Authors: @Ethan - Threshold Network Growth Coordinator & @citizen42 - Contributor to Threshold Network
Date: 23/12/2024
Summary
This proposal recommends the integration of tBTC, a decentralized Bitcoin-backed ERC-20 token into Instadapp’s Fluid on Ethereum. By listing tBTC as both a collateral and borrowable asset, Fluid can enhance its BTC liquidity offerings, provide a trust-minimized alternative to centralized BTC-pegged tokens and attract a broader user base seeking innovative Bitcoin-financialization (BitcoinFi) solutions.
Proposal
1. Asset Introduction
- tBTC Overview:
tBTC is a decentralized, 1:1 Bitcoin-backed token designed to enable BTC holders to engage with Ethereum’s DeFi ecosystem without relying on centralized custodians. Unlike other wrapped Bitcoin solutions, tBTC utilizes threshold cryptography and a decentralized network of nodes to secure Bitcoin deposits, ensuring a trustless and robust bridge between Bitcoin and Ethereum.
2. Integration Details
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Collateral Utilization: Enable users to deposit tBTC as collateral within Fluid, allowing them to borrow other assets against their BTC holdings.
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Borrowing Mechanism: Permit users to borrow tBTC, facilitating strategies such as yield farming, liquidity provision, and arbitrage.
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Proposed Markets:
- tBTC-WBTC/USDC
- tBTC-cbBTC/USDC
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Vault Parameters:
For both proposed markets, we recommend replicating the vault parameters used in current cbBTC markets on Fluid to ensure a cohesive integration with existing standards:
tBTC/USDC Vault Parameters:
- Collateral Factor (C.F.): 80%
- Liquidation Threshold (L.T.): 85%
- Max Liquidation Limit (L.M.L.): 90%
- Liquidation Penalty (L.P.): 3%
- Withdrawal Gap (W.G.): 5%
Supply Configuration:
- Class: 0 (Guardian enabled)
- Mode: 1 (with interest)
- Expand Percent: 25%
- Expand Duration: 12 hours
- Base Withdrawal Limit: $5M
Borrow Configuration:
- Class: 0 (Guardian enabled)
- Mode: 1 (with interest)
- Expand Percent: 20%
- Expand Duration: 12 hours
- Base Debt Ceiling: $7.5M
tBTC/cbBTC Vault Parameters:
- Collateral Factor (C.F.): 88%
- Liquidation Threshold (L.T.): 91%
- Max Liquidation Limit (L.M.L.): 94%
- Liquidation Penalty (L.P.): 2%
- Withdrawal Gap (W.G.): 5%
Supply Configuration:
- Class: 0 (Guardian enabled)
- Mode: 1 (with interest)
- Expand Percent: 25%
- Expand Duration: 12 hours
- Base Withdrawal Limit: $5M
Borrow Configuration:
- Class: 0 (Guardian enabled)
- Mode: 1 (with interest)
- Expand Percent: 20%
- Expand Duration: 12 hours
- Base Debt Ceiling: $7.5M
Motivation
Why tBTC?
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Strong Ecosystem Presence:
- TVL: tBTC TVL is sitting at ~500m TVL with the majority of this on Ethereum mainnet.
- Volume: tBTC’s main pool is the tBTC/WBTC pool on Curve Finance, this is often the top BTC performing pool by volume with 20m daily volume.
- DEX Presence: This same pool has 37m in TVL without any tBTC seed liquidity or incentives.
- Aave: tBTC is successfully integrated into Aave v3 Ethereum and rapidly reached its initial supply cap of 500 BTC within 72 hours prompting an increase to 1,100 BTC due to overwhelming demand to what is now 2200 tBTC, sitting at 140m USD TVL.
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Values:
tBTC provides users a fully decentralized, permissionless BTC bridge while ensuring scalability and cost-efficiency.
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Demonstrated Demand:
The rapid adoption of tBTC on platforms like Aave and its substantial market cap growth from underscore the strong market appetite for decentralized BTC liquidity.
Benefits to Instadapp Community
Enhanced Accessibility and Utility
Listing tBTC on Fluid Protocol will enable users to leverage their BTC in decentralized ways, increasing the utility and reach of Instadapp while reinforcing its commitment to trust-minimized finance.
Attracting New Users
By offering a decentralized BTC asset, Instadapp can attract Bitcoin holders seeking cost-effective and decentralized alternatives for borrowing, lending, and yield farming.
Strengthened Ecosystem
tBTC’s existing presence on Ethereum, Arbitrum and BitcoinFi platforms ensures a strong base of users familiar with the asset, which can drive higher liquidity and usage for Fluid Protocol.
Marketing and Collaboration Opportunities
Partnering with Threshold DAO opens the door to collaborative marketing initiatives, co-hosted campaigns and cross-community engagement to raise awareness and adoption of both Instadapp and tBTC.
Fee Generation
As you can see from tBTC’s market on Curve, we have some very strong volume and therefore fee generation for LPs and protocol alike.
Security Considerations
- Audits: tBTC has undergone comprehensive audits by leading security firms. All audit reports are available for public review.
- Decentralization and Redundancy: The protocol is trust-minimized, with BTC collateral secured through a decentralized network of nodes using threshold cryptography.
- Risk Mitigation: Conservative initial parameters (e.g., collateral factors and liquidation thresholds) and continuous monitoring can help mitigate risks related to volatility and liquidity.
Implementation Plan
- Risk Assessment: Work with Instadapp’s risk team to evaluate tBTC’s integration impact.
- Technical Integration: Collaborate with Instadapp developers to incorporate tBTC into Fluid Protocol’s infrastructure.
- Community Engagement: Host educational AMAs and provide comprehensive guides for users to familiarize themselves with tBTC’s features and benefits.
- Post-Launch Monitoring: Continuously monitor market performance and adjust parameters as needed to ensure protocol stability and optimal performance.
Conclusion
Listing tBTC on Fluid Protocol will enhance Instadapp’s position in DeFi by introducing a decentralized, Bitcoin-backed asset to its ecosystem. With proven demand, strong integrations and ongoing Layer 2 expansions, tBTC provides a robust and scalable solution for Bitcoin liquidity in DeFi. This proposal aligns with Instadapp’s mission to deliver trust-minimized and user-focused financial solutions.