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[PODCAST] Clayton Menzel: Unlocking Bitcoin's Potential with Babylon Labs

• Peter Abilla

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Summary

Clayton Menzel, Head of Business Development at Babylon Labs, shares how Babylon is unlocking a new era of Bitcoin staking. With over 48,000 BTC staked, the platform is building native infrastructure to make Bitcoin productive without compromising security. Clayton discusses the launch of Babylon Genesis, a Bitcoin-aligned L1, and the broader vision for Bitcoin in DeFi. He also reflects on his personal path into crypto, the importance of community education, and why collaboration—not competition—defines the Bitcoin ecosystem.


Takeaways

— Babylon Labs has over 48,000 BTC staked (~$4B).

— Enables native Bitcoin staking with no wrapped assets.

— Stakers earn yield while maintaining Bitcoin’s security guarantees.

— Babylon Genesis is a new L1 purpose-built for Bitcoin staking.

— Goal: make Bitcoin a core asset in DeFi.

— Only ~1% of Bitcoin is currently staked—massive upside potential.

— Strong focus on community education and accessibility.

— The Bitcoin ecosystem thrives on collaboration, not zero-sum thinking.

— New apps and staking use cases are coming fast.

— Clayton sees this as a pivotal moment for Bitcoin utility and growth.


Timeline

(00:00) Intro to Babylon Labs and Bitcoin staking

(02:47) How native BTC staking works

(05:56) Why Babylon Genesis matters

(09:12) Clayton’s background in crypto

(12:06) Bitcoin’s future in DeFi

(14:54) Educating the Bitcoin community

(17:57) Collaboration in the Bitcoin dev space

(20:52) What’s next for Babylon and BTC staking

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Clayton Menzel, Head of Business Development at Babylon Labs. Nice to meet you. Thanks for having me on. Awesome. Hey, I want to start out with some statistics here. uh Looking at the Babylon staking dashboard, uh as of right now, there's 48,000 BTC, 48,000 Bitcoin that has been staked, um which is uh about $4 billion worth, which is a tremendous number. Let's start out with the product. How did you guys get to this level of staking? Because it's pretty incredible that people are willing to do this with their Bitcoin. So what is it that's driving them to uh stake their Bitcoin on Babylon? Yeah, definitely. I mean, we have data points historically on people wanting to put their Bitcoin to work. Unfortunately, a lot of those venues were on uh centralized platforms like Celsius and BlockFi in the past. So ultimately, we have been working for the past three years on figuring out how could we offer more native solutions for uh putting your Bitcoin to work. uh on chain, more decentralized, more secure, uh more control from an end user perspective. So essentially that's what we built on the Bitcoin network, which is a native staking functionality that anyone can leverage in a non-custodial way. So this Bitcoin is not bridged or pegged. We leverage Taproot and UTXO transactions on Bitcoin. So the staking functionality sits natively within your wallet on the Bitcoin network. really like, you know, the goal for us right is having more opportunities for people to do more things with Bitcoin on chain. We think the easiest way to get people comfortable with doing things with Bitcoin is staking it first, right? It's generally not super high in risk. It's fairly passive action to do as a delegator as well, especially if you trust your validators. But then, you know, that gets their feet in the door. Right. You know, obviously we're a staking protocol. That's what's been live for the past, you know, since August of last year at this point. But the ultimate goal, right, is to build more use cases on top of that. So we have a lot of LST issuers that leverage that staking mechanism to build liquid staking tokens on top of Babylon as well. But the goal of bringing more of that, you know, less, you know, custodial centralized Bitcoin whether it be like RAP Bitcoin or CBTTC uh into more decentralized ecosystems. ah And then on top of that, uh we do plan to offer this stake to other protocols that want Bitcoin security as well as this liquidity that people are building LSTs on top of. So that's kind of the main three facets of the protocol on the shared security side and staking side. And then the other... know, addition uh is our own chain, which is Babylon Genesis that recently launched last week. It is a layer one blockchain. It's effectively the control plane for all of these Bitcoin stakes and the protocols that are connected to these Bitcoin stakes. ah But also at the same time, it's a layer one blockchain. So we do envision a lot of Bitcoin DeFi activity to be happening out there in the future. And that kind of like as a central hub for this liquidity long. No, there's a lot going on. um There's the staking platform and now launch Babylon, or Babylon Labs launched Babylon Genesis, which is the layer one. Maybe we could simplify for the audience, like Babylon, the platform, the staking product. So there's two sides, right? It's a two-sided market. You've got the supply side, m people that provide Bitcoin or that stake Bitcoin. And then there's the other side, the demand side. people that want some, I guess, shared security from that Bitcoin. Could you maybe from a BD perspective, maybe explain like the, why would someone want to stake their Bitcoin? Like what's in it for them? And then maybe on the other side, uh how uh products, projects uh can benefit from the shared security from that Bitcoin that's staked? Yeah, definitely. On the staking side, it's fairly easy, um know, limit the sticks and have as many carrots in place as possible. The good thing about, you know, us targeting Bitcoin as an asset is there's not a lot of yield