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Source: debank.com

Why do you need a Bitcoin anchor coin?

Compared with Ethereum-based DeFi applications, DeFi applications built on the Bitcoin network have some disadvantages. For security and stability considerations, Bitcoin's scripting language was restricted in the early days, so developers could not use Ethereum's Solidity language as they wish. So, some things that developers can do on Ethereum cannot be done on the Bitcoin network.

Therefore, many people want to bring BTC into the DEFI (decentralized finance) world in various ways, and the birth of tBTC is a typical case. According to Matt Luongo, COO of Thesis team, once, his wife suggested that he sell bitcoin to buy a house, but Luongo was unwilling and sought to use bitcoin as collateral to buy a house with a loan. But at that time, the centralized lending with Bitcoin as the target was not developed. After some inquiries, he could not find a way to borrow in BTC, so he chose the decentralized method he was familiar with to realize this demand, so he decided to With tBTC.

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The development history of Bitcoin anchor currency (evolution history)

1. RootStock and SBTC (SmartBTC)

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from twitter

BTC can be transferred from the Bitcoin main chain block to the RSK side chain, and can be transferred back from the RSK side chain. In fact, Bitcoin has never been moved on the block, but is temporarily locked through the smart contract, and the RSK chain releases the same amount of SBTC (SmartBTC) through the smart contract. The SBTC token on the side chain RSK will not be created and disappeared out of thin air, it will only increase or decrease when the same amount of bitcoin is transferred in or out.

2、liquid netowrk （LBTC）

There is also liquid netowrk (LBTC) to achieve bitcoin anchoring with side chains. Speaking of liquid netowrk, many people may feel unfamiliar, but when it comes to the company behind it, everyone is familiar with it, that is, Blockstream, which everyone is familiar with. In 2018, Blockstream Chief Strategy Officer Samson Mow announced the launch of the world's first sidechain built on the Bitcoin network - Liquid Network.

The liquid network is an independent blockchain, and the bitcoin issued on the blockchain is liquid Bitcoin (LBTC). The implementation method is very simple. When you issue an LBTC on Liquid, the BTC on the main chain will be Locked, otherwise when LBTC is converted to BTC on the main chain, then LBTC will be destroyed.

Bitcoin on the liquid network can solve the three major problems of Bitcoin transfer:

1. Bitcoin transfer is slow. Everyone knows that Bitcoin is a highly decentralized network, and the transfer speed is very slow. However, side chains like the liquid network have a fast block generation speed and can achieve fast transfers.

2. The problem of transparent bitcoin transfer. The bitcoin network is an open and transparent network. Knowing the address of bitcoin can trace all the transfer information of the address. This is an advantage of bitcoin, but for large transfers, if It is easy to cause market panic and other problems if it can be traced back. The liquid network adopts the private transfer technology developed by Blockstream. When using the liquid network to transfer money, others can only see that one address is transferred to another address, but the specific amount is unknown, achieving a certain degree of stability.

3. A variety of currencies can be accessed. Not only LBTC can be issued on the liquid network, but other tokens can also be issued, such as USDT, such as USDT.

However, the first generation of sidechain network tokens represented by SBTC and LBTC have not been widely used and recognized. It has a lot to do with timing. To put it simply, there is no rigid demand. If there is a liquidity pool of SBTC-ETH on a DEFI platform to provide liquidity, you can get 1000% APY. Presumably, the amount of SBTC minted will be greatly increased. However, there is no such thing. The WBTC introduced below is Eat enough "can make money" bonus.

3、WBTC(Wrapped Bitcoin)

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Source: debank.com

WBTC operation requires three participants:

WBTC DAO, Merchant (acceptor), and Custodian (custodian) users send BTC to the acceptor and request to exchange WBTC acceptor 1 passes KYC/AML audit User 2 sends a Mint minting request to the WBTC smart contract 3 and sends the user’s ID to the custodian BTC, after receiving the BTC, the custodian sends a minting request to the smart contract, the contract passes the request, sends WBTC to the acceptor, and the acceptor sends WBTC to the user.

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Source: WBTC official website

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From WBTC official website

Although WBTC sounds cool and has a wide range of applications, the setting of the custodian makes it very centralized. Like WBTC, it is a centralized Bitcoin-anchored currency, tokenlon's imBTC, and Huobi's HBTC.

However, when investing in centralized Bitcoin-anchored coins, your investment behavior depends on your trust in the issuing institution. Due to certain events, your assets may be damaged, causing a crisis of trust. The DEFI community has developed a decentralized Bitcoin-anchored currency to introduce external assets into DEFI in a decentralized manner.

4、tBTC

tBTC is a classic case of generating Bitcoin-pegged coins in a decentralized way. At the beginning, tBTC's official website clearly stated "NO KYC, NO middlemen, NO bullshit." (But it has been changed now)

Source: debank.com

Source: debank.com

In tBTC, there is no central authority to escrow locked bitcoins, and each tBTC is backed 1:1 by BTC. Users of tBTC use BTC to create tBTC through the signer network. A signer group is randomly selected for each tBTC minted. Signers need to provide excess ETH as collateral (to mint 1 tBTC, they need to provide 1.5 BTC worth of ETH as collateral) to ensure that they cannot take away these locked BTCs. In effect, signers must over-collateralize their deposits by providing 1.5 BTC worth of ETH. Signers can earn rewards by locking their own ETH to mint tBTC.

Although tBTC is decentralized and improves the trust index, the over-collateralization greatly limits the utilization rate of funds, and also increases the friction cost between native Bitcoin and Bitcoin-anchored currency. A decentralized Bitcoin-anchored coin that does not require over-collateralization was born.

5、RenBTC 

renBTC is a BTC-anchored currency issued by RenProtocol and circulated on the Ethereum network. RenBTC and the real Bitcoin value are 1:1 anchored.

Users can deposit native BTC into the designated RenBridge gateway as collateral, and RenVM issues the corresponding renBTC in the Ethereum network through smart contracts, and the entire issuance process is relatively decentralized.

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Source: RenBTC official website

6、eBTC

eBTC is an innovative algorithmic stablecoin developed based on the decentralized cross-chain protocol DeCus. The operation effect of the whole system is as follows. Users who want to create eBTC first submit a request to the smart contract on the Ethereum network, and then obtain the designated Keeper group BTC multi-signature address. After depositing a certain amount of BTC to the multi-signature address and submitting the deposit certificate, the corresponding amount of eBTC will be sent to the user's ETH address.

Using the decentralized and self-regulating custody network based on the DeCus system, the mortgage rate can be reduced to less than 50% while ensuring the security of cross-chain assets. The friction cost between native Bitcoin and anchored Bitcoin is greatly reduced. At the same time, the official has reached cooperation with decentralized agreements such as dodo, dforce, mcdex, fortube, etc. Presumably, the application space of eBTC as pledge collateral should be well expanded.

Keeper is responsible for the custody of native Bitcoin assets, providing collateral (but the mortgage rate is lower than other Bitcoin-anchored solutions) and running nodes. Keepers are assigned through a method called "repeated grouping". Since Keepers can join or leave the network at will without permission, the whole process is completely decentralized.

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Source: Decus white paper

With the continuous development of DEFI (decentralized finance), the application of Bitcoin on DEFI is an unstoppable trend. The track of Bitcoin-anchored currency is also destined to have more and more products squeezed into it. Some have a first-mover advantage, such as WBTC, some are sufficiently decentralized, and some have the characteristics of security, decentralization, and low mortgage rate... Who can have the last laugh in this increasingly heated track? let us wait and see.