11 May 2023•
4 min read
Threshold DAO has approved a proposal advanced by Wormhole as a member of the Threshold community for the introduction of a new incentive program to build cross-chain Bitcoin liquidity through incentivizing the minting of tBTC, in the interests of paving the way for a more decentralized, secure, and accessible approach to putting Bitcoin to work in DeFi. This program will involve Threshold integrating with the Wormhole Token Bridge and incentivizing liquidity providers with token options to mint tBTC to be sent across as many as 20+ new ecosystems of Wormhole-connected chains, with the aim of establishing tBTC as the dominant form of BTC in on-chain DeFi.
Historically, wrapped Bitcoin has faced issues regarding centralization risk, which has slowed its adoption and prevented a true feeling of trust in on-chain Bitcoin DeFi. Centralized solutions of wrapped BTC not only go against the core principles of decentralization but also add significant risk to using Bitcoin in DeFi applications due to centralized, counterparty risk. The incentive program and Wormhole integration will address this problem by enabling a decentralized form of Bitcoin that is on its way to becoming the industry standard.
tBTC, a decentralized, permissionless, and scalable Bitcoin equivalent, was introduced by Threshold Network to address the urgent demand for a decentralized path for bringing Bitcoin on-chain from Bitcoin’s blockchain to Ethereum. The product allows users to wrap their BTC on Bitcoin in exchange for tBTC tokens (ERC20) that can be used within the Ethereum ecosystem.
tBTC uses a unique technical approach that ensures decentralization and security while bringing Bitcoin to Ethereum. At its core, tBTC utilizes Threshold Signatures, a multi-signature cryptographic scheme that requires a predefined number of participants (i.e. signers/node operators) to sign a transaction before it is considered valid. To mint tBTC, users lock their BTC in a secure, trustless deposit on the Bitcoin blockchain (not with a custodian), creating a corresponding tBTC token on the Ethereum network. This process involves a group of randomly selected, bonded signers who hold the collateral in a decentralized and trustless manner. The bonded signers generate a Threshold Signature for the deposit, allowing users to mint an equivalent amount of tBTC on Ethereum. When users wish to redeem their BTC, the process is reversed, with tBTC tokens burned and the original BTC released to the user (this redemption process is not quite live for tBTC as of May 2023, but is coming soon). In contrast, other centralized wrapped Bitcoin options are custodied, meaning the BTC is created through a centralized entity after the original BTC is deposited with the custodian. The custodian is then trusted to properly hold the original Bitcoin, as well as properly maintain the peg of wrapped BTC to BTC.
tBTC’s approach is considered by many to be the leading technology solution for on-chain, decentralized, wrapped Bitcoin. The decentralized approach eliminates single points of failure, ensuring that no single entity can control or compromise the system, ultimately preserving the core principles of decentralization and security that Bitcoiners value deeply. If you want to go deeper on tBTC’s tech, check out their docs.
Wormhole proposed the incentive program to the Threshold community in mid-April 2023 with the objective of making tBTC the dominant BTC proxy in on-chain DeFi. The proposal garnered strong community support and was fully approved on April 29th 2023. The Wormhole integration will enable tBTC to be transferred to both Ethereum Virtual Machine (EVM) chains (e.g., Arbitrum, Optimism, and Polygon) and non-EVM chains (e.g., Solana, Aptos, Sui, and Cosmos).
The integration with Wormhole relies on a new method for bridging ERC-20 tokens that enables efficient capital deployment to Ethereum L2s without liquidity fragmentation. Instead of creating wrapped tokens for each chain, tBTC will be minted on Ethereum, and a canonical token native to each new ecosystem will be deployed. This will be enabled by implementing a gateway contract that has the authority to wrap bridge-specific tokens into tBTC tokens in a 1:1 ratio. This contract will have a minting authority for tBTC on L2 or side chains. This way, no liquid market has to exist on any target chain for users to be able to cross the Wormhole bridge into the canonical tBTC. This approach ensures that the tBTC supply remains intact and risk is contained within local ecosystems.
Below is a demo of minting tBTC:
tBTC is a decentralized, permissionless, and scalable Bitcoin equivalent that allows users to access the Ethereum and cross- chain DeFi ecosystem. Each tBTC token is fully backed by 1 BTC held in reserve. Threshold DAO, the network behind tBTC, replaces centralized intermediaries with a randomly selected group of node operators who secure your deposited Bitcoin through threshold cryptography. Visit https://threshold.network/ for more information.
Wormhole is the industry standard cross-chain messaging protocol powering applications across Web3. Wormhole provides developers access to liquidity and users on over 20 of the leading blockchain networks, enabling use cases that span DeFi, NFTs, governance, and more. Wormhole enables a growing suite of products to build on its messaging layer. Wormhole Connect is an in-app bridging widget that can be integrated in as few as 3 lines of code. The wider Wormhole network is trusted and used by teams like Circle (USDC) and Uniswap, and to date, the platform has facilitated the transfer of over 35 billion dollars through hundreds of millions of cross-chain messages.
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