Real Decentralization = Math

The First Rule of DeFi

Don’t accept centralized solutions to decentralized problems. That’s the first rule of DeFi. We know DEXs are better than CEXs. That more nodes are better than less. And that liquidity is populist game. It’s counterintuitive and counterproductive to engage with cryptocurrency and decentralized networks through centralized platforms. It’s more than an abstract philosophy. The imperative for decentralization has foundational tangible impact. Hardware can be hacked. People make mistakes, go rogue, and their incentives trend towards misalignment.

So when it comes to crypto bridges — bringing Bitcoin into DeFi, connecting the emerging world of digital assets — why are we putting up with platforms saddled with centralized baggage?

A quick tour of the centralized crypto bridge landscape: Ren uses specialized, proprietary hardware to produce RenBTC. The Ren apparatus is managed by a centralized group of decision makers that can decide to make any number of unilateral decisions. For example, selling the company to venture capital firms like FTX or Alameda — which is exactly what has happened. A platform beholden to the profit models of venture capital will very easily find its incentives misaligned from its users.

WBTC is an organization run by people who mint and unmint BTC. Everything passes through this organization of people. People are fallible, they can be corrupted or incentivized to follow any range of suboptimal ends. The wBTC organization also acts as gatekeepers limited by political considerations. For example, wBTC will not mint wBTC for someone from Iran, or the billions of individuals who do not meet wBTC’s enforced KYC requirements. That’s actually most of the world.

So any solution to building crypto bridges has to be an open-source, transparent, and structurally decentralized apparatus. This is only possible right now with threshold cryptography. With tBTC, for example, the private keys are sharded, and then distributed amongst stakers who are incentivized towards security. It’s purely mathematical, completely transparent, and a non-custodial, decentralized solution to crypto bridges and wrapped BTC. That’s why threshold cryptography will soon be a household primitive across all major networks because it enables permissionless movement of assets, secure and equitable access to censorship-resistant assets across all major blockchains. There is no hardware, there is no custodial organization, and there is no human error.

Corporate takeovers, large-scale exclusionary policies, human error: None of this stuff should happen with an apparatus that’s actually decentralized. That’s because decentralization does not come through hardware. It doesn’t come through people. The only thing that can be trusted to provide decentralization to a crypto product is math. The way we define decentralization, and the only way we think it should be defined: you’re trusting math and you can verify it yourself. For this reason, multiparty computation, homomorphic encryption, and zero-knowledge proof systems should be pillars of a decentralized product’s infrastructure. These technologies allow private data to be held in public and thus under public scrutiny. No secret hardware or secret cabals of custodians.

The team working on tBTC do not have the keys to the platform. We don’t run the protocol itself. We’ve handed over to a multisig, which now makes most of the decisions.

But even the decisions that the multisig addresses are limited, and can’t corrupt the function of the protocol. The multisig can tweak different knobs — fees, for example — but cannot actually ever take control of the underlying collateral. Keep is architected in a way that even if somebody tries to shut it down, it couldn’t. It’s open source code, a decentralized apparatus. Anybody, anywhere, could flip the switch and take it live.

Often, we don’t appreciate the real value of decentralization until we witness the pitfalls of centralization. For example: If Ren or wBTC was hacked, if someone was able to corrupt the platform’s hardware, or a member of its organization was incentivized to act against the best interests of users — that would have catastrophic consequences for every individual who relies on those products for custody. We have seen countless instances of similar phenomenon in the past. The false sense of security and huge number of trusted hardware hacks even led to Keep’s motto: “Trust math, not hardware”.

Code-based, mathematically verifiable is the answer to decentralization. It’s the way to trust things, not specialized hardware, not multi-party computation with specialized hardware, not people or jurisdictions, which might change their laws. It should just be math and anyone should be able to verify the math and see that it works. Once a math-based system is built and verified, it becomes a public good, not something that needs to be maintained by a group of people. Anyone can participate and contribute. When a system, product, or apparatus is built in such a way that it is verifiably decentralized and incorruptible by the human hand, it’s an expression of code as free speech. It’s outside the reach of physical, technological, or jurisdictional interference.

Perhaps for the novice retail user purchasing double figure amounts of BTC or ETH, this consideration does not ring loudly as it one day will. But for sophisticated entities interacting with DeFi, maintaining a standard of decentralization should be a baseline requirement of their engagement with the space today. To do any less is negligent.

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