tBTC, A Game Changer For Bitcoin Or Ethereum?

By Market Militia | Market Militia | 6 Apr 2020


What The Heck Is tBTC?


Recently we have been seeing a lot of upward movement in the cryptocurrency world. Lots of cryptoassets are in the green with impressive spikes, but what could be causing this? One surge in price for both Bitcoin and Ethereum could be due to the upcoming launch of the new stablecoin tBTC set to be available within the month, April 27th to be exact. 

A lot of eyes are focused on this new stablecoin, which is not pegged to US dollars as most are, but is pegged to Bitcoin (BTC). This could be a very big achievement. Through tBTC all the bitcoiners can now access the thriving DeFi economy existing exclusively on Ethereum. There are several "Ethereum killers" out there eager to replace Ethereum.

These competitors can easily replicate smart contract capabilities and use their large funds obtained from their ICOs to lure developers to build on their platforms. However, one thing none of these supposed "killers" have ever achieved is a bustling internal economy. In fact, Bitcoin does not have that despite RSK, Liquid, Lightning and the other projects that have tried to build something similar to it on Bitcoin. On the contrary, the outside world has moved backwards in accepting BTC, not forwards, as it maintains a store of value or "digital gold" narrative rather than means of exchange. 

If you can't beat them, join them? Its an old saying, and that seems to be the solution the tBTC project believes in as well. The tBTC stablecoin will allow Bitcoin holders to earn interest on their bitcoins as well as do a lot of other neat tricks. One key benefit is that it should drive some people to take their BTC and use it for collateral to obtain DAI for various reasons.

Currently, many projects that are not even building on Ethereum use MakerDAO's over-collateralized debt positions for tax savings, operational fund stability and leverage. These valuable use cases never were available to any cryptoasset outside of Ethereum, but now, they are available to any bitcoiner or Bitcoin-oriented company. 

Very cool stuff, but is tBTC bullish for Bitcoin or Ethereum? 


All Your DeFi Are Belong To Us!


So, did Bitcoin just win again? It definitely looks like BTC gained a superpower. Right now, Ethereum's DeFi is worth around $1 billion USD, which is impressive growth, but rather small in the grand scheme of things. BTC could quickly double, triple, quadruple or maybe even many more tuples than we have time or attention spans to mention. It is very possible that tBTC with its large market cap will dwarf ETH or any other cryptoasset for collateral in Ethereum's open finance economy. 

In short form, this is good for Bitcoin. The ability for Bitcoin to have a stablecoin within Ethereum only gives the holders of the coins more options of what they can do with it, and it only makes Bitcoin more of a money. And as we have seen with MakerDAO's DAI, which has had many uncoordinated projects build with it, this similarly creates opportunities for people to build around tBTC. 


If We Don't Get Tolls, We Don't Eat Rolls... 


This means Ethereum is now relegated to a Bitcoin sidechain now, right? Not quite. Although this tBTC thing is definitely good for Bitcoin, it could actually be said to be even better for Ethereum. This is because of how tBTC's stablecoin works. It is kind of like federated multi-signature stuff, but a little more advanced and definitely more decentralized and secure. In other words, tBTC is not just wrapped BTC under a new name, its an innovation that creates incentives and penalties for a worker group (3 groups actually) called signers. 

In order for someone to be a signer, which is an entity you must trust to not steal your BTC, they must put up ETH as collateral. If some signers do act naughty and steal your BTC, their ETH collateral gets sold for BTC and given back to you so that your wealth remains intact.

Logically, we want this to be painful enough for the signers that they have more incentive to do good than do bad. How is that achieved? They must over-collateralize in ETH to the tune of between 1.4-1.5 times the amount of BTC managed. This is very good for you, the user. It is also very good for Ethereum.

In order for BTC to enter Ethereum's DeFi and reap the benefits of being the dominant collateral powering the internal economy it has to pay a toll. Essentially, for every BTC collateralized, loaned, or placed in a savings account for interest there must be the equivalent of 1.4 BTC worth of ETH put up as a security deposit. If billions of dollars worth of BTC enter Ethereum in the form of tBTC to be locked up in DeFi, it means even more value in ETH must be locked up to secure it. 


tBTC Is Just The Tip Of The Iceberg


Now that tBTC is out of the bag, what could come next? Maybe we'll see a tBNB, a tBCH, a tXRP, a tSTEEM, God forbid, a tBSV... Its easy to fork Ethereum's EVM, its another thing entirely to replicate the virality of Ethereum's economy. Many independent blockchains might start pumping away at building similar stablecoins of their own to be able to gain access to the growing consumer base now exclusively found on Ethereum.

Bitcoin will very likely thrive from this move, and any blockchains that imitate the tBTC project to build their own bridges to the DeFi economy will also likely be rewarded. Projects such as BNB that started out as ERC-20s and later sought to be their own blockchains may, ironically, return to Ethereum via a stablecoin. One might even look at building an independent blockchain on Cosmos with a tBTC-esque stablecoin on Ethereum as a scaling solution.

Any way you look at it, the open source project tBTC is a win-win scenario for both Bitcoin and Ethereum. That said, I'm rather confident that the greatest beneficiary here is ETH. 



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Market Militia
Market Militia

The Market Militia blog discusses decentralized and open finance being built on blockchains such as Ethereum as well as the benefits to human liberty that can be achieved through concepts such as "digital constitutions" through distributed systems.

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