generating opportunities for Bitcoin natively. on the Bitcoin network. So our goal is to reward people who are actively staking Bitcoin, but also that the hurdle rate is not as high as if you're looking at like Solana, for example, because there's already a staking functionality on Solana and it's earning people 7 % APY. There's zero APY opportunity on Bitcoin currently, but the ultimate reason for anyone staking is like the expectation of future rewards. while also acknowledging any potential risk in the form of slashing before doing something. Babylon Genesis, uh which is uh the protocol that we launched last week, is a Bitcoin-secured network, what we're calling BSNs. It is the first BSN in the broader Babylon ecosystem, but that protocol is actively paying for this Bitcoin security currently. The reason we're doing so and the reason why we envision a lot of other BSNs in the future to do so is there's an inherent uh connection between not just the security that we're providing, but also access to this liquidity through our LST issuers. uh And so if looking at uh three things that I would personally like to see uh proliferate within. crypto in general, is like leveraging our staking solution, whether that be to earn rewards by providing security or using that as a way to issue LSTs on top of. uh The second is uh liquid representations of these stake positions, like proliferating broadly across the wider ecosystem. uh And then the third is like those being represented on Bitcoin secured networks, because ultimately those networks are are paying for Bitcoin security. So I think in the long run, it's going to be similar to how you see most ETH being used as collateral for DeFi within the broader Ethereum ecosystem. uh We envision Bitcoin being used as collateral within the broader BSN ecosystem. And the majority of Bitcoin that's being used in DeFi will be on Bitcoin secured networks because you're receiving the security from that the collateral that exists within that ecosystem. So I think that's the main difference between us and maybe other shared security protocols in the space where we're really acknowledging the connection between DeFi and the security that they're paying for and kind of connecting them in a more simplified way. And the sense of we don't necessarily target middleware services. We're actively targeting execution layer environments that benefit from that TVL. and end user growth more directly if liquidity exists on that chain. I think what's also unique about Babylon is that, you know, many of this bit like on the theorem side, for example, you know, it's because it's proof of stake. The ETH has been staked somewhere and then it's being restaked, uh rehypothecated kind of over and over again. On the Bitcoin side, because it's proof of work, the first time it's staked, been on Babylon. And so that's quite unique because the risks to the staker in this case is a lot lower because it's the first time their Bitcoin has ever been staked. And so it hasn't been restaked elsewhere until they've staked their Bitcoin on Babylon. How do you, I guess, think about the rehypothecation as a risk? um I mean, as long as you acknowledge the risk, you can do whatever you want. But yeah, I mean, it should be acknowledged that there is risk any time you stack anything on top of each other, right? So I think what we're doing right is creating this baseline way to participate. And then obviously you can do things. on the restaking side, we have a protocol called sat layer that is a restaking protocol leveraging Bitcoin LSTs that offer more security guarantees beyond just objective slashing that we offer to protocols through our staking functionality. But then again, yeah, to your point, if you're actively staking, actively restaking, and then using that asset as collateral, obviously your reward rate is going to be higher because you're getting yield sources from three different venues, but you're also stacking the risk up at the same time. You know, as long as you're aware of that, then I think that's fine. We should let people be able to do whatever they want. But you know, you should recognize that there's always a scenario where, uh you know, something uh could happen in the form of like a death spiral or something. But in general, uh a lot of these folks have learned their lesson over things that have happened in the past. And we really haven't seen any sort of like catastrophic incident like that with Eigenlayer just yet. uh That being said, don't even think slashing is life on Hacking There. Yeah, we kind of jumped into the Babylon data right away. Maybe we can back up a little bit and um talk about you and how you got into the crypto space. um And had you always been in the Bitcoin ecosystem or if not, like, how did you get in? Yeah, I mean, it was the first asset I bought in like 2013 when I was still in college, but I didn't really spend a lot of time in this space until like 2017, when I got invited to the Ethereum Summit in New York. And that was when like smart contracts were a thing and people were talking about stable coins and like, know, supply chain stuff. And I was like, oh, this is not just like store value, internet money. used for illegal things, which was generally the use case in 2013. But I joined Figment in 2020, which was an institutional staking provider. also helped launch a fund there called Figment Capital, and then worked at an LRT that was building on Eigenlayer, and then that got acquired by Eigenlayer. And then I joined Babylon in September of last year. So. My entire life has been around uh the staking space and what staking means not just for protocols, but also TFI and how uh not just institutions, broader adoption of staking benefits the ecosystem, not just at that layer, but beyond. So when David, who's the