Part I: Power of the “P”
Cross-chain composability — the ability to make tokens and DApps work together across different blockchains — is gaining momentum in the DeFi world. The apparent lack of liquidity and interoperability which “plagues many tokens” locks in value and hinders its growth.
In fact, our solution was recently highlighted in this CryptoBriefing article, as a “completely open source and open hardware initiative that integrates a mainstream Hardware Security Module (HSM) to securely sign transactions.”
Bitfinex CTO Paolo Ardoino states that if solutions such as ours become more widely adopted, “it will be better and easier for exchanges to support a wide set of digital tokens.”
The goal here lies in the growth of the overall ecosystem.
To test the waters, we are bringing major cryptocurrencies to Ethereum, pushing #DeFi beyond these boundaries alone. (Eventually we will spread DeFi across every chain, making every cryptocurrency compatible with every blockchain.)
Following the testnet launch of pBTC on Ethereum, we examine here our unique solution — built on a combination of blockchain, Trusted Computing and Multi-Party Computation techniques — and consider how it compares to other projects taking on the same challenge of bringing liquidity and interoperability to blockchains.
BTC on Ethereum? Bitcoin joins the pTokens family
We’re excited to add yet another cryptocurrency to our growing pTokens catalogue, this time introducing Bitcoin to the…
Read all about pBTC testnet debut!
As already examined in our last blog post about pBTC, both the issuance (minting) and redeeming (burning) of BTC are automatically performed. This peg-in/out mechanism is so fast, it allows users to enter and exit the market continuously, enabling frictionless liquidity.
Users deposit the asset they wish to convert to the relevant pTokens smart contract, providing a destination address where to send the corresponding, newly minted pTokens. In this case, users deposit BTC and enter an Ethereum address where to receive their pBTC.
Introducing pTokens — provable, portable, pegged.
The latest tool by Provable, bringing liquidity and interoperability to DeFi.
Read this for a more in-depth explanation of how pTokens work.
This transaction is submitted to secure enclaves, which validate the request for the pTokens generation and is broadcasted to the destination blockchain (Ethereum). Once this is mined, newly minted pTokens are received by the destination address initially provided by the user.
At any time, the users can decide to reverse the process for their pTokens and redeem the underlying asset. Users simply provide the amount of pTokens they wish to destroy for them to be burnt as well as the desired destination address.
WBTC, or wrapped BTC, employs a custodial, centralised model. A “consortium of institutions” perform different roles in the network.
To receive WBTC, a user requests tokens from a merchant, such as BitGo. Following successful KYC / AML checks, users send BTC to the merchant, and WBTC is sent in return.
To create new WBTC tokens, merchants send their requests to custodians, who execute and send the freshly minted tokens back. Only merchants can burn tokens, with the amount to be ‘burnt’ deducted from the merchant’s WBTC balance (on chain) and the supply of WBTC is then reduced.
tBTC provides a mechanism for creating a token that is pegged 1-to-1 with bitcoin. To mint tBTC, users request a Bitcoin wallet address from the tBTC system. The system selects a set of signers tasked with generating a private/public keypair and furnishing it to the system.
Users deposit bitcoin to the wallet, and that bitcoin is divided in two parts: the first is eligible for 1-to-1 minting into tBTC, while the second is reserved as incentive and collateral for the wallet signers.
wBTC can take up to a couple of days to execute due to their manual processes. And while tBTC is relatively fast, their gas costs are much higher, creating more friction for users.
pBTC is both fast and cost-effective, with low gas fees and a process that bypasses cumbersome manual processes altogether.
Due to their custodial framework, a lot rests on individual custodians being fully trustworthy in the WBTC network.
A custodian can choose to block withdrawals or (in extreme cases) even hide funds. As with all human-centric and trust-based systems, custodians are also vulnerable to governmental or corporate pressure or malicious hackers.
