Babylon and Cubist collaborate to make staking bitcoin safer

Cubist is expanding its support for Babylon, a DeFi protocol enabling the staking of native bitcoin. The latest release of the CubeSigner key management solution, introduces comprehensive workflows designed specifically for Babylon, such as specialized staking operations and anti-slashing mechanisms.

This offering is expected to bolster the workflows of those building on top of Babylon, and help developers create new DeFi applications that are safer for end-users.

Babylon is set to be first-to-market with a trust-minimized bitcoin staking solution, allowing developers to build liquid staking protocols, restaking protocols and other layered solutions that enable users to earn yield from natively staked BTC.

Unlike other systems to offer yield on bitcoin, Babylon puts the individual bitcoin holder in charge of choosing their preferred option for staking, commensurate with their own risk tolerance. In the core protocol, there is no third party, emphasizes co-founder David Tse.

“There is no centralized custodian that takes the bitcoin and then stakes it,” Tse told Blockworks, adding, “the design is to match typical proof-of-stake protocols” like Ethereum.

Babylon’s approach allows proof-of-stake blockchains to tap into the economic heft of crypto’s most valuable asset.

CubeSigner’s latest update builds on its prior release of a full-featured Bitcoin key management API by adding support for Babylon-specific workflows such as managing deposits, withdrawals and early unbonding. It does so all while secure hardware enclaves enforce strict security policies to prevent unauthorized access or misuse of Bitcoin keys, according to Riad Wahby, co-founder and CEO of Cubist.

“If they’re using CubeSigner, then even if they wanted to misbehave, the hardware would prevent them from doing it because it says, ‘No, I know that this would be an illegal signature, and I’m not going to give it to you even if you ask for it.’”

Thus, even if a system is compromised, attackers cannot steal funds or cause significant harm, according to Wahby.

Slashing risk mitigation

When a user stakes BTC with Babylon, they operate under the assumption that the node operator, or “finality provider,” will behave correctly and thus pay out a promised yield.

“The core protocol is agnostic as to how the finality provider actually behaves,” Wahby said. “So the core protocol really sets up the incentives.”

In practice, people make mistakes.

“People do a deployment wrong, they accidentally get the Kubernetes configuration wrong, one datacenter goes down and the migration to a different data center goes haywire — and the result is they get slashed,” Wahby explained.

“And it’s not because they wanted to, it’s because they made a mistake. But we can give a stronger guarantee.”

One of the most notable additions to CubeSigner is this anti-slashing mechanism designed to protect Babylon finality providers. Support for Extractable One-Time Signature (EOTS) keys, coupled with a constantly active anti-slashing policy, protects against such violations.

Slashing will not initially be enabled when Babylon launches its mainnet, but will come in a later phase, “which will be quite a few months away,” Tse said.

Beyond security, CubeSigner’s integration with Babylon is also aimed at reducing the complexity and development time for teams building on the protocol, particularly for smaller teams that may not have dedicated security operations personnel.

Lombard, a bitcoin liquid staking protocol, is one of the first teams to leverage CubeSigner’s hardware-enshrined contracts, an offchain alternative to onchain smart contracts (which are not yet available on Bitcoin).

Other dapps are going after the same market in a different way. For instance, Atlas Protocol looks to leverage Near’s new Chain Signatures scheme to facilitate BTC liquid staking on EVM chains.

Tse argues that smart contract risk is limited both in probability and scope with Babylon.

“One thing about Bitcoin — you may argue that Bitcoin get[s] a stupid chain because it doesn’t have smart contracts,” Tse said. “Because it doesn’t have smart contracts, you’re forced to write a very simple contract using the scripting language, and that’s exactly what we achieved — a very simple scripting contract.”

The lack of a centralized custodian meanwhile ensures that money at risk is limited to each individual staker.

“In fact, the risk is very decentralized because every stacker manages their own key. So therefore if you do manage to hack into someone’s key, it only affects that particular stacker’s funds — and even that risk will [be] minimized if they use Cubist,” Tse said.

Updated Aug. 13, 2024 at 12:01 pm ET for clarity on the CubeSigner update.

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