ELI5: What is tBTC?
TL;DR: tBTC is a protocol that enables BTC holders to trustlessly move their BTC holdings to be used in Ethereum’s DeFi. Using BTC as collateral in MakerDAO or lending out BTC in Compound is no longer a pipedream.
Why was tBTC developed?
tBTC protocol is used to create a trustless bitcoin-backed ERC-20 token (TBTC).
In prior implementations (Liquid, WBTC), only a small subset of people have been responsible for maintaining the peg between BTC and its sidechain / ERC-20 asset.
So, how does it work?
Users who wish to move their BTC to Ethereum deposit their BTC into a specified wallet on the Bitcoin blockchain.
A randomly assembled group of custodians (how tBTC avoids a single point of failure) called signers manage the BTC deposit for a fee.
Signers mint TBTC on the Ethereum chain so that 1 BTC deposited always corresponds to 1 TBTC minted.
To participate, signers need to post a 1.5x overcollateralized bond in ETH, which gets slashed if signers try to steal the original BTC deposit.
So, a 1 BTC deposit requires a 1.5 BTC (in ETH) bond.
Signers perform this work for a fee. For now, that fee is set at approximately 2% (annualized) of all TBTC minted.
How does the KEEP token relate to tBTC?
Structurally, tBTC has some similarities to a system like MakerDAO. KEEP tokenholders are responsible for overseeing the tBTC protocol’s functionality.
KEEP holders set, monitor and adjust the parameters (bond collateral types, security upgrades, fee levels, etc.) for the tBTC protocol, and stake their KEEP tokens behind signers for a part of the signers’ fees.
When will tBTC be launched?
The mainnet release for tBTC is scheduled for April 27th, 2020.
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