Babylon TVL Drops 32% as $1.26B in Bitcoin Gets Unstaked Amid Finality Provider Transition

Babylon Sees $1.26 Billion in Bitcoin Unstaked, TVL Falls 32%

Bitcoin staking protocol Babylon experienced a dramatic decline in its total value locked (TVL) on April 17, after over 14,929 BTC — worth approximately $1.26 billion — were unstaked from the platform. The move triggered a 32% drop in Babylon’s TVL, from $3.97 billion to $2.68 billion, according to data from DeFiLlama.

The unstaking was first flagged by blockchain analytics firm Lookonchain, which identified four wallets responsible for the action. One wallet alone accounted for 13,129 BTC, representing the majority of the withdrawn funds, valued at around $1.1 billion at current market prices.

Unstaking Linked to Protocol Transition

While the identity behind the large-scale withdrawals remains uncertain, speculation among community members has been rife. Some attributed the move to possible risk management, a rotational strategy, or even institutional players repositioning capital. One theory floated was that the funds could be linked to the Chinese government, though no evidence has emerged to confirm this.

Source: Lookonchain

The most plausible explanation, however, came directly from the ecosystem. Babylon Labs retweeted a statement from Lombard Finance, which confirmed it was unstaking BTC as part of a transition to a new set of finality providers.

According to Lombard, the timing aligns with the conclusion of Babylon’s Phase 1 Cap 1 on April 24. The firm clarified that the action was strategic, allowing users to optimize rewards and participate in the next phase of staking.

“All of this BTC will be staked back into Babylon as soon as the unbonding is complete,” Lombard Finance assured in its announcement.

Airdrop May Have Sparked Early Movements

The unstaking event follows Babylon’s early adopter airdrop on April 3, where 600 million BABY tokens were allocated to Phase 1 stakers, NFT holders, and developers. Shortly after the airdrop, around $21 million in BTC was also unstaked — a trend some interpreted as short-term market behavior driven by early redemptions.

Historically, such post-airdrop movements are typical in the DeFi space, where some participants withdraw capital after reward distributions.

Babylon Remains a Key Bitcoin DeFi Protocol

Despite the recent dip in TVL, Babylon remains one of the largest Bitcoin-native DeFi protocols. In December 2024, its TVL peaked at over $6 billion. Co-founder Fisher Yu has previously highlighted Babylon’s mission to enable trustless Bitcoin staking, allowing users to stake BTC without relying on custodial platforms or intermediaries.

The current drop in TVL appears to be part of a planned transition, rather than a loss of faith in the protocol. If Lombard and other participants follow through on their re-staking intentions, Babylon’s locked value could rebound significantly in the coming weeks.