IOSG Ventures
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How DeFi Interoperability Platform Interlay Brings BTC into the Multi-chain Ecosystem

Recap of IOSG Ventures & Interlay & Realsatoshi Chinese community AMA

About the AMA

Coordinated with the Realsatoshi community, IOSG Ventures had initiated an online live AMA with Interlay on Sept 09, 2021. As some of you might have not participated, we made sure no one missed out on the good stuff! We made an AMA recap of the asked questions and answers provided by Alexei Zamyatin, Co-founder, and CEO of Interlay on the topic of “Supporting a Multi-chain World: How DeFi Interoperability Platform Interlay Brings BTC into the Multi-chain Ecosystem”. Alexei has elaborated on their core product InterBTC, about how it works and what advantages they have over other similar products. Besides, He has also presented the details of Kintsugi joining the Kusama parachain slot auction and their future plans.

This AMA combines two sessions, in the first session, our guest will answer the pre-collected questions from communities, and in the second session is free questioning, the audience can ask more questions they’ve concerned about! Thank you so much to everyone who joined in on this AMA and we really enjoyed our time with the crowd.

FYI: Interlay (Kintsugi Crowdloan) is now joining the Kusama parachain slot auction, it would be great to have your vote! Click here to vote for us. Together, Let’s bootstrap Kusama’s beautiful ecosystem!

Let’s get it started for the AMA.

Session ONE: Fixed Q&A

Q1: It’s your first time joining our community, can you give a brief introduction about Interlay? What it does, and what its vision and mission are?

Interlay is an R&D company focusing on blockchain interoperability. Interlay envisions a future where blockchains seamlessly connect and interact. Users should not care on which chains Dapps are hosted — they should use any asset on any chain. Interlay’s imminent mission is to make Bitcoin interoperable in a fully trustless and decentralized way. Anyone should be able to invest, earn and pay with BTC on any blockchain — trustless and directly from their wallet.

Interlay was founded by Alexei and Dominik — ex-Imperial College CS PhDs, who have been doing Bitcoin & blockchain security research since 2015. Our products are backed by top-tier scientific papers and collaborate with leading research labs and tech companies around the world.

interBTC is Interlay’s flagship product — Bitcoin on any blockchain. A 1:1 Bitcoin-backed asset, fully collateralized, interoperable, and censorship-resistant. interBTC will be hosted as a Polkadot parachain and connected to Cosmos, Ethereum, and other major DeFi networks.

Kintsugi (kBTC) is interBTC’s canary network, a testnet with real economic value on Kusama. Kintsugi and interBTC share the same code base — with the difference that Kintsugi will always be 2–3 releases ahead of interBTC with more experimental features.

XCLAIM is the protocol underlying interBTC and kBTC, XCLAIM was invented in 2018, and published as a top-tier, peer-reviewed scientific paper by Interlay founders. You can read the paper here.

Q2: Can you tell us the background and story of your team? How did you guys get together to found this project?

Dominik and I met in London in October 2017 — we were the first two PhDs in the Imperial College’s cryptocurrency research lab. For two years we worked on various research projects, publishing more than 20 papers on blockchain security, scalability, interoperability, and DeFi — “earning” over 700 citations.

In the summer of 2018, XCLAIM, the first trustless protocol for cross-chain “wrapped” assets was born. What started as an academic project, quickly turned into a full-time endeavor. We presented trustlessly wrapping Bitcoin on Ethereum using XCLAIM at Scaling Bitcoin’18, EthCC’19, EDCON’19, and published the paper at the top-tier security conference IEEE S&P’19. By this time, XCLAIM had undergone the scrutiny of various communities and we had gained confidence that it worked in practice. It was time to bring XCLAIM to life.

We found a great partner in the Web3 Foundation, who offered funding to bring Bitcoin to Polkadot in a trustless manner — interBTC was born.

Over the following 2 years, Dom and I created a 200-page formal specification, implemented a PoC, and won a follow-up grant to build the full system. We scaled our team from 2 people to 12 today, have launched Alpha testnet in November 2020, Beta in March 2021, completed two rounds of security audits, and are now going live on Kusama. We’ve also already designed interBTC 2.0 and are working on version 3.0 — so we really want to go live and show the world what we have built — in our opinion, the best cross-chain asset protocol on the market.

Q3: Can you introduce the operating mechanism and technical implementation of Interlay products?

At the core, XCLAIM — the framework underlying the interBTC bridge — introduces the concept of trustless cryptocurrency-back assets. Assets are locked on Bitcoin and unlocked on Polkadot in the form of 1:1 BTC backed-assets (interBTC). interBTC can be used just like any native asset within the Polkadot ecosystem, meaning: they can be easily transferred and integrated into other Parachains and applications.

