Introducing BTC+ <> A Positively Rebasing ERC20 BTC

Published in

NUTS Finance

5 min readFeb 3, 2021

Tl;dr. With recurring positive rebase based on accrued interest, BTC+ can both maintains its peg to BTC and provide global interest to all token holders.

We’ve seen multiple BTC-related ERC20 tokens in the DeFi world, which can fit into two categories:

BTC-pegged tokens: WBTC, renBTC, sBTC, acBTC, …
BTC LP tokens: acBTCv, renCrv, cWBTC, aWBTC, …

BTC-pegged tokens aim to maintain a stable peg against native BTC, token holders must seek for yields across various applications while bearing exorbitant transaction fees associated with allocation adjustments.

acBTCv tokens, which includes vault share tokens from yEarn/Pickle/Harvest, generate profits and socialize costs for their holders. However, these BTC LP tokens lose their peg against BTC and thus limits their usage in certain applications such as staking.

That’s why we designed BTC+: With recurring positive rebase based on accrued interest, BTC+ can achieve the best of both worlds. It’s the first ERC20 BTC that can both maintain peg to native BTC and generate yield automatically for their holders.

Minting BTC+

BTC+ can be minted with both BTC-pegged tokens and BTC LP tokens. Addition and removal of supported tokens will be driven and decided by the ACoconut community.

The following tokens are supported in the launch of BTC+:

BTC-pegged tokens: acBTC, WBTC, renBTC, oBTC, tBTC
BTC LP tokens: acBTCv, renCrv, cWBTC, aWBTC, obtcCrv, tbtcCrv

BTC+ Pool accepts deposits of ERC20-related tokens, generates yield with the deposits and mints BTC+ based on the total number of BTC-pegged token available in the pool. For example, in the first implementation of BTC+ Pool, all BTC-pegged tokens are converted into BTC LP tokens, and BTC+ is minted based on the following invariant:

This means 1 BTC+ can always redeem to a combination of multiple BTC-pegged tokens whose total amount is 1. Therefore, BTC+ maintains its peg to native BTC price.

Earning Interest with BTC+

BTC+ Pool rely on another ACoconut product, acSavings, to generate yield for its underlying assets. acSavings is a suite of vaults that helps BTC+, along with other acSavings users, to seek yield based on opportunities on the market.

The returns from acSavings are used to mint additional BTC+ which are distributed to all token holders as interest. The interest collection process can be triggered automatically when BTC+ is minted or redeemed, or manually by any user of the protocol.

BTC+ distributes interest using rebase mechanism. It manages a variable named index which represents the ratio between the underlying shares and the actual balance amount. Therefore,

Total supply = Total underlying shares * Index
User balance = User underlying shares * Index

The index is ever-increasing and increases each time interest is collected. Therefore, holders of BTC+ can see their balance increased over time while the price of BTC+ remains peg. This is a fundamental difference between BTC+ and BTC LP tokens.

Integrate BTC+ with DeFi Applications

Since users’ balance of BTC+ keeps increasing over time, DeFi developers should handle the balance properly when integrate their protocol with BTC+. Fortunately, this is not a problem for most existing DeFi protocols.

DEX

Liquidity provider can earn both transaction fees from DEX and interest from BTC+ by supplying BTC+ liquidity.

Use Uniswap/Sushiswap as an example. Uniswap/Sushiswap stores reserve balance in its contract, which might differ from the actual balance as interest is collected. To solve this problem, we introduce index hooks which are invoked each time the index is updated. We can then invoke sync() on Uniswap/Sushiswap BTC+ pairs so that the collected is distributed fairly to BTC+ LPs.

Lending

BTC+ can server as collateral in lending protocols. Users can continue to earn BTC+ interest while using it as collateral.

For lending protocols like Compound/Cream as well as other Compound-forks, the collected interest is distributed to the market. This generates interesting results:

For suppliers, this interest becomes part of the total cash of the market so that they can still share the BTC+ interest;
For borrowers who use BTC+ as collateral, they will see their positions are becoming “healthier” overtime due the interest;
For borrowers who borrows BTC+, they will receive the BTC+ interest so that the market interest model should consider this part.

Option

BTC+ is also a good choice for options since it’s pegged to BTC, and options users won’t lose their BTC+ interest even in the options market.

Use Hegic protocol as example. Hegic pool can collect BTC+ interest as its share price is computed based on the total balance. This means writer of BTC+ pool can earn dividend from option contracts without losing their interest from BTC+.

Comparison: acBTC vs BTC+

Currently, the ACoconut protocol suite have two ERC20 BTC protocols: acBTC and BTC+.

Even though both are synthetic BTC-pegged ERC20 tokens, BTC+ is neither an enhancement or replacement of acBTC. While acBTC focuses on reliability and usability, BTC+ focuses on capital efficiency and protocol compatibility. acBTC and BTC+ are perfect supplements for each other, and we expect them to co-exist in ACoconut ecosystem for long.

About NUTS Finance
NUTS Finance is a blockchain development DAO focused on building secure, composable and easy to use technology to empower financial applications on the blockchain. Our team is composed of experienced developers, financiers and serial entrepreneurs. We are highly motivated to leverage blockchain technology to improve the existing workflows in financial services.