tBTC is an ERC-20 token fully backed by BTC that can help alleviate uncertainty for first-time DeFi traders. The token, currently live on the Ropsten testnet, enables users for the first time to safely use BTC on the Ethereum blockchain. More than that, by combining the strengths of both chains, it offers traders a safe and simple way to participate in the growing DeFi space.
tBTC’s developers and advisors have worked hard to develop a solution that best utilizes the respective strengths of BTC and ETH to deliver a new product that can help take cryptocurrencies to the next level. The solutions are based on complex, advanced cryptography, but the key point for traders is that tBTC makes it possible to safely and transparently use BTC to act on ETH in three simple steps:
- Take BTC
- Call upon a “signers’ group” to hold the BTC safely and trustlessly
- Once the BTC has provably landed with the signers, receive TBTC at a peg of 1:1
The process can be reversed simply using the exact same steps.
tBTC is transparent and open source
A key goal in the design of tBTC is to remove the uncertainty that has kept so much BTC on the sidelines of DeFi and offer a product whose safety and transparency are clear to traders. That’s why the token, built by the teams at Summa and Keep to the highest standards of cryptography, is fully open source. It is based on an elliptic curve signature algorithm called t-ECDSA — also in use by Binance. (Zcash and Gnosis have also been working with that.) This is a more secure alternative to multisig, and it needs less space on chain, which means it’s also cheaper.
Signers’ groups reduce counterparty risk through decentralization
Another key way that tBTC ensures safety and transparency is by addressing counterparty risk. It works on a system of “signers’ groups” that enables tBTC to process transactions safely and transparently without a trusted middleman. This decentralization further reduces counterparty risk, because there is no longer a possibility of the middleman collapsing.
To ensure decentralization, tBTC uses “signers,” who operate in groups of three. All three signers have tpo approve a transaction for it to proceed. To incentivize people to fill this role, signers receive a micro fee of 20 basis points (bps) for every tBTC “minted” in exchange for a BTC. Of course, there must be a mechanism for ensuring too, that the signers behave honestly. It is where the complexity of the Ethereum blockchain is essential for sybil resistance among other things.
tBTC uses an innovation which is called a random beacon: it’s a decentralized random selection tool for selecting signers from a pool in a cryptographically secure and decentralized way. This beacon is designed in a way that cannot be gamed or manipulated. Moreover, signers must post a “bond” equal to 150% of the amount of BTC being deposited by the user to fulfill their role; this acts as collateral to ensure good behavior. If any of the signers wanted to “cheat” and steal the user’s BTC, the bond would be forfeit and the signer would lose more than they had gained through stealing. Besides, the bonded ETH is swapped for TBTC and can then in turn be redeemed for BTC by the user whose funds were stolen, making them whole.
Fully backed by BTC
Unlike many synthetic tokens in the market, TBTC is fully backed by Bitcoin at a rate of 1:1, which means that for every TBTC in circulation, there is always at least one BTC in value locked in the system. This should give token owners relief that they are not at risk of falling victim to a run on the asset. Additionally, since value is fungible across BTC, TBTC, and ETH, any BTC that might be lost to theft is more than compensated for by the guilty signer’s forfeited Ethereum.