Tuesday, 18 October 2022

Summary: Is BTC.b the Key to Enabling BTC DeFi?

BTC.b is a recently added BTC token native to the Avalanche network.

In episode 23 of the DeFi podcast, hosts JF Saine and Jared M welcome Michelle Tian, a product manager at Ava Labs, who has a background in strategy, credit, and structured products. In this podcast, she explains what having native BTC can enable on the AVAX network.

Read our notes below to learn more.

What is BTC.b?

Native BTC that has been bridged from BTC network to AVAX network.
BTC handles UTXOs (condition specifying currency remaining after a transaction is executed) which is why BTC wallets are HD (hierarchical deteriministic).
AVAX core wallet has simplified the process so that the transaction is sent into one wallet for the user, rather than multiple as would be the case on a bitcoin wallet.
BTC bridging only available on core wallet.

Intel SGX

Intel SGX is hardware technology that creates trusted execution environments.
These execution environments function off-chain, preventing other parties from having access to minting or burning of tokens.
Instead, 6 of 8 bridge nodes are needed to approve any transaction.
AVAX uses collateral checks so that more tokens can’t be minted than what is available on the AVAX bridge itself.

Warden System

Bridge has 8 nodes run by wardens including: Ankr, Blockdaemon, Chainstack, Protofire, Avascan, Bware Labs, Halborn, and Ava Labs.
6 of 8 groups have to agree on a transaction for the smart contract to actually mint or burn tokens.
These independent companies listen for incoming transactions to validate and verify so they can send to off-chain enclave.

AVAX Bridge

Most bridges are very smart contract reliant.
AVAX bridge has very limited smart contract use on AVAX side, none on ETH side.
AVAX bridge contracts similar to Open Zepplin ERC-20 smart contracts.
4 audits have been completed in the year since the bridge has been around.
Security features include bridge monitoring, collateral checks, 24-7 on call engineering support, pagerduty, and Yubikey 2FA.
Team has also implemented a bug bounty program.
Many bridge exploits can be traced back to 1 operator being compromised.
Trail of Bits recent research claims that ETH network can be compromised with 2 comprimised operators, BTC with 4.
Bridge has very low latency, due to using the Avalanche consensus algorithm.
Bridge UI shows different stages of bridging process, is transparent.

BTC.b vs BTC Lightning

Lightning uses state channels which allows fast and cheap off-chain payments.
Lightning network abstracts difficult transactions onto a Layer 2 ledger.
BTC.b allows many DeFi opportunities for trading, borrowing, and lending.
BTC.b TVL is ~$60m compared to BTC Lightning Network TVL ~$100m.
JF
Moremoney (AVAX native borrowing protocol) sees increasing demand for BTC.b integrations.

BTC.b vs WBTC

WBTC (wrapped BTC) is centralized, users have to submit request to 1 of 17 merchants who can process minting or redemption.
The BTC is held in custody in exchange for WBTC.
BTC.b minting is unrestricted, can be done at any time.
BTC.b require flat $3 fee to mint compared to WBTC which involves merchant and custodian fees which scale with transaction size.
Avalanche doesn’t profit from this fee, it’s just used to cover transaction costs.
BTC.b is more accessible as it doesn’t need KYC or AML like WBTC does.
Ava Labs wants to grow the BTC ecosystem on AVAX.

BTC.b Growth

BTC.b was recently added to Aave and Benqi (borrowing and lending dApps).
WBTC.e (AVAX native WBTC) has around ~$110m TVL, which shows more growth for BTC.b

AVAX Network TVL is ~$1.5 billion, acquiring 1% of BTC in BTC.b would triple AVAX Network TVL.

Jared

BTC.b is much closer to holding actual BTC than WBTC as it’s not centralized and can be held in self-custody.

Subnets

Team is working on cross-subnet communication which would open up many new use cases with arbitrary data passing.
This involves communication between subnets and AVAX C-Chain (EVM compatible chain).
Team will be building a VM (virtual machine) library which will enable subnets to add code easily with very little technical activity, could be as simple as 3 command lines.
This enables tokens, NFTs, governance information to be relayed across bridges.
This could bring more dApps and functionality into the AVAX ecosystem.

Jared