Bitcoin DeFi Series: tBTC

By Michael @ CryptoEQ | CryptoEQ | 29 Feb 2024

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tBTC is a pioneering software developed by the software company Thesis, which also established the Keep Network. This innovative tool enables Bitcoin owners to transform their BTC into tBTC tokens on Ethereum in a permissionless manner. This process is facilitated through a secure system where Bitcoin is deposited into a smart contract, and in return, users are issued tBTC tokens that hold the same value as their Bitcoin deposit.

The integrity and value of each tBTC token are preserved with a 1:1 backing by Bitcoin in reserve, managed by a network of signers. These signers, who are responsible for overseeing the deposits and redemptions of Bitcoin, are required to provide ETH as collateral to ensure their faithful execution of duties, with the protocol randomly selecting them. The advent of tBTC not only bridges the gap between Bitcoin and Ethereum, allowing Bitcoin holders to leverage Ethereum's DeFi ecosystem for yield-generating opportunities without parting with their Bitcoin but also marks a significant milestone for Thesis. Thesis, co-founded by Matt Luongo and Corbin Pon, who previously initiated Fold in 2014 to integrate Bitcoin into mainstream commerce and facilitate the exchange of old gift cards for Bitcoin, continues to innovate at the intersection of cryptocurrency and decentralized finance


TBTC v2 is a decentralized system that replaces centralized intermediaries with a group of randomly selected node operators on the Threshold Network. These operators secure deposited Bitcoin through threshold cryptography, requiring a majority agreement before any action is taken with the Bitcoin. The system is designed to be open and accessible to anyone. v2 operates by combining on-chain smart contracts with off-chain operators. These operators stake tokens into the contracts, exposing themselves to punishment for misbehavior, and in exchange, are delegated work by the smart contracts. An operator can be selected multiple times to be in one signing group, and one operator can be a group member multiple times on the same wallet and can be a group member in multiple wallets simultaneously.

Instead of relying on a single entity, TBTC v2 employs a group of node operators selected at random from the Threshold Network. This method requires a majority agreement among operators before any action involving the Bitcoin can be executed. By rotating the operators, tBTC v2 safeguards against the risk of a malicious individual or group gaining control. This system is unique in that it depends on mathematical principles, not hardware or human intervention, making it open and accessible to all.

The system is divided into three parts: the Bridge, the Bank, and the Vaults. The Bridge interfaces with the Bitcoin blockchain and the off-chain clients, handling deposits and redemptions. It listens for messages and verifies the funds on the Bitcoin network. If everything aligns, the wallet sweeps the funds and updates the Ethereum-side account balances. The Bank keeps track of Bitcoin account balances on Ethereum, tracking transfers and allowances. Vaults are authorized smart contracts that can custody a balance and then do anything.

tBTC tokens are minted when a user with a Bank balance transfers that balance to the TBTCVault. The system also allows for unminting, where anyone with tBTC tokens can exchange them for Bank balance.

The system also introduces the concept of "Maintainers," third-party bots authorized by the DAO to submit transactions and get reimbursed for their calls. These maintainers are expected to follow an off-chain informal agreement about the submission order and do not front-run each other. If they do, they can get deauthorized for reimbursements by the DAO.

When it comes to redemption, a user with an account balance provides a Bitcoin address. The system then decreases their account balance and releases the equivalent amount of Bitcoin to the user from the redeeming Bitcoin wallet. The maximum redemption size is capped by the size of the largest wallet, and any redemption larger than that will need to be split into multiple redemptions.

The Bridge, Bank, and Vault all have their unique responsibilities and roles, and the system is designed to be upgradeable. The Bank is a central, non-upgradeable contract keeping track of Bitcoin balances. The Bridge can be upgraded by a ProxyAdmin, eventually Threshold DAO. TBTCVault upgrade happens in two steps with a 24-hour governance delay.









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Michael @ CryptoEQ
Michael @ CryptoEQ

I am a Co-Founder and Lead Analyst at CryptoEQ. Gain the market insights you need to grow your cryptocurrency portfolio. Our team's supportive and interactive approach helps you refine your crypto investing and trading strategies.


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