Are You Ready to Run a Vault?
Are you interested in helping to secure the Interlay Network while earning rewards as a good actor? Consider running a Vault! Vaults are the heart of the Interlay and Kintsugi bridge. They are responsible for securing locked assets so that users can mint and use interBTC on any network.
It is important to understand the risks and rewards of running a Vault to decide if it is right for you.
Running a Vault involves some responsibility since Vaults are the security mechanism for users.
Vault Responsibilities
Vaults provide collateral in order to insure against and disincentivize the theft of the user’s BTC. At launch, Vaults can use KSM and DOT as collateral. Later, additional whitelisted assets will also be accepted. The Vaults are over-collateralized to account for fluctuations in exchange rates.
Vaults are also responsible for locking up and securing the user’s BTC to mint and receive interBTC at a 1:1 ratio. The collateral is also locked up until the BTC is redeemed.
Vaults will continue to monitor the interBTC/Kintsugi bridge for requests to redeem. Users can return their interBTC, and the Vault will return their BTC. Once the bitcoin is released, the collateral is also unlocked.
In addition to monitoring the bridge, Vaults are also responsible for reporting theft to the bridge by monitoring Bitcoin addresses of other Vaults.
Risks of Running a Vault
Price fluctuations — The Vaults take on liquidation risk in the event of a significant drop in the relative price of the collateralized assets. In addition to over-collateralization, this risk is mitigated with a diversified multi-collateral system. This measure reduces the single point of failure in the event of an individual collateral asset’s rapid drop in value.
Oracle failures — Vaults depend on reliable oracle support to feed accurate exchange rate information. Interlay has installed auto-shutdown mechanisms and partners with multiple reliable oracle providers to avoid mistaken liquidations.
Software bugs — This risk is present in all software. The best way to avoid harmful bugs is to use best coding practices, provide transparency through open-source code, implement frequent audits, and have a competent engineering team with peer-reviewed research. Visit Interlay’s GitHub page to verify best practices, auditing, and transparency.
Blockchain failure — This risk exists outside of our control. The best one can do is independently research the open-source code base of Bitcoin and Kusama, and manage risk accordingly.
Why Vaults are Important
The Vaults are designed to be non-trusted and insured upon theft. Users have the option to run a Vault themselves or to choose a Vault on their own. Vaults are made to verifiably secure the assets of all parties involved and incentivized to remain honest.
Vaults are also integral to maintaining the BTC-Relay. This monitorization ensures that the bridge remains current with the Bitcoin blockchain. Vaults are also used to monitor and report any theft to the bridge in the event of a bad actor.
Earning Potential
In order to build the necessary infrastructure of security to make this system work, we need to spin up some Vaults. Vaults launched early will be rewarded with a higher percentage of the 30% of the first 4-year KINT/INTR supply.
Other ways to earn include fees from minting interBTC and kBTC, enforcing good behavior among Vaults, and using yield-generating assets as collateral for your Vault.
To conclude
Do you have what it takes to run a Vault? Ask yourself these questions:
Are you able to accept BTC into custody?
How much collateral do you plan to provide?
Can you run the vault client software?
Do you also want to mint interBTC/kBTC?
If this sounds like a good fit, fill out this questionnaire to get started.
Like to dive deeper? All information can be found in the Interlay Documentation.
About Interlay
We envision a future where blockchains seamlessly connect and interact: anyone can use any digital asset on any blockchain, trustless and without limitations. We work with Bitcoin, Ethereum, Polkadot, Cosmos, and others to expand interoperability, capital efficiency, and openness.
Our flagship product is interBTC — Bitcoin on any blockchain. A 1:1 Bitcoin-backed asset, fully collateralized, interoperable, and censorship-resistant, realizing the true free nature of BTC and decentralized finance.
Follow our Twitter, Telegram, and Discord to keep up to date with daily updates from the team.
by Ryan Slot
