Restaking Breakthrough: Exploring Pell Network, The First Bitcoin Restaking Network

10 min readNov 9, 2024

Macro Analysis of the Restaking Sector

As the Federal Reserve shifts towards an interest rate cut cycle, expectations of improved market liquidity are rising, bringing new growth momentum to the crypto asset market. With Trump’s election victory, favorable crypto policies are anticipated, driving Bitcoin (BTC) to rise to $75,000 with a market cap of approximately $1.4 trillion. Despite Bitcoin’s vast market cap, its actual application in decentralized finance (DeFi) remains limited, with a current total value locked (TVL) in DeFi of $2.236 billion, only 0.16% of its total market cap. The largest contributor, Babylon (Category: Restaking), has a TVL of around $1.646 billion, making up 73.61% of the total TVL (Data Source: Defillama).

In contrast, Ethereum has a market cap of $298.9 billion, with a staggering TVL of $47.645 billion, representing 15.94% of its market cap (compared to Bitcoin’s 0.16%). Ethereum’s dominance in DeFi is driven by its smart contract technology, allowing automated execution without human intervention, which adds significant flexibility and scalability to the Ethereum ecosystem. Bitcoin’s on-chain scripting language, however, is relatively simple and lacks generality, limiting the development of decentralized applications (dApps) on its network and leaving much of Bitcoin’s DeFi potential untapped (Data Source: Defillama).

As BTC value continues to climb, maximizing its economic utility has become a pressing question. Bitcoin’s financial use cases are expanding rapidly, covering areas such as lending, staking, trading, and derivatives markets. In this emerging landscape, restaking is becoming a crucial sector, offering users higher capital efficiency and additional income opportunities. This report provides an in-depth analysis of the restaking sector, examining how it maximizes asset liquidity and enhances returns through a decentralized Bitcoin verification system.

1.1 Understanding Restaking

Bitcoin (BTC), as a Proof-of-Work (PoW) network, relies on miners’ computing power to maintain network security, which enhances resistance to attacks and decentralization but comes with high energy costs. In contrast, Proof-of-Stake (PoS) networks like Ethereum and Solana use a staking mechanism, where participants stake tokens to validate blocks with potential risks to staked assets in cases of non-compliance.

Staking allows participants to lock crypto assets to help operate the blockchain network and earn rewards. Stakers lock their cryptocurrency to become validators, enhancing network security and receiving an annualized yield (e.g., around 4–6% for Ethereum). However, staking carries risks such as slashing. With DeFi’s growth, staking has evolved into forms like liquid staking and restaking to improve capital efficiency.

Restaking leverages liquid staking derivatives (LSDs) or liquid staking tokens (LSTs) for staking on other blockchain networks to achieve higher returns and strengthen the security of new networks. The primary challenge restaking faces is liquidity, as assets lose liquidity when locked in nodes. To address this, Liquid Restaked Tokens (LRTs) were introduced. LRTs are synthetic tokens that allow staked assets to support security across multiple services while offering stakers additional rewards.

Below are simplified examples to distinguish these terms:

Liquid Staking Derivatives (LSDs)：Imagine depositing money in a fixed-term deposit account at a bank, which provides you with a “certificate of deposit” representing your funds. This certificate can be used elsewhere, like for purchases or other investments, while your original deposit earns interest at the bank. LSDs are similar, where you stake your crypto (e.g., ETH) and receive an LSD representing those assets. Thus, you earn staking rewards while using these tokens for other investments.
Liquid Staking Tokens (LSTs)：Continuing with the banking example, suppose you deposit money at a bank offering liquid staking services. In addition to earning interest, you receive a special card that can be directly used in stores or transferred to others. LSTs are this special card, allowing you to use your assets in staking for trading or investment, maintaining liquidity.
Liquid Restaking Tokens (LRTs): Now, imagine using your “certificate of deposit” at another bank to earn more returns and receiving a new special card that can also be used in the market. This means you are restaking your assets to gain more returns without losing liquidity. LRTs are this new card, enabling further capital efficiency and return through restaking your LST.

An overview chart of restaking ecosystem is provided below.

1.2 Restaking in the Ethereum Ecosystem

In Ethereum’s restaking sector, EigenLayer is the leading protocol (currently with a TVL of approximately $10.465 billion, accounting for 21.89% of Ethereum’s total TVL). By repurposing staked ETH, EigenLayer enhances both asset utilization and network security.

EigenLayer operates as a dual-service platform: one side targets general users (C-side) to attract liquidity, while the other provides security services to enterprise users (B-side). Rather than directly serving end-users, EigenLayer focuses on building a staking security market based on Ethereum, attracting B-side projects to procure security services. This value chain can be summarized as: B2C2B2B2C.

