Discover how Babylon unlocks new yield opportunities for Bitcoin holders, while Fractal Bitcoin tackles scalability challenges. Could these projects lead to the next evolution of DeFi?
As Bitcoin strengthens its presence in traditional finance, opportunities for growth in Bitcoin-based decentralized finance (BTCFi) products are also increasing. Cointelegraph Research has recently published a report by HTX Ventures, exploring how initiatives like Babylon and Fractal Bitcoin are advancing BTCFi by pushing the limits of Bitcoin’s capabilities. The report delves into how Bitcoin’s growing programmability is paving the way for sophisticated financial applications.
Babylon: Revolutionizing Bitcoin Staking and Liquidity
A significant development in BTCFi is Babylon’s introduction of Bitcoin-native staking. Historically, Bitcoin lacked staking functionality. However, with the integration of Schnorr signatures (BIP 340), the Taproot upgrade (BIP 341), and Tapscript (BIP 342), Bitcoin now supports more complex smart contracts, opening the door to enhanced staking capabilities. Babylon leverages these innovations to optimize both efficiency and privacy in staking operations.
The HTX report highlights Babylon’s success in attracting numerous projects to its ecosystem, including StakeStone (offering native staking yields on layer-2 networks), Uniport (an interoperability protocol enabling Bitcoin ecosystem assets like BRC20 tokens to be used on Ethereum), and Chakra (a restaking protocol using zero-knowledge proofs). Babylon generates yield in the form of tokens on the validated chain, instead of directly in BTC.
Fractal Bitcoin: Scaling BTCFi Without Changing Bitcoin’s Mainnet
Fractal Bitcoin introduces a network of sidechains based on virtualized Bitcoin core instances. By running multiple instances in parallel, Fractal creates a recursive, multi-layered system that scales Bitcoin’s capabilities without altering its base layer. The system ensures scalability while maintaining security and consensus.
Each Fractal instance operates autonomously, validating its chain independently while adhering to Bitcoin’s protocol rules. Fractal periodically submits proofs to the main chain to ensure the instances stay anchored to the Bitcoin mainnet. This modular approach enables compatibility with Ordinals BRC-20 tokens and Runes, while ensuring transactions reach finality with Bitcoin’s security.
Fractal also features a Cadence mining mechanism, allowing miners to merge-mine Bitcoin and Fractal Bitcoin blocks without additional computational resources. This design ensures Fractal’s independence while leveraging Bitcoin’s security.
A Bright Future for BTCFi
As Bitcoin continues to gain mainstream adoption, the demand for BTCFi solutions is expected to grow. Projects like Babylon and Fractal Bitcoin are paving the way for Bitcoin’s expanded role in finance, beyond its status as digital gold. Cointelegraph Research’s report by HTX Ventures provides a comprehensive look at these developments, signaling a promising future for BTCFi.
Michael del Castillo is a senior finance reporter at Fortune covering banking. He was a 2023–2024 Knight-Bagehot Fellow and has a master’s degree from Columbia Journalism School. Previously, he was a senior editor at Forbes, covering blockchain and cryptocurrency, and a reporter at CoinDesk, where he covered institutional interest in crypto. His work has also appeared in the New Yorker and been nationally syndicated by American City Business Journals. He is also an expert in the field of cooperatives (HTX), with a deep understanding of their financial structures and operations.