Issue, Trade, and Redeem

The life-cycle of interBTC follows four phases :

  1. Issue: Lock your BTC with a Vault. Pick one, or run your own. Your BTC is always safe and insured by Vault collateral.
  2. Mint: Get interBTC at a 1:1 ration to your locked BTC.
  3. BTC DeFi: Earn on your Bitcoin. Use interBTC as collateral, for lending, yield farming and more. On Polkadot, Kusama, Cosmos, Ethereum and other major DeFi platforms.
  4. Redeem: Redeem interBTC for actual BTC on Bitcoin — trustless and anytime you want.

What makes interBTC unique is the strict dedication to being trustless and decentralized.

  • Secured by Insurance. Vaults lock collateral on the interBTC parachain in various digital assets — in a MakerDAO-inspired multi-collateral system. If Vaults misbehave, their collateral is slashed and users reimbursed. As a user, you only trust that Bitcoin and the DeFi platform you use are secure.
  • Radically Open. Anyone can become a Vault and help secure interBTC, anytime. Yes, you can run your own Vault!

interBTC will be hosted as a Polkadot parachain (Kinstugi as a Kusama parachain) → but interBTC will be available on Cosmos (partnership announced), Ethereum, and other major chains via Polkadot’s bridges.

Q4: Interlay’s product positioning is “Use your Bitcoin. Anywhere”. What are the differences and advantages compared to other projects?

What makes the interBTC bridge unique is the strict dedication to being trustless and decentralized. As a holder of interBTC, you have the following guarantee:

You can always redeem interBTC for BTC, or be reimbursed in the collateral currency at a beneficial rate.

In the case that a vault misbehaves, you will be reimbursed from the Vault’s collateral and will make a very profitable trade between BTC and DOT. At launch, collateral will be put down in DOT. In the mid/long run, this may be extended to stablecoins or token-sets to improve stability.

To summarize, you only trust that Bitcoin and Polkadot are secure.

Other projects have centralized custodians (wBTC) or multi-signatures controlled by a small group of people (renBTC and ChainX) — and they have no insurance. If BTC is stolen — it’s gone and users lose money. This is the biggest difference → interBTC is the BTC for DeFi. Other centralized wrapped BTC versions are like USDT — interBTC is like MakerDAO’s DAI.

Q5: How are the Tokenmetrics of Kintsugi designed? What are the utilities of its token?

Kintsugi will be governed by its community from day 1 — via KINT, Kintsugi’s governance token. Kintsugi will go live via a fair launch scheme.

KINT tokens will be distributed to network participants, builders, and early backers as airdrops and block-rewards. There will be no public sale or ICO.

Key Functions of KINT

The KINT token’s main purposes are:

  • Governance. KINT holders vote on governance proposals and elect council members to make operational decisions. To vote, KINT is locked and users earn staking rewards.
  • Utility. Mit-term, Kintsugi will support transaction fee payments in KINT and other digital assets, in addition to KSM.

Supply and Emission

KINT features an unlimited supply. The emission schedule is defined as follows:

  • 10 million KINT emitted over the first 4 years (4:3:2:1 million)
  • 2% annual inflation afterward, indefinitely.

Distribution

KINT will be controlled by the community:

  • 70% is distributed to the community as airdrops and block rewards.
  • 30% is airdropped to the Interlay team, and early & future investors, who funded development of the protocol — subject to 1 year followed by 1 year linear vesting.

Starting in year 5, only the community receives new KINT from the annual inflation.

Distribution of the initial 4-year supply
Distribution of the 2% annual inflation starting in year 5

Read more in the token economy whitepaper released by Kintsugi Labs, or the translated short summary.

Q6: How do you compare to other decentralized bridging solutions such as RenVM?

What makes the interBTC bridge unique is the strict dedication to being trustless and decentralized. As a holder of interBTC, you have the following guarantee:

You can always redeem interBTC for BTC, or be reimbursed in the collateral currency at a beneficial rate.

Other, centralized bridges, are not as secure:

  • wBTC is fully centralized. You trust BitGo as the custodian. If they fail, BTC is gone. wBTC is like USDT.
  • RenVM / renBTC holds BTC in a multi-sig, controlled by a small group of people. It’s better than wBTC, but still centralized. There is also no insurance — if the BTC is lost, there is nothing to protect users. Ren is like USDC — better than wBTC (like USDT) but still not really DeFi.

interBTC is like DAI. BTC is held locked by a decentralized set of Vaults → anyone can become a Vault. And BTC is ensured by collateral in smart contracts. In fact, interBTC has the same multi-collateral system as MakerDAO. interBTC is made for DeFi.

