Babylon is doing native Bitcoin staking, allowing BTC to participate in PoS consensus to earn returns. Lorenzo is focused on liquidity release, turning staked BTC into tradable tokens. Each of these projects is not remarkable on its own, but when combined, they create a chemical reaction, and this combination is difficult for other projects to replicate.
Let's talk about the uniqueness of Babylon. It is not just a simple staking pool, but a complete Bitcoin staking protocol. The core technology is EOTS, which stands for Extractable One-Time Signature. This technology allows BTC holders to participate in the security verification of other blockchains without transferring their coins.
The cleverness of this design lies in the fact that your BTC remains on the Bitcoin network and has not been bridged to other chains, but you can provide security for other PoS chains through a signature. If you act maliciously, your BTC will be penalized. This creates an economic constraint.
After Babylon went live, many people staked BTC and received staking certificates. However, the problem arose: this certificate is locked, cannot be traded, and cannot be used as collateral. It means that while your BTC is earning returns, liquidity is completely lost. If the market presents an opportunity, you cannot use these BTC for investment.
Lorenzo saw this pain point. The stBTC they created is a liquidity solution for Babylon staking. You stake BTC to Babylon through Lorenzo to receive the stBTC token. This stBTC represents your staking share in Babylon and is freely tradable.
The key is that stBTC is not just a certificate; it is also accumulating Babylon's staking rewards. Every second you hold stBTC, you are earning Babylon's rewards, and this income is automatically compounded without requiring manual operation. The longer the time, the more pronounced the compounding effect.
But the value of stBTC goes beyond this. Lorenzo has turned it into an asset that can circulate on more than 20 chains. You can bridge stBTC to Ethereum to do collateralized borrowing on Aave, bridge it to the BNB Chain to provide liquidity on PancakeSwap, or bridge it to Sui to do secondary earnings on NAVI.
This cross-chain liquidity network is something Babylon cannot achieve on its own, as Babylon focuses on the staking layer. Their technology is EOTS and time locks, not cross-chain bridging. Lorenzo, on the other hand, specializes in liquidity. They have integrated three cross-chain solutions: Wormhole, LayerZero, and Chainlink CCIP, allowing stBTC to be seamlessly bridged to various chains.
What’s more, Lorenzo has integrated DeFi protocols on every chain, such as connecting Venus and PancakeSwap on the BNB Chain, NAVI and Cetus on Sui, and GMX and Camelot on Arbitrum. After users receive stBTC, they do not need to search for protocols themselves; Lorenzo has already paved the way.
The depth of this integration work is enormous because each chain's virtual machine is different, and each DeFi protocol's interface is different. Making stBTC usable across all these places requires substantial technical development and testing. Lorenzo's technical team must have spent a long time building this network.
From the user's perspective, the experience of the combination of Babylon and Lorenzo is seamless. You deposit BTC on Lorenzo's interface, and the system automatically stakes it to Babylon, minting stBTC. You can then choose to leave stBTC on a certain chain or bridge it to another chain. The entire process may only require a few clicks.
Moreover, Lorenzo has also strengthened security. They use Cobo and Ceffu, two institutional-level custody services. After BTC is deposited, it is managed through MPC multi-party computation technology for private key management, rather than being stored in a single point. Thus, even if a certain node is compromised, the complete private key cannot be obtained, keeping the funds secure.
Lorenzo has also integrated Chainlink's proof of reserves system. Although stBTC is a staking certificate, the amount of BTC behind each stBTC can be verified in real-time through Chainlink's oracle. This transparency is something many LST projects cannot achieve.
However, the combination of Babylon and Lorenzo also carries risks. First, the risks of the two protocols are compounded. If there are issues with Babylon, such as the staking mechanism being attacked, the value of stBTC may drop to zero. If there are issues with Lorenzo, such as the cross-chain bridge being hacked, users' stBTC may also be at risk.
Secondly, there is the uncertainty of returns. The staking returns of Babylon are dynamic, depending on how many validation nodes there are, how many people are staking, and the network's security demand. These factors are constantly changing. Lorenzo promises that stBTC holders can receive Babylon's returns, but the specific amount is not guaranteed.
The third is the volatility of liquidity. Although stBTC can be traded on more than 20 chains, the liquidity depth on each chain varies. If you hold a large amount of stBTC and want to cash out quickly, you may encounter significant slippage issues, especially on some new chains where liquidity pools may be shallow.
Another detail of Lorenzo's stBTC design is the redemption mechanism. If you want to exchange stBTC back for native BTC, you need to go through Babylon's unlocking period, which may last several days or even weeks, depending on Babylon's parameter settings. During the unlocking period, your funds are locked and cannot be operated.
This redemption delay is a common issue in DeFi, as staking protocols require time to process unbinding. However, for users who need to exit quickly, this is inconvenient. Lorenzo has provided a secondary market on some chains, allowing users to sell stBTC directly without needing to redeem it, but the price in the secondary market may deviate from the net value.
From the competitive landscape, the moat of the combination of Babylon and Lorenzo lies in the depth and breadth of technological integration. Although theoretically, other projects could do similar things, reaching Lorenzo's level requires substantial resource investment and time accumulation.
First is the cross-chain technology. Lorenzo uses three bridges: Wormhole, LayerZero, and CCIP. Each bridge needs to be integrated separately, and security and stability must be ensured. This is not something that can be accomplished overnight. Secondly, there is the integration of DeFi protocols. Lorenzo has collaborated with the largest local protocols on each chain, which requires the business team to negotiate one by one.
The third is security auditing. Lorenzo has conducted more than 15 independent audits, each of which costs money and time. After the audit, issues found must be fixed. Not all projects are willing to bear this cost. The fourth is user education. Although the stBTC product is user-friendly, ordinary users may not understand its value, requiring continuous market promotion.
Lorenzo currently has a TVL of $54.9 billion, of which stBTC accounts for $10.24 million, less than 2%. This indicates that stBTC is still in its early stages, and most users still choose simpler wrapped BTC like enzoBTC. However, as the Babylon ecosystem develops, the demand for stBTC should increase.
Babylon itself is also rapidly expanding. Their goal is to become the PoS layer for Bitcoin, providing BTC staking services for all blockchains that need security. If Babylon succeeds, Lorenzo, as the largest liquidity provider for Babylon, will also benefit. @Lorenzo Protocol $BANK
