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Examining the Potential of tBTC: Trustless Bitcoin in Ethereum DeFi

Tokenize useful things to be even more useful, that’s the Ethereum way. It’s this rationale — and lots of recent work around it — that’s given rise to the popularity of Ethereum stablecoins, which are pegged to major currencies to provide more stable stores of value within the cryptoeconomy.

With that said, though pegged tokens don’t inherently have to avoid volatility — what’s ultimately important is that their respective values remain stably linked to their underlying asset or assets. Ethereum makes that kind of reliable linkage possible, whether you’re talking about tokenized real estate, tokenized bitcoin, or beyond.

Speaking of tokenized bitcoin, it’s one arena in the Ethereum ecosystem that’s been relatively under-explored in recent years. There’s the Wrapped Bitcoin (WBTC) token of course, but it’s been a fairly lonely effort of note to date.

That’s why heads in the space turned this week when Matt Luongo, the chief executive officer of Thesis, revealed that his company’s Keep project and others had launched tBTC on Ethereum’s Ropsten testnet.

Enter tBTC


On February 13th, Luongo took to Twitter to confirm that builders could now start experimenting with a testnet version of tBTC. To help with such tinkerings, Luongo published the project’s GitHub source code as well as a reference dApp to illustrate the system’s early possibilities.

Bitcoin on Ethereum via tBTC
Bitcoin on Ethereum via tBTC

Zooming in on its technical details shows there’s lots happening under tBTC’s hood, but its model is relatively straightforward to explain.

  • A user first requests the tBTC system to provide a bitcoin deposit address, which is provided by a randomized set of signers.
  • The user then deposits BTC into that address and receives an equivalent amount of tBTC, an ERC20 token on Ethereum, in return.
  • A redemption transaction can be used later for retrieving the underlying funds.

The purpose of this model is to ensure bitcoin’s key strength, per the tBTC project’s specification:

“The goal of tBTC is the creation an ERC-20 token that maintains the most important property of Bitcoin — its status as “hard money” … The ability to trade scrip for its backing deposit freely is what distinguishes a backed currency from fiat money. The supply of tBTC is always backed by an equal number of reserved BTC. This means for every token in  circulation, 1 BTC has been removed from circulation.”

What’s the Difference Between tBTC and WBTC?

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WBTC is another tokenized bitcoin project, but it’s notably custodial in nature: the popular cryptocurrency custodian BitGo is responsible for securing the system’s foundational BTC trove.

Why tBTC is so interesting, then, is because it is trustless and thus non-custodial: you don’t have to ask any company’s permission or trust any firm to mint tBTC.

In this sense, tBTC is akin to the Dai stablecoin, which is decentralized, while WBTC is akin to USDC, a stablecoin that has certain trust assumptions in being backed by Circle, the former owners of Poloniex.

None of this is to say that BitGo isn’t reliable or trustworthy. Rather, it’s simply a much more powerful and open dynamic for users to be able to mint tokenized bitcoin anywhere, anytime, and without needing trust or permission. Talk about a fertile ground for experimentation!

More DeFi Options for Everyone

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There’s certainly room in DeFi for both tBTC and WBTC. Some users may prefer knowing their bitcoin is secured by BitGo, while others will vastly prefer tBTC’s more decentralized solution.

DeFi’s already along a spectrum too, with some projects like Uniswap already totally decentralized while others have some custodial elements. In any case, tBTC will be a welcome addition in the arena as a another respectable option for users.

Moreover, tBTC is hardly just for Ethereum aficionados. What’s great about tBTC is that it opens up DeFi’s various yield possibilities and innovations to Bitcoiners of all stripes, like users who are mainly interested or mostly know about Bitcoin but who are keen to put their BTC to work in decentralized fashion in the cryptoeconomy.

Now Possible: Long BTC with tBTC in DeFi

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The crypto lending sector has been a major hit in the fledgling DeFi ecosystem. Projects like MakerDAO, Compound, Aave, and more let users readily draw out loans against crypto collateral. With tBTC, a trustless version of bitcoin is now an option for such collateral.