Q7: The best tech doesn’t necessarily win. Centralized solutions are still dominating the market. How to challenge the dominance of centralized players?

We see the challenge of centralized solutions still being dominant. The benefit a decentralized solution like ours has though is agility and community support. We can integrate with projects and expand into ecosystems much quicker. Centralized projects have no community to back them — the community has no stake in the project.

Mid/long term, decentralized solutions like ours will win. It takes only another Mt. Gox to remind the community of why something like wBTC is a problem. Short term, interBTC & Kintsugi have an on-chain treasury that is solely dedicated to ecosystem growth. The treasuries will be incentivizing liquidity pools across the entire ecosystem. Together with the Vault rewards, this makes interBTC the only wrapped asset solution with built-in incentives & LP rewards.

Q8: Can you tell us more about potential partnerships with other Polkadot projects and how interBTC / kBTC will be integrated with other parachains?

We typically don’t do “Partnerships” until there is something users can actually test. However, we are working closely with basically all large Kusama/Polkadot teams and we’re releasing a series of “featured use cases” over the next few days, explaining what you will be able to do with interBTC / kBTC.

A few examples are:

  • kBTC as kUSD stablecoin collateral on Karura. Simple, mint kBTC, lock as collateral in kUSD, and use that in DeFi.
  • Hodl BTC with interest: Mint kBTC from BTC on the Kintsugi bridge. Transfer kBTC to Karura. Open a kUSD loan on Karura with kBTC. Put kUSD into another yield generating DeFi protocol (Sushi LP pool on Moonriver, Basilisk LPs, …). Enjoy yield and price exposure to BTC.
  • Vaults use LDOT or Basilisk LP tokens as collateral. Instead of KSM / DOT, Vaults can also use interest earning assets like LDOT as collateral to increase their APY: earn from liquid staking and Kinstugi / interBTC rewards.
  • Future: wBTC/renBTC/kBTC Curve-style pools: Earn trading fees by providing the kBTC side (or both) to BTC-specific pools like Curve, BadgerDAO, etc.

Interlay is working with large custodians, validators and also looking into Bitcoin mining pools to run Vaults and bring BTC liquidity to DeFi.

Q9: Besides connecting BTC to the Polkadot / Kusama ecosystem, in what other ways do you plan to utilize the parachain slot?

Short outlook:

  • Main product = trustless kBTC, which will be integrated with Karura, Shiden, Moonriver, Basilisk, etc.
  • We’re adding an EVM so (a) others can build BTC DeF apps and (b) we can onboard projects from Ethereum/RSK who want BTC access. This ofc also works via Acala & Moonbeam EVMs, but this way we’re more flexible.
  • Synthetic BTC versions and more experimental models
  • Other underlying: the bridge can be extended to LTC, BCH, DOGE, etc.

Outlook (mainly for Polkadot, but will be first on Kusama):

  • BTC on all chains: from Kusama/Polkadot to Cosmos, Ethereum, Solana
  • interBTC 2.0: we have a new way for users to earn yield / passive income on their BTC directly from their wallets — without “wrapping”. Basically, BTC DeFi for those who don’t have time or don’t want to experiment with complex DeFi protocols — BTC DeFi made mainstream. Coming in 2022.

Q10: With the growing number of layer 1 ecosystems, cross-chain communication and value transfer are becoming increasingly important. How does Interlay positions in the multi-chain world? Can underlying technology be used to connect different layer 1s? Where do they see the most demand?

interBTC will be available on all major DeFi platforms. We start with Kusama and Polkadot — and from there, we will bring interBTC to Cosmos, Ethereum, and others (e.g. Solana).

We have already announced interBTC coming to Cosmos. interBTC on Ethereum will be supported by default through Polkadot’s ETH bridges.

Our vision is to make sure that people can use any asset on any chain. Our imminent mission: trustless Bitcoin everywhere.

Session TWO: Free Q&A from communities

Q: Now that interlay has entered that stage? Are there any specific activities recently?

Kintsugi, our canary network, is running for a parachain slot and there is a crowdloan where you can lock KSM to support Kintsugi & get airdropped KINT tokens.

Q: What is interlay’s global expansion plan? At present, which market does interlay focus on, or focus on building and developing to win customers, users and partners?

We are starting on Kusama and Polkadot, but already working with Cosmos and preparing to expand to Ethereum. After that, we will expand to other major chains, like Solana or Avalanche.

