Editor's Note: This article comes fromGolden Finance, Author: Maxwell, reproduced by Odaily with authorization.

Editor's Note: This article comes from

Golden Finance

Golden Finance

, Author: Maxwell, reproduced by Odaily with authorization.

DeFi is an acronym for Decentralized Finance.

Although Ethereum is currently the largest platform for DeFi, there is not only Ethereum in the DeFi world, BTC is also an important asset in DeFi.

And Bitcoin has the strongest consensus, the highest market value, and the highest liquidity in the entire cryptocurrency industry. Therefore, the cryptocurrency industry has been trying to give Bitcoin more functions (such as Lightning Network, BTC side chain), or put Highly liquid Bitcoin assets introduced to other blockchains (tokenized BTC on Ethereum, Cosmos, Polkadot).

The Lightning Network can enable Bitcoin to have an instant micropayment function; BTC on the side chain can provide capital liquidation efficiency or strengthen the smart contract function of Bitcoin; and the tokenized BTC on Ethereum can make full use of the DeFi on the Ethereum platform. Combination, allowing Bitcoin assets to quickly integrate into existing DeFi protocols.

The picture above shows the BTC assets locked in DeFi according to the statistics of the famous DeFi data website defipulse. It can be found that the BTC currently locked in DeFi is mainly the BTC in the Lightning Network and the tokenized BTC in Ethereum.The following is mainly divided into four parts: BTC in the Lightning Network, BTC in the side chain, tokenized BTC in Ethereum, and BTC in other public chains to introduce BTC in DeFi.”。

BTC in the Lightning Network

The Lightning Network is built on the Bitcoin network. It is a decentralized, permissionless, and non-custodial 2-layer network. The two-way payment channel is realized through the HTLC (Hash Time Locked Contracts) technology built by multi-signature contracts, which can bring Bitcoin It achieves high throughput and instant micropayments, solves the problem of bitcoin expansion, and makes bitcoin truly become Satoshi Nakamoto's vision: electronic cash. Click here"

• LBTC

Currently there are three mainstream clients of Lightning Network: lnd from Lightning Labs, eclair from ACINQ, and c-lightning from Blockstream. According to 1ML, the Lightning Network currently has 12,578 nodes, 36,133 channels and a network capacity of 933 BTC (about $8.68 million).

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BTC in the sidechain

LBTC (Liquid BTC) is a bitcoin that has been locked on the Bitcoin blockchain and issued on the Liquid sidechain through a two-way peg mechanism. The Liquid blockchain is developed by Blockstream and run by members of the Liquid Federation, thus getting rid of the need for PoW. Block signers in Liquid Federation produce a liquid block every two minutes, so LBTC has a series of features such as two-minute fast settlement time, confidential transactions, and the ability to issue assets on Liquid.

• RBTC

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One of the main functions of Liquid is to realize the quick liquidation of funds across exchanges. For example, traders can quickly transfer BTC from one exchange to another for arbitrage.

Now, there are already some exchanges that offer mutual conversion of BTC to LBTC as well as withdrawal and deposit of LBTC, such as Bitfinex, The Rock Trading and Coinut. At the same time, Liquid Federation members also include exchanges such as Bitmex, Huobi, and OKCOIN, as well as wallets such as Cobo and Ledger, which may support the mutual exchange of BTC to LBTC in the future.

RBTC is Bitcoin on the Rootstock (RSK) sidechain. The two-way peg between BTC and RBTC is also achieved through a federation between trusted members. Unlike BTC on the Liquid sidechain, LiquidBTC transactions are verified by Liquid Federation members, while RBTC transactions are guaranteed through Bitcoin merged mining. Since a large proportion of Bitcoin miners are also mining on RSK, they have accumulated a large amount of computing power, thus providing a high degree of security for the RSK network. The RSK block time is 33 seconds. RBTC can be exchanged for BTC through exchanges such as Bitfinex, KuCoin or Huobi Global.

• wBTC

RSK was developed to implement smart contracts on Bitcoin. It is compatible with Ethereum and allows porting Ethereum code into the Rootstock ecosystem and running Ethereum applications on top of the security of Bitcoin. But there are currently only a handful of RSK-based projects. Take Money on Chain, a bitcoin-collateralized stablecoin and DEX platform that runs on RSK.

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Tokenized BTC in Ethereum

• imBTC

The tokenized BTC on Ethereum can make full use of the composability of DeFi on the Ethereum platform, allowing Bitcoin assets to quickly integrate into existing DeFi protocols, and inject highly liquid Bitcoin assets into Ethereum DeFi. According to incomplete statistics, there are currently wBTC, imBTC, HBTC, tBTC, sBTC/IBTC, renBTC and pBTC.

wBTC (Wrapped BTC) was initiated by BitGo, Kyber Network, etc., an ERC-20 token issued on Ethereum in early 2019, and supported by real Bitcoin 1:1. wBTC is a custodian solution in which a coalition of custodians locks real BTC and issues corresponding wBTC tokens. Only registered merchants with full KYC/AML qualifications can issue wBTC. Its governance is carried out through DAO, and BTC custody is guaranteed through multiple contracts.