Furthermore, the WBTC model has stirred some debate as to whether their IOU format for issuing tokens means that holders do not actually have a legitimate stake in bitcoin.
Similar to centralised stable coins, the underlying asset is not necessarily redeemable for its on-chain representation. With WBTC, the merchant and user perform an atomic swap of WBTC and BTC, yet there is no mechanism in place to protect users. With WBTC, middlemen are reintroduced and play a vital role in governance. In theory, merchants could refuse to swap your WBTC back to BTC.
If the whole point of cryptocurrency is to minimise trust and remove middlemen, an IOU that can be issued trustlessly would still be the goal.
These IOUs could be considered worthless assets if the keys controlling the asset can be used without a user’s consent.
While this IOU approach is somewhat applicable for pTokens as well, with our solution users must use our trustless “bridge” to both mint and receive pTokens, as well as redeem the underlying BTC.
This process is automated and does not pass through any kind of third part or external entity — only hardware. Granted, these Trusted Computing Enclaves are currently hosted by us, however it is fully-auditable and transparent. We believe this greatly reduces the risk; everything is handled by technology, removing any exposure to human or corporate malfeasance.
Going forward, the use of threshold signatures will be introduced to reduce the risk even further.
Similarly, tBTC aims to build a fully trustless architecture, with a protocol that removes the need for middlemen. Similar to Bitcoin’s governance system, which has a pool of autonomous miners, minimal participation is required for signers to secure the network.
According to the team, the goal of tBTC is the creation of an ERC-20 token that maintains the most important property of Bitcoin — its status as “hard money”.
To do this, they believe tBTC must remain:
- Immune to inflation, censorship and seizure across all jurisdictions
- Mintable only after proof is provided of a backing BTC deposit
- “Leverage-resistant”, meaning the existence of tBTC shouldn’t allow “printing” of additional synthetic BTC to avoid artificially expanding the Bitcoin supply
- Free of middlemen, with the only rent extraction in the from of signers only required to secure the network
- Redeemable, so users are always able to trade their backing deposit freely. The supply of tBTC is always backed by an equal number of reserved BTC. For every token in circulation, 1 BTC has been removed from circulation.
These properties in unison are meant to ensure a strong supply peg across chains, and hope to achieve the closest thing to a “hard money” status by a Bitcoin-pegged asset.
tBTC also has a faster issuing process than that of wBTC. However, despite its solid technical approach and proactive use of decentralisation at its core, its processes are overly complex. This makes it difficult to scale, as it cannot be applied to assets other than BTC.
Utilising the same underlying technology which powers the Provable blockchain oracle, pTokens merges two cutting-edge technologies to reach its trustless state: blockchain and Trusted Computing.
Our Trusted Computing sandboxing techniques guarantee a secure and fully auditable execution of all minting and redeeming processes. As the code running within the enclaves is open-source, transparency is maintained and guaranteed across the whole cross-chain process. No one can include malicious hidden entry-points that could compromise the security of the private-keys stored within the enclaves.
Bonded with a multi-party computation (MPC) approach where each validating node is secured by Trusted Computing, such a system achieves an even higher level of trustlessness. This approach allows us to decentralise the cross-chain movement of cryptocurrencies by leveraging security-preserving technologies, such as Intel SGX, as well as cryptographic primitives. When combined with Ethereum smart contracts, it enables secure cross-chain transaction-signing capabilities between two traditionally separated blockchain platforms.
The Ethereum blockchain has so far acted as a catalyst for the growth of a whole new decentralised financial system. While the first iteration of pTokens are Ethereum-based ERC20-tokens backed with a non-Ethereum cryptocurrency (in this case BTC), the model is flexible and can be extended to any blockchain. pTokens level up the game by connecting any asset to any blockchain, making pBTC on ETH, as well as pDAI on EOS and pETH on the Liquid network possible.
For any blockchain project looking to integrate pTokens into their infrastructure, we have built a Js library.