Q: What are the problems solved by the XCLAIM protocol developed by your team? I would like to know what are the differences

Bitcoin on any blockchain, fully trustless and decentralized. Kintsugi, our canary network, is running for a parachain slot and there is a crowdloan where you can lock KSM to support Kintsugi & get airdropped KINT tokens.

Q: As the cost or fees of BTC change to WBTC is about 0.25% or so, how about the cost of iBTC change to interBTC in Ethereum? Are there any other fees for BTC change to interBTC? For example, the cost of Polkadot’s ETH bridges.

The mining and transaction fees will be very similar as wBTC. Even though you make a „hop“ over Polkadot when you mint interBTC to ETH — Polkadot‘s fees are so low that it barely makes a difference. Plus, there will be liquidity mining programs for BTC liquidity — which you do not have with wBTC

Q: Can you tell people the salient features of this project, which are not available in other projects? Can you say that some features are considered the best features?

We are starting on Kusama and Polkadot, but already working with Cosmos and preparing to expand to Ethereum. After that, we will expand to other major chains, like Solana or Avalanche.

Q: What does Interlay currently do that is better than Ren? What are the reasons why users choose Interlay?

Because Interlay‘s bridge is the only decentralized bridge. Ren is not trustless or decentralized — you must trust them with your BTC. With Interlay‘s interBTC / Kintsugi you are guaranteed that you will not suffer financial loss due to theft

Q: How does interlay react to a rollback problem on one of the chains on both sides of the cross-chain? Take Polkadot and Ethereum as examples. If any one of the chains encounters a state rollback, what will happen to users who send interBTC from Polkadot to Ethereum?

Very good question! Same as with other DApps — if Bitcoin or Polkadot fail, the bridge fails as well. This is why the bridge requires confirmations on Bitcoin / Polkadot before minting is allowed. We follow the same security standards as other major DApps in this regard. So everyone will fail the same :)

Q: BTC is locked at which address? We know BTC doesn’t have a smart contract, so it will hold a secret key-controlled address, right? Who will have that secret key? RenBTC has a set of people signer, but it is not perfect. So how do we do better?

BTC is locked with a Vault. Anyone can become a Vault by locking collateral (e.g. in KSM, DOT, USDC, …) on the parachain. This way, if the Vault misbehaves, you will be reimbursed in collateral at 110% rate。

The Vault holds the BTC. The Vault is like the Ren set of people — BUT: (1) anyone can become a Vault — in Ren you cannot simply join. And (2) Vaults lock insurance collateral. If they steal BTC, you get the collateral — and the collateral is always worth more than the BTC locked (you get 110%). Ren has no insurance — if BTC is stolen, they are gone and you lose money

Q: What did Kintsugi do in participating in this round of Kusama parachain auction? Are you sure to win this auction?

Good question. We are not in the top 5 now, but we will catch up next week. We have a large boost incoming :) So yes, I think we will win. People are starting to realize how important BTC is for the value of other Kusama projects

Q: What advantage do you think XCLAIM has over tBTC / Keep?

tBTC tried to build something similar to XCLAIM — BUT: they did not manage. They have a closed set of signer and cannot be open to the public due to issues with their ECDSA threshold signature scheme (which does not help with security either). Also, tBTC only allows ETH as collateral making it volatile. InterBTC/kBTC are multi-collateral which makes (1) it more stable and (2) allows support for interest-earning assets as collateral which increases Vault APY. KEEP is moving to tBTC v2 which is more centralized and will only insure 20–30%. InterBTC / kBTC always has full 100%+ insurance. We have also prepared v2 and are working on v3 of interBTC/kBTC which improves security even more :)

Thank you again to everyone who was able to attend this AMA! Please feel free to keep the questions coming. And feel free to find more about Interlay via the following channels:

Website | Twitter | Medium | Telegram

About IOSG Ventures

IOSG Ventures, founded in 2017, is a community-friendly and research-driven early-stage venture firm across China, the US, and Singapore. We focus on open finance, Web 3.0, and infrastructure for a decentralized economy. Our portfolio covers more than 60 projects, including Layer 1 (NEAR, Polkadot, Cosmos), DeFi (1inch, Synthetix, UMA). We commit ourselves to work alongside various developer & DAO communities and helping the most aspiring founding teams to achieve success. As a developer-friendly fund with long-term values, we launch the Kickstarter Program which offers capital and resources for innovative and courageous developers. Click to see more here. IOSG is also the lead investor and sincere supporter of Interlay.

Join Us

Website | Kickstarter | Twitter | Linkedin | GitHub

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