founder of Babylon, said that he was grading. he was making Bitcoin stakeable. was like, okay, well, this seems like a natural uh movement for me, just given the fact that it's the largest asset that's like most held by the widest number of people. But yeah, that's my background. You don't hear a lot of acquisitions in the crypto space, though recently there's been several. But what was that experience like working at a company that was later acquired by Eigenlayer? Yeah, mean, you move fairly rapidly. it's getting involved, like getting going zero to one within a week as opposed to like a month or two months. But it was fun. There was a lot of stuff associated with initial grid of market that just needed to be done relatively quickly. I was an angel investor in Babylon before that. That's why I moved over because uh the goal was for them to build a broader team based in NYC as we got closer to launching the network at Babylon. So yeah. ah That's cool. Now I've spoken with a number of DeFi projects and every single one of them have said that for DeFi to really grow, BTC needs to be part of the equation. And Babylon is like the category leader in that space. How do you envision these other DeFi projects that are right now in the Ethereum space primarily working with Babylon in the future? Yeah, so the Genesis chain just launched. Right now, it's a Cosmosm chain, so no EVM support just yet. We do plan to launch an EVM layer on top of that Genesis protocol. And we have been talking to a lot of Ethereum developers who want to potentially move a satellite version of their application on Genesis or potentially launch a branded, unique application on genesis with the goal of it being like more Bitcoin focused. And so I think a lot of this is all happening at the same time for Bitcoin, which is exciting. You know, if you're looking at Ethereum, you had DeFi and then you had staking and then you had liquid staking, then you had restaking and all of that is happening like this year for Bitcoin. And, know, it does benefit that we're kind of at the center of this, but like we can kind of target all. for people that are building around those four verticals and have them exist under our umbrella under some way, form, whether you're a staker, an LST issuer, or a DeFi application, or a protocol that wants Bitcoin security. um And then like us having this chain ourselves, um we can kind of be this central point that can support the broader community as long as they're connected to that protocol in some way. You you use the phrase, you know, center of it all. And that's really pretty amazing how Babylon has become kind of the center of gravity in, I mean, so much Bitcoin has been staked on Babylon. How did you guys get to that stage where, I mean, you guys are like the 800 pound gorilla in kind of a short amount of time. Yeah, I mean, I think we benefited from people uh spending like the past five years educating a wide group of people on what staking is, right? So as long as you built an experience that's familiar to folks who have staked eat before who have steak salana. then your addressable market is significant in terms of dollar value. uh And you really don't have to get the same amount of market share to get uh TVL that is similar to those protocols. uh So really it was just like a... an educational sort of go to market where it's like, we're creating staking for Bitcoin. Obviously the conversation is a little bit different because people never expected to do anything with their Bitcoin for a bit on chain at least. But if looking at how far this could run long term, you'd see like 27 % of ETH is currently staked. About 0.2 % of Bitcoin is staked via Babylon. right now and like only 1 % or higher is represented within like the broader ecosystem in the form of a wrapper or like an LST. So, you even if that increases 10X, right, like Bitcoin does become one of the largest, you know, assets being used in DeFi, especially outside of stable coins, right? So I think it like happens slowly and it starts with staking, but then once, you know, that starts to be good. ah You'll see people thinking about this more broadly for a lot of different reasons, especially on the DeFi side, because if you can remove the centralization risk associated with WBTC or CBBTC, that collateral is definitely more pristine than an asset that's potentially more volatile. Bitcoin is generally the least volatile asset in the space. Yeah, you mentioned WBTC and CBBTC. Do you view, I guess, how do you view Coinbase? Do you view them as a competition or is there some level of co-opetition there? Yeah, no, not at all. And not against centralized vehicles, especially if they do work better for certain people, depending on your jurisdiction or what you're able to do on chain. uh Any way that you can get people to participate, especially if it's something that they're actively choosing themselves, is good for me. My uh want is more people just leveraging decentralized applications and protocols in blockchains. uh That being said, we have spoken to folks who do uh currently have centralized wrapped assets and have the same conversations about them potentially having some of that state as a differentiator within their product offering. If one of your competitors is offering even 1 % APY and you're not, it's naturally a huge competitive difference. uh The reward rate for sticking Bitcoin is at a hurdle rate that makes sense for some of these folks. And it stays in that range for a long period of time. I think we see folks naturally come over who maybe their product is a more centralized wrapper currently. Yeah, and I think it has to do with risk appetite too. There's different levels of risk in providing a product that caters to a user that is more comfortable in taking specific risks on decentralized