tBTC v2: a Censorship-resistant BTC Bridge at 100x Scale

A closer look at tBTC v2, what it means for the bitcoin community, and the roadmap for release.

In a Nutshell: tBTC v2

• tBTC v2 will be able to scale 100x from today’s v1, from 1,000 BTC to 100,000 BTC (1% of total supply).
• tBTC v2 enables scale by more effectively deploying capital for securing BTC.
• The tBTC v2 token is live, and can be minted by anyone holding tBTC v1. LP incentives are live now for v2 holders.
• The tBTC v2 Bridge is estimated to go live near the end of this year, which will unlock direct minting of v2, deploy Coverage Pools as insurance, and launch an API to deliver truly decentralized BTC to Ethereum financial applications.

tBTC v2 has a singular purpose: to extend the censorship resistant properties of Bitcoin onto every network that can interoperate with Ethereum.

Vision of tBTC

The vision for tBTC is to facilitate an interoperable Web3 future by solving the most untapped liquidity and yield opportunity in DeFi: BTC. BTC holders can be wary of Ethereum’s DeFi ecosystem, preferring to keep their assets secure on Bitcoin’s censorship-resistant network. Bridges expose BTC holders to considerable risks, asking them to commit their funds to an intermediary that does not mirror the same censorship-resistance of Bitcoin. tBTC has been built with security and decentralization at the forefront, offering BTC holders the only truly trustless Ethereum bridge solution that eliminates intermediary risk. The vision of tBTC is to continue building and growing this solution, accelerating a flood of liquidity from the BTC world into the Ethereum and DeFi worlds, in turn accelerating innovation and interoperability for the Web3 ecosystem at large.

Growing towards tBTC v2

“The core issue is this: to scale a Bitcoin bridge, we need an economic mechanism that doesn’t rely 1:1 on outside collateral.” Source.

tBTC v1 has been successfully operating since September 2020, with no security incidents of cryptoeconomic exploits. tBTC v1 has proven the opportunity and benefits of a decentralized, trustless Bitcoin to Ethereum bridge. However, like all bridges, tBTC is constrained by one major factor: security vs. capital efficiency.

tBTC has scaled effectively to its current state by being backed 1:1 by BTC and overcollateralized by ~150% (collateral is committed by Keep nodes). This model of backing and collateralization has proven extremely resilient for tBTC v1. However, the collateralization in particular has throttled its scale. V1 has a hard upper limit of 1,000 BTC, and is fast approaching that threshold.

This is not an issue unique to tBTC. Other BTC/ETH bridges face the same constraints, and at some point these other solutions have chosen to compromise on decentralization (and thus security) to make room for scale. The same compromise is not acceptable for the tBTC ecosystem.

The challenge — and the opportunity — therefore, is the following: how to deploy capital efficiently in a manner that allows for scale while retaining censorship-resistance.

tBTC v2 is answering that challenge.

Introducing tBTC and Keep v2: Capital Efficiency, Security, and Decentralization at Scale

tBTC v2 is a decentralized custodial banking system secured by the Keep Network and collateralized by KEEP. tBTC will be able to scale 100x from v1, to 100,000 BTC (or, 1% of the total supply) — matching the capability of custodial solutions like WBTC.

tBTC v2 consists of four components: the tBTC v2 token, the tBTC v2 Bridge, the open API platform, and coverage pools.

Coverage Pools are an insurance pool for the Keep ecosystem that will unlock growth for tBTC v1 while proving critical for the safety of v2. In the current v1 ecosystem, Keep nodes are the ones who provide collateral (in the form of ETH and KEEP) to provide a backstop for any fraud with tBTC v1. Coverage Pools are pools of assets that are provided by passive investors instead of node operators, and offer returns against that collateral. Coverage Pools shift the burden of capital to these investors to expand the amount of capital that is backing the tBTC ecosystem as a whole. Coverage Pools are critical to tBTC v2 and Keep v2, and will be rolled out as the Keep and NuCypher networks merge.

The tBTC v2 token is an upgrade from the current v1 token. tBTC v2 will always be backed 1:1 by BTC and collateralized by a Coverage Pool. The v2 token is live today, and holders of tBTC v1 can upgrade directly through the Keep Dashboard. As the tBTC v2 Bridge is tested and goes live next year, the v2 token is being used to test and deploy business integrations in the meantime.

Currently, users can deposit the v2 token into a Saddle Finance pool to earn rewards. Those rewards will soon be available on Yearn, Curve, Maker, AAVE, and Alchemy. As the tBTC v1 token is phased out and tBTC v2 becomes the primary token in circulation, more applications and integrations will be announced.

The tBTC v2 Bridge will provide open banking services to the BTC community by bringing their BTC securely onto Ethereum — the largest existing platform for earning yield on your assets. Analogous to custodial services in the traditional banking sector, the v2 Bridge broadens BTC holders’ access to financial applications without ever compromising on censorship-resistance. The Bridge is estimated to launch by the end of the year.

The tBTC v2 Banking Platform and API is the superpower of the v2 ecosystem. The API will launch with the v2 Bridge, and allow anyone to build and use BTC-based financial applications on Ethereum. These applications will offer yield-generating services to BTC holders and tBTC v2 Bridge users, effectively creating a decentralized banking ecosystem in which different applications (companies) compete to put users’ BTC to work with ever more competitive offerings. This mimics today’s traditional banking services, but it does so in the censorship-resistant, permissionless, and trustless capacity that BTC holders want.

The v2 Roadmap

tBTC v2 is rolling out in phases. Currently, the tBTC v2 token is live, but can only be minted by people who hold tBTC v1 and use the vending machine contract to upgrade v1 to v2. Minting can be done directly through the Keep Dashboard. The tBTC v2 token release marks the beginning of a gradual plan to phase out v1 so the entire ecosystem is using v2.

The tBTC v2 Bridge is estimated to launch towards the end of the year, and will unlock the next phase of the tBTC v2 rollout. When the Bridge is live, direct minting of tBTC v2 tokens from BTC will be possible. The process of minting tBTC v2 from BTC will be similar to the experience today of minting v1, but cheaper, simpler, and with no upper limit on minting. At that time, every tBTC v2 will be backed 1:1 by BTC. As the network scales towards 100,000 BTC, the amount of tBTC v2 backed by BTC will dwarf that backed by v1.

The v2 Bridge will also turn BTC into an open banking platform. Bridged BTC can then be used on yield-generating applications on Ethereum thanks to the tBTC v2 open banking API, generating a vibrant ecosystem of competitive and censorship-resistant custodial services and financial applications for the BTC community.

To learn more about tBTC v2 and the plans for rolling out, visit Keep.