February 23, 2023: Ordinal Multiplication 🌉💸
Is $BTC better off on Bitcoin or Ethereum?
The closure of the renBTC bridge signified the formal end of the first chapter of $BTC on Ethereum. Up until 2022, the Bitcoin application stack was sort of a ghost town. As a result, a fair amount of BT 0.00%↑ C wandered onto Ethereum in search of DeFi yields.
What does chapter two have in store for Bitcoin DeFi?
As it stands, wrapped Bitcoin remains a core building block of DeFi on Ethereum, along with $ETH and dollarcoins. Bitcoin constitutes 14% of Ethereum DeFi, almost entirely WBTC. WBTC has been resilient through the past few turbulent years. Though as a custodial bridge, it will naturally repulse some percentage of Bitcoin’s users. The most diehard of Bitcoin purists may never bridge, although some circumstantial evidence suggests this is a small but loud minority.
On Curve, the contours of the next generation of Bitcoin on Ethereum are evolving in realtime. Since renBTC closed its bridge, Curve reshuffled nearly all of its Bitcoin liquidity. Curve launched an sBTC / WBTC base pool and refilled about $50MM worth of Bitcoin, earning emissions of up to 6%.
Two notable developments emerged over the past month for wrapped Bitcoin on Ethereum. Threshold Network’s $tBTC v2 launched, a fast-growing Bitcoin bridge strongly aligned with the Bitcoin community’s core values. And BadgerDAO yesterday announced their plans for a no-fee $BTC synthetic backed by $ETH LSDs.
Yet the emergence of NFTs on Bitcoin (called “ordinals”) also suggests $BTC could simply remain on Bitcoin this cycle, this time having something to do on-chain other than sit and HODL.
Which way, Bitcoiners? Bridge to Ethereum? Or see what happens on Bitcoin?
$tBTC
Version 2 of Threshold Network’s tBTC launched this month to great success.
As a more trustless bridge alternative than $WBTC, it’s particularly opportune timing to launch in the wake of the $renBTC bridge closing. The team put together a helpful Dune dashboard, which tracks the destination for the 300+ $BTC which have already tried the bridge successfully.
The $tBTC network is secured by a number of node operators who stake the protocol’s $T token in order to operate a node. Initially the distribution of node operators is somewhat concentrated, but the intent is to grow this network to become fully decentralized.
To benchmark its level of decentralization, the T Network commissioned a report from Chris Blec, who self-identifies as the Greta Thunberg of decentralization scolds. The report is a frank and honest parsing about the current level of trustlessness, an important read for anybody considering bridging:
The conclusion is that Ser Blec recommends waiting, a suggestion you might be wise to adopt for any new technology. As Bitcoin and Ethereum rebuild more bridges, we hope for a rugless operation to allow these bridges to amass a spotless reputation and the commute between $BTC and $ETH to become commonplace.
Finally, we have to highlight this particularly interesting gem… the $tBTC bridge may enable a Bitcoin stablecoin. To our knowledge, this is would be the first BTC-backed stablecoin, and we believe this could be a tremendous opportunity. Worth following…
$eBTC
Yesterday the Bitcoin-on-Ethereum experts at BadgerDAO unveiled an intriguing proposal for eBTC.
$eBTC would not be a bridge, but an overcollateralized synthetic in the mold of Dai. Per the proposal, $eBTC can be minted only using $ETH LSDs to mint a synthetic asset that tracks the price of Bitcoin. Badger will earn money only from the LSD yield, with no other fees proposed.
As we saw yesterday, $ETH and $BTC correlate awfully closely with each other. This means the concept of $ETH-backed $BTC may be even more stable and natural than $ETH-backed stablecoins. Badger has done more extensive research on this phenomenon.
$sBTC already exists as a Synthetic Bitcoin, but the minting process is seemingly more complex. If there is demand for Synthetic Bitcoin, $eBTC could prove to be tough competition for $sBTC, or maybe just shore up demand for the both.
It’s an intriguing concept they’re building in public. If you want to learn more, then join their dedicated Discord channel on the subject or participate in the Twitter Space on Friday at 9 AM PT.
Ordinals
Finally, could the emergence of “Ordinals” on Bitcoin be good enough reason to keep $BTC parked on-chain?