Bitcoin is becoming increasingly popular in Decentralized Finance (Defi). This is mainly due to the status of BTC and its relevance to the entire crypto space industry. However, since Defi mainly runs on the Ethereum blockchain, Bitcoin can only be used in the form of “promissory bills” (derivatives or synthesized assets).
To use the Bitcoins in the form of derivatives on the Ethereum blockchain, tokens deposited with real BTC must be issued. We are talking about the most popular BTC image on Ethereum — WBTC from BitGo.
But until now, there has been a lack of transparency. There was concern that more derivatives were being issued than are covered by Bitcoin.
That should now be over. The BitGo crypto custody service and Chainlink have now joined forces to verify the actual stock of genuine Bitcoin.
Chainlink’s decentralized Oracle should help BitGo to gain even more trust. Currently, you have to give Bitcoin into the other hands to get a BTC derivative on the Ethereum blockchain. A decentralized verification would be more than helpful at this point.
Since Bitcoin is also about “don’t trust, verify,” this mechanism does not really fit into the basic construct of BTC.
Nevertheless, the community should be convinced with additional transparency to transfer their BTC to the ETH Blockchain to participate in the flourishing Defi market.
We are confident that Chainlink will provide WBTC users with a reliable, demand-oriented source of collateral information and an additional level of transparency for tracking WBTC reserves.
Bitcoin for Ethereum and Defi becomes increasingly important.
WBTC is an ERC20 token, which was introduced in January 2019 and fully reflected Bitcoin’s value.
It has taken the Defi market by storm in recent months, with total market capitalization only recently exceeding USD 1 billion.
It has now eclipsed the Lightning Network’s capacity and consolidated Ethereum’s status as the leading Layer 2 solution for Bitcoin. At least for now.
Unlike Bitcoin, the WBTC is fully centralized. BitGo itself manages its custody.
Although BitGo is a highly respected company with an insurance fund of USD 100 million, it remains a centralized factor to rely on. So to bring some decentralization to this construct, Chainlink comes into play with its Oracles.
Proof of Reserve allows for decentralized and trust-minimized auditing. As the founder of Chainlink, Sergey Nazarov, noted, the technology makes collateral “bulletproof”:
I think the concept of “proof of reserve” is generally about proving that an underlying asset is somewhere in a certain state. And this proof is actually very fundamental to how financial systems work.
WBTC is not the only synthetic version of Bitcoin plagued by trust issues. Even its current main competitor, renBTC, has secured all genuine Bitcoin in just one address. This does not do justice to the central claim.
Last week the decentralized tBTC protocol developed by Thesis experienced a comeback after the catastrophic launch of its mainnet. The mainnet was only online for two days before it had to be shut down due to a critical error in May.
We are curious if cooperation with Chainlink and BitGo will lead to a satisfying result. After all, Defi will not be able to survive in the long run without Bitcoin.
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