Decentralized finance (DeFi) is one of the most exciting sectors to watch in 2020. Over the past year the amount of ETH locked in DeFi applications has grown from roughly $300 million to over $1 billion. Major names including Facebook, Walmart and JPMorgan are beginning to enter the market, and opportunities to earn returns on cryptoassets continue to multiply.
But many Bitcoiners are reluctant to get involved in the various DeFi projects being built on chains such as Ethereum. Some are put off by the complex and sometimes alienating technical language and concepts that surround them, which can make altcoins and DeFi seem like a black box. Others conjure up images of shadowy frauds and thefts on a massive scale, like the infamous collapse of Mt. Gox in 2014. But the crypto space beyond Bitcoin has too much transformative potential to be overlooked. It’s time to move forward, and now we can.
tBTC lets you earn with your BTC in 3 simple steps
tBTC, an ERC-20 token fully backed by BTC, can help alleviate uncertainty for first-time DeFi users. The token, currently live on the Ropsten testnet, allows people for the first time to safely use BTC on the Ethereum blockchain. More than that, by combining the strengths of both chains, it offers users a safe and simple way to participate in the growing DeFi space.
tBTC’s developers and advisors have worked hard developing a solution that best utilizes the respective strengths of BTC and ETH to deliver a new product that can help take crypto assets to the next level. Our solutions are based on complex, advanced cryptography, but the key point for users is that tBTC makes it possible to safely and transparently use Bitcoin to act on Ethereum in three simple steps:
- Take BTC
- Call upon a “signers’ group” (explained below) to hold the BTC safely and trustlessly
- Once your BTC has provably landed with the signers, receive TBTC at a peg of 1:1
The process can be reversed just as easily using the exact same steps.
tBTC is transparent and open source
A key goal in the design of tBTC is to remove the uncertainty that has kept so much BTC on the sidelines of decentralized finance and offer a product whose safety and transparency are clear to users. That’s why the token, built by the teams at Summa and Keep to the highest standards of cryptography, is fully open source. It uses an elliptic curve signature algorithm called t-ECDSA — also in use today by Binance. (Zcash and Gnosis have also been working with similar concepts.) This is a more secure alternative to multisig, and it requires less space on chain, which means it’s also cheaper.
Signers’ groups reduce counterparty risk through decentralization
Another key way tBTC ensures safety and transparency is by addressing counterparty risk. It uses a system of “signers’ groups” that allows tBTC to process transactions safely and transparently without a trusted middleman. This decentralization further reduces counterparty risk, since there is no longer a possibility of the middleman collapsing, as happened in many of the high-profile thefts of recent years.
In order to ensure decentralization, tBTC uses “signers,” who operate in groups of three. All three signers must approve a transaction for it to proceed. In order to incentivize people to fill this role, signers receive a micro fee of 20 basis points (bps) for every tBTC “minted” in exchange for a BTC. Of course, there also needs to be a mechanism for ensuring that the signers behave honestly. This is where the complexity of the Ethereum blockchain is essential for sybil resistance among other things.
tBTC uses an innovation called a random beacon: a decentralized random selection tool for selecting signers from a pool in a cryptographically secure and decentralized way. This beacon cannot be gamed or manipulated. Additionally, signers must post a “bond” equal to 150% of the amount of BTC being deposited by the user in order to fulfill their role; this acts as collateral to ensure good behavior. If any of the signers decided to “cheat” and steal the user’s BTC, the bond would be forfeit and the signer would lose more than they had gained through stealing. Moreover, the bonded ETH is swapped for TBTC and can then in turn be redeemed for BTC by the user whose funds were stolen, making them whole.
Fully backed by BTC
Unlike the many synthetic tokens in the market, TBTC is fully backed by Bitcoin at a rate of 1:1. This means that for every TBTC in circulation, there is always at least one BTC in value locked in the system. This should give token holders confidence that they are not at risk of falling victim to a run on the asset. Further, since value is fungible across BTC, TBTC, and ETH, any BTC that might be lost to theft is more than compensated for by the guilty signer’s forfeited ETH.
Use Bitcoin to leverage the power of Ethereum
It’s true that Bitcoin has clear dominance in terms of overall crypto market capitalization, with a combined value greater than that of all other tokens put together. But it’s Ethereum that has managed to attract the largest developer community. Until now this has meant that the largest pool of crypto capital has been effectively cut off from many projects that push the boundaries of what is possible with blockchain and promise to rewrite the way the world looks at finance and other crucial areas.
Now, tBTC combines the stability and liquidity of Bitcoin with the innovations and developer momentum of Ethereum. When the token launches on Ethereum mainnet it will offer people a transparent, decentralized, and safe way to put BTC to work. Users of tBTC will be able to use their Bitcoin to take part in the innovative projects and opportunities being developed by Ethereum’s passionate community.
Follow tBTC
Bitcoin accounts for most of the crypto assets in the world on a value basis, and now there’s a safe, decentralized, transparent way for that BTC to be put to work supporting promising DeFi use cases and other projects on Ethereum. Our team has identified a number of DeFi use cases for tBTC in particular, and will be sharing additional information and announcements soon. As of today, tBTC is live on the Ropsten Ethereum testnet.
Join the tBTC mailing list for updates, including information about tBTC’s upcoming launch on Ethereum mainnet. To learn more about tBTC’s technical design, read the technical spec. Join the Keep #tbtc channel on Discord for technical questions about tBTC and tbtc.js, and follow these Twitter handles for news and opportunities to participate:
#tBTC