says.

"Slashing risk is a term that refers to our protocol. Proof-of-Stake can provide security because the staker secures the chain; however, your stake can be slashed if you backstab the chain rather than secure it. This is why proof-of-stake can provide security by making the stake slashable and discouraging stakeholder attacks on the chain. As a result, your Bitcoin is in danger."

That sounds a little scary, but Fisher assures,

"The good thing is that as long as you don't attack the peer-to-peer, your Bitcoin is safe, and as long as you don't delegate your voting power to a validator who attacks the chain you are supposed to secure, then your Bitcoin is fine."

In Bitcoin, We Trust

What types of clients does Babylon attract? Looking across the room at the ardent Bitcoin maxis who have gathered for one of the year's most meaningful events, I assume demand from this segment of Bitcoiners would be near zero.

Fisher follows my look and laughs, stating that Babylon's target audience is "quite happy with this type of action and experiments." He admits, "Maybe not the extreme Bitcoin maxis, but the more progressive maxis are very welcoming to us because we follow their principle." "We are neither your keys nor your coins." Babylon also does not introduce any additional trust assumptions.

"The only trust is in Bitcoin. We trust Bitcoin. So we're developing native Bitcoin applications."

I asked Fisher what he thinks about Osmosis founder Sunny Aggarwal, a self-proclaimed Bitcoin guru who wants to transform the Bitcoin blockchain into Proof of Stake. The other Maxis may have something to say about that.

"Sunny was considering a long-term vision. Because the Bitcoin mining reward is halved every four years, unless the Bitcoin price skyrockets, the mining reward will be insufficient to cover the Bitcoin mining costs. What are you doing at that time? What exactly does Bitcoin do? Where does Bitcoin go? If miners cannot meet their expenditures, their only option is to shut down their mining devices. Then Bitcoin has to shut down. "Then it is no longer secure."

One solution to this existential quandary could be to follow Ethereum's lead and transition to a Proof-of-Stake consensus mechanism.

"Babylon is quite relevant in this direction, but this will not be the only path once Bitcoin staking becomes generally embraced. Remember that Bitcoin miners can collect transaction fees. Miners can also stake their Bitcoin and earn a dividend once Bitcoin staking is implemented. So the yield they produce can be utilized to cover their mining expenditures, and they won't have to turn off their machines."

Plans for the Year Ahead

With 2024 behind us, what does Babylon's future hold? Phase one of the mainnet was recently released, encouraging stakeholders to lock their Bitcoin on-chain. Fisher claims that the next step of the mainnet will be the launch of the Babylon chain, which will be the first to be secured by Bitcoin staking.

"After that, we will turn the Babylon chain into a marketplace where Bitcoin holders can stake to all the other decentralized systems I mentioned."

Professor David Schaefer of Stanford University, who co-founded Fisher, developed the moniker for the Babylon project. While many of us remember Babylon as an old city, it was the first marketplace in human history.

"We chose the name Babylon because the chain will eventually become a marketplace where Bitcoin holders may develop use cases, and customers can visit Babylon to enjoy those use cases. So this is our goal for the upcoming year."

Fisher and his team predict "an excellent year for Bitcoin and the entire crypto ecosystem" in 2025 as it becomes more popular.

"We will be able to bring the mainstream institutes, users, and capitals to the crypto world because Bitcoin has become mainstream; it attracts new users, capital, and institutions, and Bitcoin staking will be their natural choice."

Does he have anything further to contribute before we wind up our conversation, such as the project's long-term vision?

"We hope that in five to 10 years when everyone in the world talks about Bitcoin, the first thing they will mention is Bitcoin. "The second, they say, is Babylon."

I thank him for his time and switch off the recorder, but he's not in a hurry to leave, engaging me in a nice chat about my crypto trip and my thoughts on living in this booming region. If Fisher pays as much attention to detail in Babylon as he does in his dealings with others, the future can only be bright, and the next native use case for Bitcoin should go a long way.