• HBTC

There are currently two main ways to obtain wBTC. 1. Contact wBTC cooperative merchants and send them BTC in exchange for newly minted wBTC tokens. 2. It is also possible to exchange fiat currency or other cryptocurrencies for wBTC on centralized or decentralized exchanges.

• sBTC/IBTC

wBTC is currently the most important participant of BTC in Ethereum DeFi, and is listed on lending platforms such as Compound, Nuo, and Fulcrum.

imBTC is an ERC-777 (ERC-20 compatible) token backed 1:1 by Bitcoin, which is generated by locking Bitcoin with Tokenlon's imToken wallet. Locking bitcoins sends BTC to a multi-signature account and simultaneously mints an equal amount of imBTC tokens. These imBTC tokens can then be used on Ethereum DeFi applications. The locking/unlocking process is fully automatic. On April 18, Lendf.Me was hacked to steal $25 million due to imBTC token compatibility issues. Hackers took advantage of the contract compatibility issues between ERC777 and Lendf.me to generate any amount of imBTC in Lendf.me and stole Lendf. Almost all assets in Me.

As long as you hold imBTC, you will get interest, with an annualized rate of about 1%. Interest comes from the fees users incur for converting BTC to imBTC or back to BTC from imBTC.

• tBTC

HBTC is the Bitcoin token on Ethereum launched by Huobi in February 2020. HBTC strictly abides by the 1:1 reserve guarantee, that is, every time 1 HBTC is issued, its asset depository address will have 1BTC asset protection to ensure Users can use HBTC and BTC to exchange 1:1 at any time. Users can conduct two-way exchange through Huobi Global or HBTC official website. HBTC connects the centralized market and the DeFi market, reduces the cost for users to enter DeFi, and provides more efficient digital asset services.

sBTC and IBTC are synthetic assets of the Synthetix platform on Ethereum, generated by the ERC-20 token SNX with a 750% overcollateralization ratio. sBTC is also an ERC-20 token.

• pBTC

Synthetix allows the creation of synthetic assets pegged to any cryptocurrency, real world asset, index, etc. For example, Synthetix allows the creation of synthetic assets that are inversely proportional to the asset it tracks, and IBTC tracks the inverse price of Bitcoin, which can be shorted by simply buying IBTC.

The methods to obtain sBTC are: 1. Purchase SNX and mint it into sBTC in Synthetix; 2. Obtain other synthetic assets (such as sETH, sUSD, sEUR, sXAU, sXAG), and obtain sBTC in their trading pairs with sBTC.

• renBTC

tBTC allows users to issue tBTC by depositing Bitcoin into a multi-signature address created and controlled by a group of validators in a trustless manner. Validators must deposit Ethereum collateral that is worth more (150% collateral) than the BTC held in custody. tBTC can be exchanged for BTC again through validators. To do this, users must submit a redemption request to the tBTC smart contract, which will generate and publish a transaction signature to the BTC network.

pBTC is a BTC token issued by pTokens, pTokens aims to solve the liquidity and interoperability between blockchains by providing ERC-20 version tokens of non-Ethereum cryptocurrencies.

The way pTokens couple BTC with the ERC-20 form of pBTC is that BTC addresses are managed by a set of validators running a Trusted Execution Environment (TEE), coordinated through a Threshold Signature Scheme (TSS). The enclave has access to both sets of keys and can execute transactions on both blockchains, effectively linking the two assets together. The pBTC smart contract is a non-custodial access mechanism.

• BTCB

Ren is a platform that aims to make tokens of different blockchains interoperable, allowing DEXes and DeFi applications to leverage the liquidity available on various crypto ecosystems. At the heart of Ren is the RenVM virtual machine, which runs on a decentralized network of thousands of so-called dark nodes. RenVM allows the generation of gateways, such as special addresses on the Bitcoin blockchain. When BTC is transferred to this address, RenVM hosts the BTC and mints tokenized BTC (such as BTC's ERC-20 token renBTC).

• xBTC

The renBTC smart contract is a non-custodial access mechanism. Validators execute transactions through the newly developed multi-party computation algorithm "RZL sMPC". RZL leverages Shamir Secret Sharing (SSS), which is often criticized for requiring trust in intermediaries who generate private keys and distribute them. However, the design principle of the RZL algorithm is different from the traditional Shamir secret sharing, and the private key will never be centralized. The RZL sMPC is currently being audited and has not been tested in a full production environment. In order to avoid encouraging bad behavior (such as theft of collateral), Ren validators of each shard must collectively bond assets in the form of REN tokens that are not less than three times the value of BTC locked in the corresponding shard.

• Kava

BTC on other public chains

References:

Tokenized Bitcoin — Comparison of different approaches

The Cross-Chain Pegging Dilemma