Event: ETHDenver 2023
Summary:
After the crypto world was rocked with crisis after crisis in 2022, the need for truly decentralized infrastructure has never been more clear. Foremost among these, is a robust, decentralized, permissionless bridge for the premier crypto collateral: BTC. With the sudden emergency shutdown of renBTC due to control by Alameda, there is no permissionless way to use BTC in DeFi and billions of dollars are currently stranded. This is the story of how we built a solution, while never budging an inch on our commitment to self-sovereignty.
https://youtu.be/626BrCeoLhs?t=295
Full Transcript: (AI generated and could contain errors)
Matt Luongo
Hey, if you're here for the talk called the permissionless revolution, that title has been banned. I prefer tBTC v2 or How I Learned to Stop Worrying and Love the law of large numbers. That is Dr. Strangelove for anyone who's I don't know. Gen Z, I guess. So tBTC v2 and Bitcoin bridges. I've been working on this problem for a few years. And this is an Aetherium conference. So I guess I want to start with, why should anyone care about Bitcoin? Why would anyone want to bridge Bitcoin to Aetherium. So I like to show some version of this of this image, and it changes every year. You know, eath usually gets a little bigger every time I give this presentation, but you'll notice the one at the bottom that's not labeled, that's actually Papa Bitcoin. So we have baby DeFi up here. Ethereum, Papa Bitcoin. So if we want to Keep growing DeFi and Ethereum, we need good collateral. And one way to do that is to tokenize real estate, or cash flow, or do all this weird stuff that eventually the federal government is going to crack down on, right. The other way is to go for the collateral that we already have pristine collateral, and that's Bitcoin. So it doesn't really matter if you agree with me, because the market agrees with me. So DeFi, Lama will show you two of the top 10 bridges right now. That's W BTC. And I don't know a single person who's used this project, but h BTC. So this project that I don't know, anyone who's used is the sixth largest bridge on DeFi llama. So hopefully, it's clear that bridging Bitcoin matters. And it would be nice if we could do it in a way that was, I don't know, in line with our values safe. So I'm going to take you guys through a quick a quick history of how Bitcoin bridges have worked so far on Ethereum, and what we think is next at Threshold, please forgive the bridge type to this bridge type one. So the first we're gonna talk about is trusted parties. I don't know if you guys have used a trusted party bridge. But if you have, I'm so sorry, because you're probably poor now. W BTC has stood the test of time, but a number of others haven't. The largest that we've just seen is written wBTC. If you have renBTC, please, please redeem it. And for those of you who might think that RAND or some of these other projects have said that they were decentralized, they were different. There's a really easy way to kind of show you a brief history of this asset. So I'll read it 2021 The renBTC team was acquired by Alameda a big win for the team 2022 things are not looking good for Alameda. And then sort of like the the final Oh no, the red team is telling us we all have to move our Bitcoin because Alameda is bankrupt. So look, I don't need to dance on this team's grave. They shipped a product that a lot of us used in DeFi. But it was pretty clear lesson here. We all just got stomped by FTX or Ronin or one of these other million centralized bridges, or exchanges. So maybe we can learn something. So my goal for the rest of this talk is to talk about a censorship resistant, fully Bitcoin backed ERC 20 token. So we've tried this. So let's talk a bit about it. Another way to go at this problem is called an what I'm calling an economically secure bridge. So back in 2020, we launched one of these tBTC v1. But there are other projects with strong teams that are that are going after it interlay wBTC is on polka dot stacks. wBTC is on a weird chain that no one uses but you might you might hear a little bit about it. But the basic idea is this right? You want to bridge Bitcoin, which is a fairly the oldest blockchain, you want to bridge it to something like Aetherium so Aetherium can read Bitcoin state, it's easy. Aetherium has smart contracts that Bitcoin cannot read Ethereum state. So you can go one way on this bridge, but not the other. So to solve that, what we have to do is we have to take extra collateral. So if you can imagine I don't know you want your friend to hold 10 bucks for you. And they don't have a great history of keeping track your money. Okay, let's make it a million bucks like Until 10 bucks didn't get you all excited a million dollars, you're gonna give this for two years, a million dollars, it'd be really nice if you could have something of theirs. That's worth more than that, right? So in tBTC, v1, which is a system of these, I know best, what we did was we said, Okay, you're gonna hold Bitcoin for us signers, and we're gonna hold your eath. What was great about that is you can move Bitcoin over to Aetherium. And then you knew the signers