[Discussion] - Open mBTC / tBTC v2 Pool

This is proposal is co-authored by @Eastban.

Summary

  • Keep and NuCypher recently merged networks to create Threshold network
  • tBTC v2 is launching on the Threshold network
  • Open new mBTC / tBTC v2 pool on mStable
  • Switch MTA incentives from tBTC v1 pool to new tBTC v2 pool
  • Open a future DAO proposal on Threshold network to add extra incentives in T to the new pool
  • Set up a Threshold x mStable community AMA to discuss tBTC v2 and this proposal

Abstract

Background on tBTC:

  • tBTC is a fully trustless, decentralized and censorship-resistant asset bridge between bitcoin and ethereum blockchains. It is built to give Bitcoin the capabilities of Ethereum and bring additional collateral to DeFi. The asset is an ERC-20 pegged to Bitcoin, it can be minted or redeemed for BTC by anyone and without intermediaries. Instead of relying on a single custodian like wBTC or federation of custodians like Liquid, tBTC is supported by a decentralized bonded multi-federated peg model using ECDSA technology. Being alive and without incidents for a whole year, reassures that in spite of being a cornerstone of advanced cryptographic achievements TBTC works as intended.

  • It’s only drawback in v1 proved to be its scalability. Capital intensity imposed restrictions on the system’s ability to grow beyond a certain point.

  • tBTC v2 addresses this drawback while respecting, in fact enhancing the trustless, decentralized features of v1.

    • To overcome capital inefficiencies of v1 an assumption is introduced in v2 that’s common in other areas of cryptography (bitcoin and ethereum blockchains e.g.) — an honest majority assumption.
    • Based on that, tBTC is being re-architected in the following way:
    • Instead of 3-of-3 wallets, each wallet will have sets of at least 100 signers with a threshold of 51, picked randomly from a pool of ~2000 signers active in Threshold Network.
    • Instead of one wallet per deposit, the system generates a new wallet roughly every week.
    • Stakers no longer putting down KEEP and ETH
    • These actions provide a way to greatly decrease the collateral ratio, and capital need, of the staking assets but it’s also not risk-free. In the (statistically unlikely) event enough signers in a set collude, there’s an additional insurance backstop called Coverage Pools.
    • Coverage pools consist of cryptoassets that are deposited by tokenholders to insure against fraud while earning yield.
  • This dual approach overcomes scalability issues and capital constraints of v1, and while preserving censorship-resistant and trustlessness it will allow v2 become an immensely scalable asset bridge.

  • In short, v2 makes TBTC a viable competitor to wBTC on an economic basis, but entirely permissionless and decentralized.

Background on Threshold Network:

  • The tBTC system runs (on Keep Network and soon) on Threshold Network, which is the upgraded result of Keep Network’s merge with NuCypher network.
  • Keep Network and NuCypher have been independently developing privacy preserving networks for the last years and are combining their collective efforts with the codename KEaNU merger, now called Threshold Network. The resulting merged network comprehends ~2000 independent nodes and strengths the utility and resiliency of both platforms, while creating an anchor in the sector of private, cross-chain value bridges supported by threshold cryptography.

Proposal main topics

These are the five topics included in the present proposal which we want to discuss with the mStable community.

  1. Upgrade/Migrate current tBTC/mBTC fpool to tBTC v2/mBTC fpool
  • Right now we’re deploying v2 on silent mode, only our communities know about this launch right now.
  • Offering mStable pool as part of this dark launch should attract far more liquidity.
  1. Switch MTA incentives from old v1 pool to new v2 pool
  2. Open a future DAO proposal on Threshold network to add extra incentives in T to the new v2 pool.
  3. Set up a Threshold x mStable community AMA to discuss tBTC v2 and how our communities can work together on the dark launch.
  4. Explore joint marketing and further community collaboration opportunities such as adding mStable to the coverage pool v2 asset allow list

Benefits

  • One of the first protocols to integrate tBTC v2 meaning more of the tBTC v2 liquidity will land in mStable
  • Extra incentives from T DAO
  • Continued collaboration opportunities in the future
  • Mutual marketing

Risks

  • Handling the tBTC v1 to tBTC v2 pool migration
5 Likes

Hi Will, and welcome to the community! :))

Really excited to see that a lot of the shortcomings in tBTC have been addressed in this new release, and that two super interesting protocols have found their way together. I think all of the above makes plenty of sense, and strongly feel tBTC being the most decentralized Bitcoin derivative attracts the right eyes to both protocols here.

With the release of the new staking v2 contracts the dev team has been working on, and a gauge-like system, it should be relatively easy to direct the correct incentives towards the newly deployed fpool, especially when people will use this one moving forward.

Right at this moment, it might not be the easiest to get them to have a look at this thread, as they all seem very busy getting the final touches on the major release at the end of this month.

One question that immediately came up for me would be how the old tBTC ERC20 would be handled. I assume this is all staying the same, and the token simply got upgraded under the hood, and no further migration is necessary, other than migrating into the new pool, correct?

One more technical question I’d have is that since stakers no longer put down KEEP and ETH, do they only put down T, or how exactly does this work now? I recall another issue back in the day was that each signature was posted directly on the blockchain, resulting in quite outrageous gas costs for node operators. Has this also been somewhat addressed with this new release?

