WBTC: Bringing Bitcoin to Ethereum
A huge portion of daily cryptocurrency trading volume currently lies in Bitcoin (BTC) based trades. As an Ethereum based exchange, there is an inherent challenge in reaching traders that trade in BTC — even if we have trading pairs they might use, the fact that we don’t have ALL of their pairs can cause friction. The continual shifting of funds back and forth from centralized platforms to decentralized wallets is not only costly (yay deposit/withdrawal fees!), but inconvenient and slow. With this in mind, being able to capitalize on some BTC based trades would be extremely valuable for the whole decentralized exchange community.
We are excited to assist in the launch of WBTC: Wrapped Bitcoin Tokens. Our friends and Kyber Network put together a compelling article proposing the implementation of WBTC. Here is the link to that article — https://blog.kyber.network/wbtc-a-community-effort-to-bring-bitcoin-to-ethereum-b9b63e3b86e6
For convenience, we have also pasted the contents of the article (written by Loi Luu) below.
The following article is written by Loi Luu, posted here (with consent) to increase visibility.
At Kyber, we have been facilitating seamless exchange and liquidity flows between all parts of the decentralized ecosystem. End users can buy/sell tokens instantly on KyberSwap and many of the popular wallets and websites, while developers can integrate with Kyber for a wide variety of payment and financial use cases.
Given how broadly we are working on facilitating liquidity across the decentralized ecosystem, one of the major gaps that we are constantly facing with regards to decentralized liquidity today is the fact that tokens outside of Ethereum have not been accessible for usage in decentralized exchanges and applications, with the most prominent example being Bitcoin.
As such, we have invested significant effort and research into cross-chain approaches. For instance, PeaceRelay, which we proposed last year, was the first implementation to migrate liquidity between Ethereum Classic onto Ethereum and vice versa by employing a two-way relay. We also further explored a few different approaches on how we could bring Bitcoin into Ethereum, and discussed the pros and cons of each approach.
Evaluating all these approaches, it was very clear that the current state of the industry and technical progress would not permit for a completely decentralized yet practical user-friendly solution. For example, atomic swap is a trustless solution, but is not practical and not natively usable for smart contracts. PeaceRelay only works with blockchains that support expressive smart contracts and is expensive to maintain. Having a federation to help with the tokenization and redemption of coins is technically and legally difficult to deploy in practice, and is not entirely trustless.
As a result, the journey to an ideal decentralized solution will take several major evolutions for the entire community. What we realized is important today is to advance a technically appropriate approach that can be put into functional applications right now, one that adheres to as many principles of the decentralized movement, creating the ecosystem foundation for future steps.
As such, we have been working very hard with BitGo and Republic Protocol over the last few months on an open token standard to bring Bitcoin and potentially other cryptocurrencies to Ethereum.
Today, we are excited to announce a community-driven initiative that brings Bitcoin to Ethereum, through the creation of Wrapped Bitcoin Tokens(WBTC), an ERC20 token fully backed by real BTC and stored by regulated custodians.
Prominent projects in the space, including Gnosis, MakerDAO, Dharma, AirSwap, IDEX, Compound, DDEX, Hydro Protocol, Set Protocol, Radar Relay, and Prycto have all committed to becoming launch partners, and will help to support the adoption of WBTC through either supporting the tokens, being members of the governance committee or helping to drive awareness in the space.
This widespread industry collaboration ensures that the token, from day one, will have a wide variety of adoption, including DEXs, collaterals for stablecoins or lending, ICO contributions and decentralized payments.
WBTC: Transparent, Open, and Community-Led
At the heart of this initiative is transparency, openness, and how it’s community-driven, setting an open standard for the community to work together on a single cross-chain asset standard with no single owner.
Working towards a single standard with no single owner
The proof of reserves is on-chain, which shows the exact 1:1 ratio between minted WBTC tokens and Bitcoin stored by the custodians. When WBTC token holders redeem their tokens for Bitcoin, the tokens are burned. The minting and burning of tokens is in turn tracked and verifiable on the blockchains.
The swapping between WBTC tokens and Bitcoin is atomic, thereby ensuring that users’ funds are safe during the process of acquiring WBTC tokens. Any project can openly include WBTC in their platform without any restrictions, while any user can easily purchase WBTC tokens on any swap service or exchange supporting the token.
This effort will be both led and governed by the community from the start through a Decentralized Autonomous Organization (DAO) comprised of reputable projects in the blockchain space. DAO members will publicly audit the WBTC tokens to make sure that the balances in the custodian wallet match the balances in the smart contract.
In addition, important decisions pertaining to the initiative, including smart contract upgrades, and additions of new merchants and custodians will be decided as a collective of trusted projects through a DAO. The addition of new minters, custodians, and DAO members as well as the removal of the existing ones will happen via a transparent voting process in the DAO. The application to join is open for all.
Summarizing, WBTC aims to be a technically appropriate approach that can be put into functional applications right now, and that adheres to as many principles of decentralization, creating the ecosystem foundation for future steps.
Kyber is committed to bootstrapping liquidity, encouraging adoption and helping with the consistent development of the standard.
First off, Kyber will provide initial liquidity for WBTC tokens through our reserve, so that it can be exchanged like any other supported ERC20 token on our protocol. At launch, together with Republic Protocol, we will serve as initial merchants to provide a platform for KYC’d users to atomically swap between BTC and WBTC tokens.
Users will also be able to directly purchase WBTC using ERC20 tokens on KyberSwap, or many of the major wallets, websites and DApps. Similarly, for developers who have integrated Kyber, their users will be able to use WBTC as well, for example to purchase NFTs or for use in index funds.
Over the next few months leading up to the launch, we will engage many more DApps and projects to adopt the token in their applications, expanding the possible use cases.
Lastly, we will actively participate in the DAO to govern the project and will also participate in the development of the cross-chain standard.
Let’s Grow WBTC, Together
The current iteration of WBTC is just the first step of the journey to an ideal decentralized solution, and it is important for the community to work together towards a more innovative, interoperable ecosystem.
There are numerous ways to learn about and get involved in this initiative.
- Read the full specification of WBTC once it’s made available on GitHub.
- Facilitate discussions and submit improvement proposals on both the token and the DAO governance model.
- Help spread the word on this initiative by sharing to all social media channels, such as Twitter, reddit, Telegram
- Contact firstname.lastname@example.org or reach out to any of the projects involved to know more.
- Or just join our Kyber developer Telegram to either ask about the initiative or how you can build with Kyber.
Together with all our partners involved in this initiative, we cannot be more excited to build on top of this foundation, whether it is around adding support for more coins, expanding adoption for the initiative, improving the standard or involving more partners, and increasing the decentralization and security of the token.
Kyber Telegram: https://t.me/kybernetwork
Press Release: BusinessWire
Republic Protocol’s announcement: Blog post