Value Chain Breakdown

Layer 1 — B2C (User Fund Management): EigenLayer initially targets general users, offering a fund management platform where users can earn returns beyond Ethereum PoS rewards.
Layer 2–2B (Node Operators): After securing user funds, EigenLayer allocates liquidity to node operators (middle-tier B), who maintain network security and provide service interfaces to the external service market.
Layer 3–2B (Supporting AVS Applications): Node operators offer security validation services to Advanced Verification Service (AVS) applications, boosting AVS security with EigenLayer-provided liquidity. AVS applications can then build their services on a reliable security foundation.

EigenDA, EigenLayer’s first AVS, can be understood as an in-house AVS, leveraging Ethereum’s validation mechanism to simplify the launch process and reduce costs. AVS partners include key areas such as:

Data Availability: Partners like Lagrange and Blockless Network enhance data availability and consensus security.
Oracle Services: Collaborating with oracles like Redstone, EigenLayer improves the credibility of off-chain data.
Cross-Chain Bridges: By supporting projects like Hyperlane and Omni, EigenLayer ensures cross-chain transaction security.

EigenLayer has a current market cap of $448 million and has completed multiple funding rounds with backing from top VCs. In 2023, the project completed an A-round funding led by Blockchain Capital, and in February 2024, a16z invested $100 million, valuing the project at $5 billion (Data Source: Defillama).

1.3 Restaking in the Bitcoin Ecosystem

Bitcoin’s restaking mechanism (BTC Restaking) extends Bitcoin’s security to other blockchains, supporting security for multi-chain applications. This mechanism significantly reduces security costs for networks and protocols.

Babylon plays a key role in the BTC staking ecosystem, pushing Bitcoin’s on-chain security mechanism towards more flexible restaking. By securing on-chain assets and offering high interoperability for dApps, Babylon unlocks Bitcoin’s potential in DeFi and cross-chain applications.

Babylon’s unique Bitcoin-based architecture enhances security for other blockchains using a Bitcoin covenant emulator to implement staking contracts, supporting staking, redemption, and slashing functions.

Babylon Ecosystem Partners

BTC LST Projects

Chakra: A ZK-based Bitcoin restaking protocol, Chakra supports staking on the Bitcoin mainnet and integrates seamlessly with other protocols. Through integration with Babylon, users can stake BTC with Chakra and transition smoothly to the Babylon mainnet for Babylon staking rewards and Chakra’s Prana rewards.
Lombard: A restaking protocol within the Babylon ecosystem that provides cross-chain liquidity tokens (LBTC) backed 1:1 by Bitcoin. Users deposit native Bitcoin via Lombard, which then stakes Bitcoin into Babylon’s security staking infrastructure.
Lorenzo: A liquid staking protocol built on Babylon, Lorenzo enables users to stake Bitcoin in Babylon and tokenizes it into a highly liquid stBTC.

BTC Restaking Network

Pell Network: An omnichain restaking protocol offering decentralized validated services (DVS) within the Bitcoin ecosystem. Pell provides cryptoeconomic security to decentralized infrastructure through BTC LSD restaking.

In-Depth Analysis of Pell Network

This article takes Pell Network as a representative example to analyze its innovative mechanisms and business model in the BTC re-staking space, revealing how it enhances BTC capital efficiency and brings added value to the BTCFi ecosystem.

2.1 Overview of Pell Network

Pell Network is a omnichain restaking network dedicated to simplifying the re-utilization of BTC Liquid Staking Derivatives (LSD), enhancing the security and yield of multi-chain ecosystems. Pell allows for the deployment of idle BTC LSD into Decentralized Validated Services (DVS), creating a universal trust network that not only expands the application boundaries of Bitcoin but also provides additional yield opportunities.

Leveraging its unique design, Pell maximizes the use of Bitcoin by integrating with projects like Babylon, extending the value chain of BTCFi. Specifically, BTC LSD holders can restake their assets into DVS through Pell, thus earning security rewards from Babylon’s Proof-of-Stake (PoS) while further enhancing capital efficiency.

2.2 Pell Network’s Core Mechanisms and Business Model

2.2.1 Pell Network’s Restaking Model

Pell Network creates a security chain from BTC LSD to DVS by employing a multi-layered yield structure:

Liquid Staking BTC: BTC holders can first convert their Bitcoin into Liquid Staking Tokens (BTC LST) through liquid staking protocols like Lorenzo and Lombard, making their assets more flexible, similar to Lido in the Ethereum ecosystem.
Staking BTC into Babylon: The liquid staking protocol then stakes BTC into Babylon’s Bitcoin staking protocol. Babylon utilizes an innovative trustless and self-custody mechanism to provide security for PoS chains and generates PoS chain rewards.
Restaking to Pell’s DVS: Pell further utilizes BTC LSD by restaking it into DVS on its platform. DVS provides additional yield layers for BTC holders, further improving capital efficiency.