Also very excited about point 5, which I think will form another symbiotic relationship between the two protocols and could really increase the use case for MTA (and perhaps other mAssets in the future?).

Do you already have a timeline on when v2 is going to be fully deployed, or has this already happened and is basically ready? Being a first mover for this kind of liquidity seems excellent for mStable, and I’d hate to see the opportunity get lost, so thank you for reaching out here!

Definitely very happy to see the project move forward in this way, and hoping that this will find traction in the community to be brought forward sooner rather than later! :innocent:

Great to have you here with us, and stoked to see this progress!

2 Likes

Really excited about this. I think it should be a nobrainer to upgrade the feeder pool to the newest tBTC token and then cotinue the MTA rewards. Also really keen to have dual-incentives.

Would also be interested in hearing when you going to deploy v2 or has it already been done so and what migration strategy would you propose?

2 Likes

Exciting! I agree it’s compelling to upgrade given tBTC v2. From the perspective of a participant in the pool, obviously I’d move out of a pool to one that has the incentives vs. one that does not.

In some jurisdictions, such as my own, it is a taxable event to exit a pool and another to enter a pool. I would have liked to see a path to migrate directly from one pool to another (I have similar feedback for staking migration by the way).

Of course I knew going in that I would need to withdraw at some point, but the timing of it also impacts taxation and so I would have liked to withdraw for example in January next year and handle any gains (difference in price of BTC between when I entered and when I left) the following year.

With that said, I realize that dev resources are limited and that this path doesn’t already exist and would be net new work. I hope we can evaluate if there is merits to this direct migration proposal and if and when it would make sense to implement such a path for this use case or others that will come in the future.

1 Like
  1. tBTC v2 is a new token with a new token contact address. There is currently a ‘vending machine’ contract where you can upgrade v1 tokens to v2 tokens.

So I imagine the tokens would have to be withdrawn from the pool, upgraded v1 to v2, and be added to the new pool.

  1. yeah so holders of KEEP and NU can wrap their tokens to T tokens, the currency of the new ‘Threshold Network’. Node operators put down their stake in T, and other than that no capital indeed.

There will also be ‘adapter contracts’ to allow holders of KEEP and NU to stake on Threshold Network through adapters (without wrapping to T). This is for example for vested tokens, or people who remain staking on both existing as well as the ene network.

It’s expected that the minting fees will be significantly lower in v2 than in v1, but details tba. I think this was a bigger concern in v1 compared to node operator gas costs.
One major improvement for node operators besides no longer putting down collateral is much less active deposit c-ratio management. This is were a significant portion of the cost in v1 were. Also the significant larger signer group will make the system more forgiving for node time-outs, which will also reduce node operator cost.

Besides the node operators - signers and their stake, there will be ‘coverage pools’. These are pools of passive capital that anyone can provide funds too and in return earn rewards. These coverage pools function as an insurance fund.

There’s some infographics on this but not sure if it’s allowed to add these here.

5 Likes

I think this proposal makes a lot of sense as the future is in v2, and having it listed early would be a win win for both communities.

Also stoked about potential future further collaborations!:raised_hands:

6 Likes

I wonder if late withdrawers from the v1 mBTC/tBTC pool will be panelized the later they withdraw. As you know, penalty pricing applies depending on which asset is withdrawn.

Assuming most would withdraw in mBTC or other basket assets and avoid withdrawing in tBTC. That would leave a large amount of tBTC relative to the other basket mBTC, and would mean that penalty withdrawal pricing would go up for those wanting to withdraw mBTC as an example.

At least that’s my understanding, does this seem right?

I would almost rather see the entire pool’s tBTC get upgraded vs. having individual pool depositors upgrade each their tBTC to the v2.

1 Like

Yeah, I understand what you mean. Unfortunately, I don’t think the smart contracts would support that. mStable should not have that kind of control over users assets. That would mean the depositors could lose custody over their own assets.

Regarding the withdrawal penalty: You could simply withdraw both assets and get no penalty, then migrate to the new tBTC contract and deposit both again. This would not affect the basket at all.

5 Likes

Makes sense, I appreciate the reply.

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I agree that upgrading and changing the rewards is necessary since the tbtc v1 pool will likely drop in volume sooner rather than later and this will be a good way to share momentum from the tbtc launch.

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After reading this proposal. I do believe having incentives for people to transfer from v1 to v2 is great. It will have more people transfering over from the start and not being a slow process.

tBtc v2 being scalable and showing the benefits will also help migrate people over

3 Likes

I fully support tBTC v2 and am eager for a truly decentralized bitcoin bridge that can bring defi and Bitcoin maximalist together. I believe early adoption by mstable would be an incredible opportunity for everyone all around.

3 Likes

Thanks for the great response, seems like a no-brainer to me then to get this moved forward to a more formal proposal in the coming weeks after our staking contract upgrade has been released, as the devs probably will be super busy until then to tackle this.

Perhaps quite a bit of work can be frontloaded and taken off their shoulders by helping out with the MIP specifications?

2 Likes