Bitcoin is for all intents and purposes the mother of all cryptocurrencies. We have seen the emergence of wrapped or pegged versions of BTC on the major blockchains in circulation, and now, thanks to Nomic, we will have the first non-custodial and fully decentralized bridge for Bitcoin in the Cosmos ecosystem as well. Although the network is up and running, little information about it is still circulating. In this article, I will try to put together the notions essential to fully understand the potential of this new network bridge between Cosmos and Bitcoin.
Created by a team of engineers in Austin, Texas, with specialized expertise in both networks, Cosmos and Bitcoin, Nomic is a layer-1 blockchain that will serve as a bridge between the Bitcoin network and the Cosmos universe in a secure and decentralized way. The goal of Nomic is to allow users to use BTC on all Inter-Blockchain Communication (IBC) protocol-enabled networks. To do this, the network hosts two tokens:
- NOM: is Nomic’s governance token; it is used to secure the network through its staking, incentivized by rewards in nBTC and NOM;
- nBTC: is the token compatible with IBC networks that represents Bitcoins held by the user at a 1:1 ratio.
Users will have the option to deposit their BTC on the deposit address provided by the network and receive the corresponding nBTC in their wallet. The nBTC will then be able to be transferred to DEXs belonging to the ecosystem such as Osmosis, Cosmos Hub, and any others that want to host it (it is rumored that it will also be usable on Kujira, a project recently migrated from Terra that has now created its own chain). The nBTCs will be able to be used in the liquidity pools and farms of these DEXs to make profits in Cosmos’ nascent decentralized finance, and if needed, users will be able to transfer nBTCs back onto the Bitcoin network through Nomic.
Technology
In addition to an experienced team working on the bridge since 2018, Nomic has adopted the Taproot and Schnorr signatures, among other measures, to ensure the security of its BTC reserve. This type of signature, recently implemented on the Bitcoin network, reduces the amount of information contained in a single transaction, increasing privacy for multi-signature transactions and reducing network fees (for a more in-depth discussion, read the article in Resources).
In addition, unlike the other networks in the ecosystem, Nomic was implemented with Orga, a custom, high-performance, and highly secure blockchain framework. Orga, programmed with the Rust language, allows Nomic to perform up to a hundred times better than other networks developed with Cosmos SDK.
In essence, by bringing together the power of Bitcoin’s hashrate and Tendermint’s consensus algorithm, then Proof-of-work and Proof-of-stake, Nomic aims to create the most secure and permissionless Bitcoin sidechain that has ever existed, providing the network’s validators and delegators with the incredible opportunity to also earn BTC rewards. Admittedly, these will not be high initially, in fact, we are talking about 0.4 satoshis per day per NOM held in staking, but these should increase as the network expands.
The NOM token
Late last January, the arrival of Nomic’s airdrop was announced. The eligibility requirement was very simple, hold in the wallet or in staking at least 1.5 ATOM on January 21, 2022, the date of the snapshot. In the distribution formula, more weight was given to stakers than just holders. A linear airdrop decay rate was predicted from the month after nBTC’s launch on July 5.
The initial token supply, in tribute to Bitcoin, is 21 million NOM, distributed as follows:
- 3.5M first airdrop for ATOM holders and stakers;
- 7M for the next two scheduled airdrops, the requirements for which have not yet been announced and which are expected to take place by the end of the year, however before or in conjunction with the mainnet upgrade;
- 10.5M as a strategic reserve for partnerships Nomic will enter into and for future network developments.
The total supply will reach 210M after 9 years, and during that time the inflation rate will be reduced by 1/3 per year, as in the OSMO model. Staking rewards, which currently have an APR of more than 300%, started at 24h from the launch of the stakenet, on Feb. 1, 2022, and will reach a total of 47,250,000 NOM over the 9 years. The rest of the token supply will be distributed as follows:
- 85,050,000 NOM in the form of protocol incentives, defined by governance vote or in future network updates. These incentives also affect liquidity providers for pairs comprising NOM or nBTC on DEX such as Osmosis;
- 47,250,000 NOM for developers and team, distributed over time (vested). Because it is decentralized, the network will direct these funds to hypothetical future developers outside the Nomic team, should the latter no longer serve as a primary contributor to development;
- 9,450,000 NOM to the Community Pool. Spending decisions for these funds will be decided through governance votes (when these are enabled, with future updates).
Current and future developments
As we mentioned, the first phase of development for Nomic was the airdrop deployment and the launch of the NOM stakenet, which enabled beneficiaries to start staking and earning rewards in NOM. As of July 5, some of the Bitcoin-related functions have been enabled. Stakers have started earning nBTC, in addition to NOM, and BTC deposit and withdrawal have been enabled. While withdrawal fees are 0, deposit fees are currently 20%. This fee is temporary and will be gradually reduced toward zero when the system passes the security audit. In the meantime, fees paid by users will be deposited into a reward pool and distributed to NOM’s stakers.
Soon, in addition to the implementation of some security measures, first and foremost IBC transfers will be enabled, which is expected in August and will allow users to transfer and exchange nBTC on other Cosmos networks. Once IBC is enabled, nBTC will be able to be listed on DEXs. Finally, with the mainnet upgrade, expected by the end of the year, all security features and NOM transfers will be enabled and distribution through the two remaining airdrops will be completed.
The bridge is only the first Nomic product. In the future, the team plans to launch a Decentralized Autonomous Organization (DAO) equipped with a reserve in nBTC, an over-collateralized stablecoin guaranteed by BTC ($NUST), and many other yield opportunities.
Somewhat quietly, the Nomic team has managed to pull a real gem for the ecosystem out of its hat, capable of bringing Bitcoin to the Cosmoverse in a truly decentralized and permissionless manner. The lucky beneficiaries of the first airdrop are already starting to reap the benefits of their seeding, in defiance of the skeptics who until a few months ago doubted NOM’s usefulness and future.
If you are eligible but have not yet made the claim, connect your Keplr on Nomic’s dApp now and stake your NOMs (preferring validators with fewer delegations to encourage decentralization). For other cosmonauts, the strictly non-financial advice is to keep an eye on this project, because it could be a real revolution for the Cosmos’ DeFi.
Resources:
https://www.numbrs.com/schnorr-signatures-and-taproot-coming-to-bitcoin-soon/
I originally posted this article here.
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