Today we will try to compare two projects offering Bitcoins of ERC-20 type on Ethereum blockchain: renBTC (the second-largest ERC-20 Bitcoin by the locked supply) and TBTC (promising project in the pre-launch phase of development). Both projects are the proponents of true decentralization, so they are quite similar by this feature, but there’re some differences and originality in their designs we will discuss later.
General
We will start with the TBTC is the project developed by Keep Project, Summa, and the Cross-Chain Group. TBTC utilizing the Random Beacon technology developed by Keep, which provides the true randomization of Signers and contributes to the trust-less-ness of the system. Summa provided custom-built interoperability solutions for crypto-companies. The same as RenVM, the TBTC project allows to lock coins on the Bitcoin chain and to issue them on the Ethereum chain.
renBTC — ERC-20 type token developed by Ren project (former Republic Protocol). renBTC stands on the basement of RenVM — network which enables interoperability between chains. RenVM allows to lock assets on the one chain and issue 1:1 backed assets on another, and wise-versa. It also stated that RenVM is quite secure and is difficult to attack.
Custody
RenVM philosophy is based on enabling decentralized custody and it uses the RZL MPC algorithm, which can generate and manage ECDSA private keys without ever exposing them. Darknodes — entities within the ecosystem with 100k+ tokens staked are randomly divided into shards and the shard will generate the secret ECDSA private key.
TBTC follows similar fundamental principles, the project is using decentralized custody as well and using EDCSA signature for managing private keys of the Signers, so no single Signer has access to the funds of the users he secures. TBTC has similar principles as RenVM on the custody side: all the nodes staking 100K+ KEEP tokens could perform as a Signers — entities keeping the deposited BTCs until the depositor claims them back.
Peg
Both TBTC and RenVm project is designed in such a way to always maintain the 1-to-1 peg (supply peg) of their native assets TBTC and renBTC to the BTC locked. But they are doing it in different ways:
TBTC
Signers in a TBTC project using ETH as collateral and the collateralization ratio is 150%, meaning that for every 1 users’ BTC the Signer keeps he should have 1.5 BTC in the ETH equivalent locked.
If the group of Signers somehow run off with the Bitcoins deposited to their wallet, their ETH bonds will be seized by the system and liquidated, so the end-user will not lose even a penny of his funds.
It is expected, that the project will decrease the collateralization ratio to 135% soon after the launch. The team is also examining new ways to decrease that ratio down to 40%.
RenVM uses a different approach there: they implemented algorithmically adjusted fees. How does it work? Each issuing/redeeming of renBTC follows with the fee collected from the user. Fees are dynamically adjusted by the algorithm in response to the demand in that way that the total value of REN bonded by Darknodes should be always greater than the total value of assets locked in RenVM. This model secures Darknodes’ collateral from being liquidated. In addition to this, the bond value is 3x times greater than the maximum locked value (300% of collateralization).
The opinion of the author:
Both approaches are interesting and have the pros and cons. Signers’ collateral in TBTC could be liquidated if the market will fluctuate a lot and the price changes significantly. But from the other side, TBTC using ETH as collateral — the asset with the cap of 45 billion as of the time of writing. This allows users to, theoretically, lock 25% of the BTC market cap within the Ethereum. While the REN approach to use the native token as collateral would allow locking no more than 1/3 of the value of the total stake of the Darknodes. At the time of writing, the max. bitcoin tokenized amount is ~ 130 million USD and is 3500 times lower than the potential maximum TBTC has.
Minting/Burning
renBTC are created in a process called “lock-and-mint transactions”. They initiated by user who sends the amount of BTC, desired to be exchanged to renBTC, to the renVM. When the custody gets the tokens, it issues the renBTC to the user.
We were talking about minting and burning (issuing and redemption) of token TBTC in our previous articles, so you probably already have a clear view of the whole process.
Without digging inside the technical details, issuing and redeeming processes of TBTC and renBTC is quite similar for the end-users. The only difference here is the maximum size of the transaction: renBTC has no upside-limit of the amount of BTC tokenized (besides the $ amount of bonded REN tokens by the DarkNodes), while TBTC has a fixed-size lot with the maximum lot equivalent to 1 BTC, at the time of writing.
Summary: As we can see from the comparison above, the projects are following the similar principles of decentralization, they are developing real trust-less systems aiming to become the leaders in tokenization. Also, the projects have some differences, which could serve as the basement for future discussions.