were going to be honest, because they would lose a ton of eath. If they weren't, it would just be very foolish, right. So it was great protection for depositors. It was a nice, safe kind of self insured bridge. But it wasn't the best, we have learned some things. And we learned them in a very painful way. The biggest is that a system like this doesn't scale. So if a bridge for every dollar you put in, it needs an extra dollar, $50.50 and collateral, very quickly, you're gonna start racking up the numbers. So we grew this thing to 300 million in TVL, which today is great, because we're in like a down cycle. But, you know, our goal isn't 300 million TVL. With the Bitcoin bridge, it's 10 to 20% of the Bitcoin supply on Ethereum. So this 300 million is not going to cut it. In particular, if you have something this collateral inefficient, and you're competing, with eath, to staking, it's just not it's not a bridge, that's going to work. So you don't have to take my word for it. Watch interlay, wBTC and Staxx, BTC. Over the next couple of years, I imagine they're gonna have to change their models, it just it doesn't work on a chain with DeFi. But obviously, I'm setting up the problem so we can maybe solve it. So this new model that we're working on, and then I'll tell you a bit about I'm calling probabilistic security. And the idea is, actually, if you're if you're into consensus mechanisms, or sort of like PRE cryptocurrency, cryptography, it's not that weird an idea. But sometimes at events like this, it comes over strange. So the idea is to take advantage of something called an honest majority. So what an honest majority means is, we have about half here, if I if I were to start picking from y'all, and I had to pick 10 of you. And I split my million dollars across 10 of you, how confident Am I that I would get that money back? So what I can tell you from the literature, and I also have some pretty strong evidence on Main net is I'll probably get it back. There are situations where I won't. A lot of people were worried about Bogota, obviously, that was nonsense. But you know, you could you could imagine going someplace where a bunch of people wanted to steal your money. But for the most part, when he sampled people, they're not actively malicious. They just want to follow the rules and and make some money. So the first thing we need is a bunch of people who want to follow the rules and make some money. I'm calling this group, well distributed stakers. But just imagine it's like, at least 100 people. And you want people who are economically distinct. So you don't want a Sybil attack here, this has to be a civil resistant group, you need to be very confident that they're not just like one person with 100 wallets. Then the next thing you need, and this has historically been hard on Aetherium is a random beacon. So it turns out we have one, we built one, using BLS Threshold signatures, it's been on Main net for quite some time. And here's the cool thing that you can do with these two. So you can do the same Jelly Bean picking game that I just did with all of you, right? If you have, let's say 60, blue jellybeans and 40 Red. And if you have a random beacon, you can start picking from that pot. And if you remember from high school, you can pick you can choose with replacement or without replacement, it actually doesn't matter. There's an incredibly low likelihood that you're gonna get 51 100 out of a 6040 group that's malicious. So this is the big sticking point with this entire mechanism. And folks struggle with it, because we're constantly building for what if, you know, users did the worst possible thing? And we still should, it's just that most users won't do the worst possible thing. And then you need one more piece to make this functional. And that's SPV proofs. So earlier, I said it's quite easy to read Bitcoin from Ethereum. So this is a Satoshi era idea. So if you guys are interested in googling this it's simple payment verification. You basically just have Ethereum read block headers, I say read someone delivers block headers to Ethereum from Bitcoin, and it verifies the work. It does some hashes. It's not too bad. It's expensive for end users gas wise, but uh, it works and it's worked for years on tBTC, v1. But you take all of these things together. And suddenly you can create an entirely different kind of bridge. So instead of asking people to put down a whole bunch of eath, to even participate in this system, you just ask them to put in one work token, it's very simple. Instead of, you know, requiring people to Keep a BTC eath position, suddenly, they just have to manage a single a single asset. But the most important thing here, and the difference between tBTC, v1 and tBTC v2, is that in a system like this, there is never an opportunity for a smart contract to tell you, we don't have capacity. That's not an idea. In a bridge like this, this can in 21 million wBTC, can be committed to something like this. And the question you just have to ask yourself is, how much money does it take for all of those blue jelly beans to turn red? So we built this thing. And one of the biggest learnings from tBTC, v1, and if