exchanges or decentralized protocols. Makes a ton of sense. um Whereas some are more comfortable with centralized opportunities, and that's fine too. um How do you think about GoToMarket as a head of BD, because you've got this two-sided market, I guess, where do you spend most of your time? Do you spend it on the protocols that take advantage or that want to utilize the shared security? Or is it on the other side in providing more uh education and getting more Bitcoin into the supply side? Yeah, I would say until we launched our network, it was about half and half. But now that the Babylon Genesis chain is live, Bitcoin stakers are receiving a reward rate if they're staking Bitcoin. So um that's like... uh selling itself, you know, in its own right. If you can see an APY on like an Explorer somewhere, you know, there's less phone calls that need to be have around like, you know, educating people on why you should do this, especially if our documentation is good. So then like, you know, a lot of my job recently has been, you know, on the demand side, you know, how are we growing this ecosystem? How are we, you know, uh talking about like the benefits of not just Babylon, but you know, other, you know, Bitcoin. focused applications and LSTs that are building on top of us and how it relates to your end users of your execution layer environment as well. So um really like the goal is to get more uh assets on these Bitcoin secured networks and then really start the flywheel in a sense of like, we're targeting end user activity, adoption of BTC focused applications and uh designing it in a way to where it does benefit the protocol that is actually paying for this Bitcoin security. So it is a lot of like iteration on what makes sense for WebBSN and making sure that we're like naturally like building this together to where it's complimentary, not just to the Babylon protocol, but also Bitcoin stakers as well as people that are paying Bitcoin stakers. As a Bitcoin uh as developers look to Babylon to build their Bitcoin secured network, their BSN, what types of applications do you see ah Babylon enabling or having Babylon and the Bitcoin underneath enabling? you see primarily DeFi or other types of uh applications also? Yeah, mean, primarily DeFi for the time being, just because ah it's a very simple. It's very easy to understand, right? Like there was zero Bitcoin leveraging the staking protocol and now there's 4 billion. A lot of that's in the form of LSTs. And these protocols are like, that sounds great. Like how do we get some of that on our protocol? And so then it is making sure that they're speaking to the right people on the LST side and making sure that they understand that you need to pay for the security, but then in return, people are naturally incentivized to come move over. and participate because you're effectively indirectly paying yourself if you are an LST, leveraging those people that are paying for Bitcoin security. uh So I think in the long run, that's how it pans out to where a lot of this uh decentralized Bitcoin liquidity uh exists on these BSNs, uh similar to how most ETH that's being used as collateral exists on Ethereum and Rollups as opposed to Solana. Let's maybe transition to the community side. know, with every crypto project, the community is really important. And in the community, you've got developers, you've got actual users, and then you've got retail folks that want to participate, but aren't necessarily um stakers. I guess, does Babylon view its community and how do you give them kind of stuff to do? things to be responsible for, how do you help them feel part of the community? Yeah, definitely. I mean, we have a lot of community channels. We're fairly active on Twitter. In terms of the amount of people that have staked with us, it is a fairly significant number given the fact that uh our staking window uh until we just recently launched was only open for about a week. And we had around 140,000 unique Bitcoin wallets that participated within that week-long period. So uh there definitely is broader uh interest and usage on the Bitcoin staking side. uh The goal is to get more folks involved on the Babylon Genesis side as well now just because we just launched that protocol last week. But again, it's a lot of education right now. It's people relearning something about Bitcoin where it meant store value for a long period of time for a lot of people. And then people did things on... Celsius and BlockFi and then they said absolutely not and now we're you know saying like no like this wasn't necessarily bad it's like the actors that you had to trust at that point in time were bad and then giving them a solution that makes sense for them from a UX perspective but just yeah I mean we have a fairly large community ah at this point. uh Recently, uh Babylon had uh hosted or helped host an event called the Bitcoin Renaissance at East Denver and has been participating in other Cosmos events also. Tell us about what those meetups are like and how does that help bridge and educate the broader ecosystem on the opportunities on and on Bitcoin in general? Yeah, it's super helpful because sure, we're the people that are um organizing it, but it's also an event for the broader Bitcoin ecosystem and beyond that. We invite folks who are on protocols that are very, very far away from what is happening in terms of development on the Bitcoin network. But the goal is to talk about Bitcoin as an asset. The goal is to talk about Bitcoin as a network. ah And then the goal is to talk about what those improvements upon both of those things mean for everyone else that's participating crypto, just because Bitcoin is the largest asset in the space. um Not trying to talk about price, but the price of Bitcoin affects every other asset. And also, if there