2.2.2 Pell Network’s Business Model

Pell’s core business model revolves around “security leasing and validation services,” offering customized validation services to various blockchain projects. To B clients include dApp developers, Layer 2 protocols, and cross-chain bridge protocols. Pell leases validator services to these projects to meet their security needs. Clients pay fees for using Pell’s validator security services, while Pell distributes a portion of the revenue to stakers and re-stakers.

Pell Network’s success is also attributed to its deep integration with Babylon. As the first Bitcoin PoS protocol, Babylon uses staked BTC to enhance PoS chain security. After integrating with Babylon, Pell Network has created a complete yield chain, with Babylon detailing Pell’s role in extending the ecosystem’s value in a recent blog post on November 5.

Read Full Article: https://babylonlabs.io/blog/pell-network-integrates-with-babylon

To B Security Aspects:

Validator Sharing: A single validator can simultaneously provide cross chain validation services to multiple projects, improving overall capital efficiency and utilization.
Security Validation Services: Pell’s security leasing mechanism enables projects to access high-security validation services without having to build their own validation mechanisms, thus benefiting from the high security provided by Bitcoin.

To C Yield Aspects:

PoS Chain Security Rewards: Babylon uses staked BTC to secure PoS chains, providing Pell with basic security rewards.
Re-staking Additional Yields: Through Pell, re-staked BTC LSD is used to provide security for DVS, which further adds to the yields generated from Babylon’s PoS rewards, delivering higher capital returns for Pell users.

To better understand the relationship between Stakers, Operators, and DVS, let’s consider a financial investment analogy, where Stakers, Operators, and DVS are investors, asset management companies, and investment products, respectively.

Investors (Stakers): In this ecosystem, investors are the capital providers. They participate in the “investment” process by restaking their “capital” (BTC LSD). Investors can either delegate their funds to asset management companies (Operators) or directly manage investments themselves.
Asset Management (Operators): Asset management companies are the entities responsible for investment and fund management. They register on Pell Network, allowing investors to delegate funds to them for management. Operators provide various “investment products” (DVS) based on investor needs and market opportunities, leveraging shared fund security to offer higher returns. (*In practice, these are security validation services).
Investment Products (DVS): Investment products are the specific investment opportunities offered to investors in the financial market. DVS provides a range of diversified investment options, ensuring that investors can select based on their risk preferences and return objectives.

In Pell Network’s ecosystem, investors (Stakers) provide funds to enhance the security of the network and generate returns for themselves. Asset management companies (Operators) assume responsibility for managing these funds, offering diverse “investment products” (DVS) to meet investor demands. This collaboration not only ensures effective capital utilization and growth but also strengthens the overall security of the network. Thus, the close relationship between Stakers, Operators, and DVS creates an efficient and mutually beneficial financial ecosystem that drives Pell Network’s sustained development and stable growth.

Pell Network’s business model not only increases the yield sources for BTC LSD but also expands Bitcoin’s applications in multi-chain ecosystems, creating more possibilities for BTCFi value creation.

2.3 Competitive Advantages of Pell Network

Omnichain Network: Pell Network is an omnichain network, meaning Pell’s node operators can serve multiple chains, improving yields and delivering higher returns for stakers.
Flexible Yield Structure: Through Pell’s restaking mechanism, BTC holders can earn dual yields, benefiting from both Babylon’s PoS security rewards and additional returns from Pell’s DVS, enhancing overall capital returns.
Wide Security Coverage: Pell’s restaking mechanism provides security support for multiple PoS projects and applications, creating a shared security network that further strengthens the decentralization of various chains.
Security Leasing Model: Pell’s security leasing service enables projects to access high-security validation services at a lower cost, offering more cost-effective options for developers in the multi-chain ecosystem.

2.4 Current Development

As of November 4, 2024, Pell Network’s Total Value Locked (TVL) exceeds $400 million, currently ranking 6th in the re-staking space (Solayer: $280 million, ranked 7th), with a remarkable monthly growth rate of 40.20%. There are 436,611 stakers on-chain, and the number is still rapidly growing.

In terms of fundraising, Pell Network raised $3 million in its pre-seed round, led by Halo Capital, Mirana Ventures, and Paper Ventures.

2.5 Future Outlook

Pell Network’s omnichain restaking solution represents a significant innovation in the BTCFi space, especially in the multi-layer utilization of BTC LSD and capital efficiency enhancement. As the BTCFi market continues to expand, Pell Network will further optimize its business model and attract more DVS users, injecting new vitality into the application scenarios for BTC restaking. Pell Network has opened up new value pathways in the BTCFi space and may become a key player in the BTCFi ecosystem in the future.

Through Pell Network’s innovative restaking mechanism, BTC LSD is effectively utilized across multiple security validation tasks, achieving optimal deployment of BTC assets in decentralized ecosystems. Pell Network is pushing the potential of Bitcoin to new heights and unlocking more application possibilities for Bitcoin.

💙Useful Link

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Learn more about Pell Network: https://pell.network/

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