we have mechanism designers here, who are interested in governance minimization, please hear this. One of the biggest things we learned from tBTC v1, is that immutable contracts are a bitch, y'all. So we shipped this thing, and there was very little governance, nothing could be upgraded. It was wonderful. We did all the audits, we pile on the security. But at the end of the day, if you're shipping something that doesn't have product market fit, if it's too expensive to use, it doesn't matter that you minimize governance. Ultimately, it's it's a it's a, what is it? It's a doorstop, you know, it's nothing. So this time around, what we've done is we focused on shipping components to main net with real money and parts. It's not progressive decentralization. Custody is decentralized now. But for example, you can't take Bitcoin out of the bridge we have on Main net, which is a pretty big, pretty big missing feature. So this is live today. And what I want to do is invite Al, I understand this is an Etherium conference. And it's possible some of you have never used Bitcoin, maybe even most of you, I don't use it that often anymore. I just hold it on a ledger. But if you are holding Bitcoin on a ledger, please, I would love your feedback on tBTC. You can go and you can mint today, I hear that the DAO is planning on raining tokens on people soon. So I'm excited to start seeing the incentives flow. It's growing at a nice pace. I thought y'all might appreciate our latest depositor who decided decided to me him up our dune dashboard with their 109.7 BTC deposit. But yeah, it's growing, I would invite all you guys to try it. And then I guess, I guess I just want to say thanks to our partners who have lunch with us, I don't really know why I put that slide. And let's Keep going up. So what's next? So we have a Bitcoin bridge, it's decentralized. You can't get Bitcoin out of it yet, which for some people is a huge deal. And for others, they don't really plan on going back to the Bitcoin chain anyway, right? So first, obviously, you need to be able to get Bitcoin out. So that'll be happening, give it maybe two months, you'll see it on testnet sooner. But then things get really fun. Because then we have this opportunity to be Bitcoin everywhere. So maybe instead of Bitcoin just sliding into irrelevance, which I know if David Hoffman is in the house is the stance right? Maybe what we can do is we can make sure that wherever you are, you can use your Bitcoin you can buy sell, traded, but mostly you can borrow against it. I don't know. Maybe you want to go long. eath I don't know you, do you. But the plan is have that live on optimism and Arbitron. Next, followed by everywhere. But don't worry, we're not just about DeFi here, because I don't know if y'all have heard, but Bitcoin has NF T's now. One of my co workers the other day saw ordinals and she said Bitcoiners are so funny. They copied Ethereum NF Ts, and now they're acting like they discovered fire. And I told her, and fortunately, well fortunately, I guess for my own pride, actually, Bitcoin has had NFT since between 2011 and 2014. Okay, all based on how you how you wanted to find NFT. But things are getting really fun on Bitcoin again, surprisingly, I don't know if you guys been following ordinals, but I would check it out. What matters for us though, is this same bridge that we built can also be an orderable send ft bridge. So suddenly, with remarkably little code, you can buy sell and trade inscriptions from Bitcoin directly on OAT and C. And then finally, and this is the one that I'm the most excited about, but the least involved with, why would you ever want to use your Bitcoin on Aetherium and I Keep saying collateral collateral for what? So the Threshold DAO has been working on a project called Threshold USD and And if you guys are tired of hearing about stable coins getting sent censored denialists blacklists people losing their money, this is the project for you. And the basic idea is its liquidity. But its liquidity with only eath and tBTC, with only pristine collateral. So I'm really excited to see this rollout. I'm remarkably uninvolved in it. So if you have questions, I'll invite you back to the booth later. But I think what we can do is we can take this whole generation of Bitcoiners who have never played with Aetherium, or, or any of the other chains that we use daily, we can bring them over, we can help them get USDA loans and, and really, you know, take them along for the ride. So I invite all of you to join us. I want you to mint, that would be cool. But if you're not convinced yet, we have a booth right over there under Threshold, which is the DAO and the work token behind tBTC also check it out we got some early Reddit Bitcoin vibes y'all. So please come check out some of these limited tBTC magic internet money shirts that we'd love to hand out. And I'm told we're also giving away Bitcoin. I can neither confirm nor deny this, but it landed in slides. So it sounds like also there's free money please come see us at the booth and yeah, if you remember anything, just let's like make love not war, invite our Bitcoin or friends over and DeFi with us. Thanks you