Babylon Chain Emerges as a Sleeper Giant in Bitcoin’s DeFi Ecosystem

Babylon Chain: A Silent Player in Bitcoin DeFi

Bitcoin’s DeFi landscape has always lagged behind that of Ethereum’s dominance—but perhaps times are changing. A new protocol, Babylon chain, could change the BTC DeFi landscape by providing staking rewards in native Bitcoin terms without involving wrapped tokens or third-party bridges.

A recent Nansen report introduces Babylon as potentially the most underappreciated Bitcoin DeFi gamble, citing its groundbreaking approach to restaking.

Native BTC Staking Without Custodial Risk

Babylon allows users to “lock” their BTC into a script on the Bitcoin blockchain and enjoy what it calls “Bitcoin restaking.” The platform avoids third-party custodians and bridges, securing users’ money while still giving them a chance for yield.

The protocol utilizes a Cosmos SDK transaction to lock in the BTC deposit, and then staking rewards are dispensed proportionately in BABY tokens and BTC.

Where the Rewards Come From

Although Bitcoin does not natively provide staking, Babylon rewards participation with BABY token inflation—8% per year. Half of this rewards BTC stakers and half rewards holders of the BABY token.

Bitcoin stakers receive a new yield mechanism without sacrificing custody, and BABY holders bet on the token’s appreciation being higher than inflation. This aligns incentives for both token holders and Bitcoin users.

Bitcoin DeFi Is Growing—Fast

The broader Bitcoin DeFi economy is growing incredibly rapidly. In December 2024, it peaked at a record high near $8 billion in total value locked (TVL) and continues to exceed $5 billion as of this writing, illustrating a 500% year-over-year increase.

This momentum is a reflection of growing demand from users and developers for DeFi platforms built on the brand, user base, and unmatched security model of Bitcoin. Babylon’s entry might be a watershed moment in the building of Bitcoin-native decentralized finance.