Since the launch of the first Bitcoin-pegged token, WBTC, in early 2019, numerous BTC-pegged tokens have emerged like mushrooms after rain. As of now, there are at least 12 publicly announced BTC-pegged tokens or cross-chain BTC transfer solutions.
BTC-pegged tokens operate on Turing-complete blockchains like Ethereum, issued 1:1 against BTC, with their primary use cases concentrated in decentralized trading, lending, and other DeFi products. Cross-chain BTC transfers require projects like Cosmos to achieve.
This is a "win-win" product:
- For Bitcoin users, BTC-pegged tokens mean lower transfer costs and more usage scenarios.
- For DeFi products on Ethereum and other blockchains, introducing BTC can attract Bitcoin players, breaking through the ceiling of the underlying assets (e.g., using ETH as collateral for loans, given ETH's current market cap of only $21.9 billion), thereby expanding their scale.
Among these projects, seven appear on Ethereum (see chart below), along with HBTC issued by Huobi, pBTC compatible with Ethereum and EOS (soon to be listed on Bitfinex), BTCB issued by Binance on its own blockchain, xBTC issued by ChainX based on Polkadot, and Cosmos ecosystem projects like Kava and Nomic Bitcoin Sidechain proposing cross-chain BTC transfer solutions.
How BTC-Pegged Tokens Work
Taking WBTC as an example, its operation relies on an institution (WBTC DAO) and two roles: Merchant (exchanger) and Custodian (custodian).
When a user wants to exchange BTC for WBTC, they send a request to the exchanger, who then submits a minting request to the WBTC contract and sends the user's Bitcoin to the custodian. Upon receiving the Bitcoin, the custodian also submits a minting request to the WBTC contract. After this "dual-signature" process, the contract mints the tokens and sends them to the exchanger.
To redeem WBTC back to BTC (or "burn"), the process is reversed.
tBTC's Decentralized Design
tBTC stands out by maximizing decentralization, enhancing security, reducing trust costs, and increasing adoption. Its design aligns with blockchain principles, earning early fame even before launch. DeFi giants like MakerDAO, Compound, and Uniswap have expressed interest, with MakerDAO adding ETH/BTC price feeds for tBTC and planning to accept it as Dai collateral.
Thesis, the main development team behind tBTC, has secured multiple rounds of funding from top-tier VCs, including a $12 million investment in 2018 from a16z and Polychain Capital and a $7.7 million round in April 2020 led by Paradigm Capital.
How tBTC Achieves Decentralization
tBTC replaces centralized审查 and permissions with a "Signing Group" composed of Signers who handle minting and burning. Signers must stake 1.5 times the minted amount in ETH as collateral.
When a user requests a swap, the tBTC contract selects Signers via Random Beacon technology, generating key fragments through Distributed Key Generation (DKG). These fragments combine to form a complete key pair for encrypting and managing the Bitcoin address.
Scalability Challenges
tBTC's decentralization comes at the cost of scalability. Its requirement for Signers to stake 1.5x the minted amount in ETH limits issuance. For instance, if 1% of BTC is swapped for tBTC, $2.83 billion worth of ETH (12.4% of total supply) must be locked for six months. This poses a significant bottleneck, especially given ETH's current DeFi lock-up of only 2.5% of its supply.
Trust Issues
Despite its "trust-minimized" design, tBTC faces skepticism. As TokenDaily's Mohamed Fouda notes, "BTC holders may hesitate to risk their funds until tBTC proves itself. It’s ironic that people need time to trust this 'trustless' system."
Running on Keep Network
tBTC is built on Keep Network, a privacy layer for blockchains using multi-party computation to create off-chain private data containers. Keep Network's foundational technologies, like Random Beacon and DKG, underpin tBTC's functionality.
As tBTC launches, Keep Network will also go live. While many Bitcoin users see tBTC as promising, some purists remain reluctant to use other cryptocurrencies or blockchains.
FAQs
1. What is tBTC?
tBTC is a decentralized BTC-pegged ERC-20 token that allows Bitcoin to be used on Ethereum and other smart contract platforms.
2. How does tBTC ensure security?
tBTC uses a decentralized Signing Group and requires Signers to stake 1.5x the minted amount in ETH, reducing trust requirements.
3. What are the main challenges for tBTC?
Scalability is limited by the high ETH collateral requirement, and adoption depends on overcoming initial trust barriers.
4. How does tBTC differ from WBTC?
Unlike WBTC’s centralized custody, tBTC is fully decentralized, eliminating intermediaries and KYC.
5. Can tBTC be used in DeFi?
Yes, major DeFi platforms like MakerDAO and Compound plan to integrate tBTC for lending and collateral.
6. What is Keep Network’s role in tBTC?
Keep Network provides the privacy and security infrastructure for tBTC, enabling its decentralized design.