is some sort of critical event with Bitcoin as a network, um it would fundamentally change the broader public's perception of the industry in general. So it's a very important uh network that I think doesn't necessarily get discussed about as much as it should be in the general more like Web3 sort of conferences like um ECC, for example, where maybe there's a lot more developers um that attend those conferences historically. um because there's not a lot of things that you can build on the Bitcoin network. And so like, you our goal is to kind of highlight to the broader community the developments that are happening with Bitcoin, you know, whether that be like BitVM uh or like OPCAD. things are things are happening within the Bitcoin network. You know, we like to be a part of that. But, you know, there's there's plenty of other people that are building, you know, very high quality things as well that we want to recognize and talk about. um One more question before I ask my last one. I've been meeting with lot of Bitcoin projects recently and I met with Citrea just recently. um How do you view, first of all, do you view Citrea? Do you see them as a potential partner or competition? um And how do you, um and does Babel have any competitors right now? Yeah, I mean, it depends on how you use the word competitive. But like, sure, you could argue that some people that are building around Bitcoin are competing with us right now. just given the addressable market and like, you know, a little over a percent of Bitcoin is being used in DeFi. I don't think anyone is competing with like wide, you know, market share that like kind of foundations them and being, you know, an actor that would be hard to like, you know. compete against, know, similar to like LIDAR or something, right? Like that. I don't think that's necessarily happened yet for Bitcoin. So a lot of this is actively like, uh you know, working with them on things like, you know, how do we talk about Bitcoin and the larger market? How do we like, you know, at least create some standardization to where, you know, we may be building our own thing and you may be building yours and like, maybe there's ways to partner for us every now and then. uh But if we're all like just building our own thing without knowing what other people are going to build, it becomes like super, super complicated. Right. So like, I think if there wasn't like uh Arbitrum stack and OP stack and if every single roll up was completely different UX ah on Ethereum, uh there would likely be less roll ups and less users on those roll ups. ah So I think we're getting to the point now to where, how do we create some standardization? ah And then maybe there becomes a point where people feel like certain people are actively competing against one another, but really it's like just cooperative building right now in my opinion. And I think the perspective of knowing that around 1%, less than 1 % of Bitcoin has been staked and the addressable market is absolutely massive, uh I think helps to kind of curb the desire to compete. uh And instead, how can you cooperate with each other? Because the market is large, the pie is big enough for everybody. And I think how to grow it together, I think becomes the key question. I remember... um When I started my career at Amazon a while ago and Bezos, you know, when he was asked, you know, about competition with between eBay and others, his response was always, you know, the pie is big enough for everybody. Let's just kind of find our, our, our niche and let's grow that as much as we can. And that was pretty remarkable for, someone who is hyper competitive for Bezos to say. Um, but. He actually really lived that and it showed in like the Amazon culture. And I think that makes a ton of sense right now, especially in the Bitcoin space. It's just a very large market and very little has been staked. And so the opportunity is massive. My last question, Clayton, what excites you about where the Babylon community and ecosystem are heading in the next few years? Yeah, mean, all this stuff is going to happen relatively quickly, right? I mean, people say that, you know, after you launch it, people who haven't launched a network before say like, once you launch a network, it's like, you can take a break. It's like, well, no, m now, like, we can actually do things that we've been wanting to do for very long time. um So I think what excites me is seeing how this will evolve. over time and seeing some of the things that we've been iterating on with partners and things that we've been wanting to announce for oh weeks or months coming out over the next weeks or months. um And seeing how the community responds to the things that we've been building. There really hasn't been a way for people to actively participate besides that week-long window that I mentioned uh earlier, which only existed in December of last year. um So, you know, what excites me is like, you know, to see the growth of end user adoption, you know, more Bitcoin being staked, more people like, you know, leveraging uh apps that are being built on Genesis and also receiving more inbound from people who want to be a Bitcoin secure network in the future, because now is the time that we can start onboarding those folks into the community. Yeah, oftentimes it's like when after the Genesis people kind of want to take a break, but that's actually when the real work starts. I mean, there's been a lot of work prior, but now it's serious work. So well, best of luck to you and to the Babylon team and congratulations and all the success so far. You guys are killing it. Awesome. Thanks so much for having me. Yep.

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Peter Abilla

Host
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Clayton Menzel Babylon Labs

Guest