Babylon's TVL Drops 32% After 14,929 BTC Unstaked

Babylon, a prominent Bitcoin staking protocol, experienced a significant drop in its total value locked (TVL) following a large-scale unstaking event. On April 17, blockchain analytics firm Lookonchain identified several addresses that had unstaked a total of 14,929 Bitcoin (BTC) from the platform. The addresses in question unstaked 299 BTC, 499 BTC, 1,000 BTC, and 13,129 BTC respectively. One address held the majority of the unstaked assets, valued at approximately $1.1 billion, with the total unstaked BTC worth around $1.26 billion at the time, given the BTC price of $84,400.

This massive unstaking event resulted in a 32% decrease in Babylon's TVL. According to data tracker DefiLlama, Babylon's TVL plummeted from $3.97 billion to $2.68 billion during this period. The sudden drop in TVL has sparked speculation within the community about the identity of the entities behind the unstaking. Some users on X speculated that the Bitcoin could belong to the government, while others suggested it might be a simple rotation, risk-off move, or a trader liquidating their position.

The fund movements could be linked to a transition initiated by the decentralized finance (DeFi) protocol Lombard Finance. At the time of the unstaking, Babylon Labs retweeted an announcement from Lombard, indicating that the protocol was unstaking Bitcoin as part of a transition to a new set of finality providers. Lombard Finance clarified that the unstaking was timed to coincide with the end of Babylon’s phase 1 cap 1 on April 24, ensuring that users would not miss out on rewards. The protocol assured that all the unstaked BTC would be staked back into Babylon once the unbonding process was complete.

The unstaking event follows a recent airdrop by Babylon for its early adopters. On April 3, Babylon announced the details of its early adopters airdrop program, allocating 600 million BABY tokens for Phase 1 stakers, non-fungible token (NFT) holders, and developers. Following the airdrop, $21 million in BTC were unstaked from the protocol. This behavior was described as a common short-term market reaction representing early redemption by Bitlayer co-founder Kevin He.

Babylon has established itself as one of the largest Bitcoin DeFi players, with its TVL peaking at over $6 billion in December. The platform's co-founder, Fisher Yu, previously highlighted that Babylon allows staking to be a native use case for Bitcoin, eliminating the need for users to trust another party while staking. This event underscores the dynamic nature of the DeFi landscape and the potential for significant shifts in TVL due to strategic movements by key players.