The BTC Proxy Protocol

The case for another Bitcoin tokenization system?

Donnie Kim
Jan 31 · 4 min read

Yes, another Bitcoin to Ethereum system was conceived and is currently undergoing Testnet testing as of this writing at https://btcpx.io but it was not created simply to copy or to capture market share from the other protocols currently in the marketplace but it was crafted to address some key features that were missing.

Let's rewind a little bit to tell you a little bit of this story as our journey did not start with the creation of this project called BTC Proxy but actually it started back in 2017 when we were mandated by a group of investors to experiment and come up with solutions that could intersect the best ideas in finance. Cryptocurrency meet ETF’s one of my favorite investment vehicles.

Along this journey we’ve met with some incredible people and we’ve also experienced some real heartache but through it all we were able to glean and apply some of the best attributes from the ETF infrastructure to a BTC stablecoin. During this period we have worked with numerous developers including one of India’s finest Sandeep Nailiwal who actually worked with Kryptoin to develop our first exchange trading architecture called the MegaWallet. The MegaWallet was actually submitted for a Non Provisional US Patent back in 2019 under application 16/398,039 but never found closure from its pending status due to Covid. Sandeep went on to discover the limitations of the Ethereum to create a leading Layer 2 solution called Matic but well come back to this story later on possibly in another story.

Fast forward to October 2019 when Jason Toussaint and I drafted the S1 for submission to the SEC for the Kryptoin Bitcoin ETF Trust which is actually still in the queue for review. It was at this time when I really was able to step back to view the landscape of ETFs and Bitcoin to take a look at the models being used for stablecoins.

Enter April 2020 which was the awakening of DeFi and some of the most interesting projects to date. This was the time that crypto actually made sense and the confusion between utility coins and security tokens was lifted. The clarity came with the introduction of Governance tokens and the entire system made perfect sense. Crypto has always been about sovereign governance and the departure from the old system. During this time the projects that caught my attention was the simultaneous launch of WBTC and renBTC. These projects really captivated my attention because of how they utilized BTC as the underlying for their ERC20 tokens and how it was being utilized to earn yields. This was revolutionary and I could see how each project attempted their own mechanism of exchange trading to capture the value of the underlying with WBTC using more of a multisig manual type of creation and redemption involving the custodian and with renBTC sharding the multisig keys but holding the BTC themselves. Looking at both solutions it was apparent that both did accomplish what they were meant to do but seemed to miss the mark when it came to nailing the mechanism. From the point of view of an ETF they seemed to be a bit under evolved considering what the technology of smart contracts and web3 could do but was seemingly unsure what they were trying to do. It seemed they were both just making do with the knowledge of what was taking form at the time with the technology that was at hand. This market moves so fast sometimes you cannot see the forest through the trees.

I knew at this point I was onto something and drew the similarities between our S1 for the traditional ETF and the design of a new protocol that would exchange trade Bitcoin for a Proxy.

Enter Bitcoin Proxy.

As I mentioned each of the two solutions seemed to make do with what they knew about the market direction at that time using the technology that was available to accomplish their needs. Kudos to both protocols having tokenized over 350M for renBTC and a staggering 2B for WBTC at the time of writing.

The case for Bitcoin Proxy is simply the fact that for an institution or a fund that is handling the funds as a fiduciary for their shareholders requires certain safeguards. One of these factors is the requirement of a 3rd party licensed and insured custodian. This is evident in the growth of WBTC over renBTC which is turbocharged with the participation of their custodial partner Bitgo. This fact alone excludes renBTC from the participation with most institutions. WBTC however is not without its limitations as it lacks an interface for permissionless participation. BTC Proxy leveraged its interface as a crucial component to solve the issue of price slippage that is evident when trying to obtain WBTC from a CEFI or DEFI exchange.

I consider both these protocols the first generation of BTC tokenization models but what we have here now in BTC Proxy is a slick second-generation Layer-2 solution with insured and segregated custody with a permissionless interface that allows one to interchange between BTC and ETH without counterparty risk and without price slippage.

Yes, we are a bit late getting out the door but in the market, it is not always about being first (Netscape, Lycos) but it’s the first to Product-Market-Fit and in this case, Bitcoin Proxy is the perfect fit for the next wave of Corporates and Institutional that will be entering the Defi space.

BTC Proxy
Layer 2 Interoperability of BTC and DeFi
https://btcpx.io (beta)
Telegram @donnkim