6/ Have Bitcoin? tBTC means you can get a USD loan with @MakerDAO, earn with @compoundfinance, trade with Fulcrum @bZxHQ and @dydxprotocol, be your own bank with @Dharma_HQ, @ArgentHQ, and @AaveAave, and HODL together with @PoolTogether_ ????

— Matt Luongo ✜ (@mhluongo) February 14, 2020

Consider this scenario: you want to long bitcoin without dipping into your cash reserves, so you tokenize some bitcoin via tBTC, open up a Dai loan on Compound, and then use that Dai to buy more bitcoin on the open market. And it’s but one example of how Bitcoiners can add tBTC to their financial stack.

Uniswap, OpenSea, Tornado, DAOs, Oh My!


DeFi isn’t all about lending. With tBTC, you can become a liquidity provider on the Uniswap decentralized exchange and earn money for servicing traders. Or if you’re a content creator, you can sell your digital goods on the OpenSea marketplace and charge buyers in tBTC.

Another possibility one day? Making anonymous tBTC payments through the Ethereum ecosystem’s Tornado privacy tool. Or what about opening a decentralized autonomous organization (DAO) that mainly uses tBTC as its currency of choice?

In many ways, the possibilities ahead are limited mainly by our imaginations.

8/ There's your next project @gavinandresen, you're welcome ????https://t.co/nZpEPaTdPi

— Matt Luongo ✜ (@mhluongo) February 14, 2020

What’s Next?

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tBTC is still a young project, so there’s more work to do from here before the token and its supporting infrastructure can be released into the wild. In his aforementioned Twitter thread, Thesis CEO Matt Luongo noted that an audit of tBTC’s code was still underway and that there would be a few more testnet releases before the project hit the Ethereum mainnet.

4/ This is the first of a few planned releases leading up to mainnet- we're still under audit with @consensysaudits and doing some housekeeping. While not final, this is a huge milestone.

— Matt Luongo ✜ (@mhluongo) February 14, 2020

Even still, tBTC is poised to be rolled out later this year, and developers can already start wrapping their heads around its parts.

“While the code undergoes audit and further testing, development is now public on GitHub. That means you can begin building Bitcoin experiences on DeFi apps like Compound and Uniswap, today,” the tBTC team noted on the news.

Let the Building Begin

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As tBTC continues to progress to maturity, its future possibilities are being started in the here and now. For example, DTC Capital maestro Spencer Noon hailed tBTC’s release on Ropsten a “major milestone” and called on builders at the ETH Denver conference to focus on the project:

“I would like to see hackers experiment with this new DeFi primitive, because there are a number of exciting new applications that have the potential to be unlocked by it. Bitcoin is an absolute dream for DeFi builders because its $180 billion+ marketcap represents a massive new addressable market of collateral.”

The wait may not be long, either. Luongo and his colleagues have sponsored a bounty alongside the Compound dApp team for building “the killer Bitcoin DeFi app.”


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Not everyone thinks tokenized bitcoin is a big deal in the cryptoeconomy. But there are plenty of folks who recognize in tBTC a range of trustless DeFi possibilities that aren’t possible in the same way through a more custodial project like WBTC.

It’s also interesting to consider whether tBTC could end up bridging some of the cultural divide between the Bitcoin and Ethereum communities by bridging the digital divide between them. That remains to be seen, but love it or hate it, tBTC’s early form is usable now and its more mature rendition should come to win over a non-trivial amount of users.


William M. Peaster is a professional writer and editor who specializes in the Ethereum, Dai, and Bitcoin beats in the cryptoeconomy. He's appeared in Blockonomi, Binance Academy, Bitsonline, and more. He enjoys tracking smart contracts, DAOs, dApps, and the Lightning Network. He's learning Solidity, too! Contact him on Telegram at @wmpeaster


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