Threshold Network announced this week that it has completed a multi-year effort to upgrade its Bitcoin-to-DeFi bridge tBTC from its original structure and security model launched in 2020. Specifically, the protocol added redemption capability – that is, the ability for customers to not only put their bitcoin in escrow and mint tBTC (an ERC-20 token) but also reverse the process and “unmint” back to BTC.
This is the latest in a string of Threshold announcements beginning in January with tBTC minting, an integration with interoperability protocol Wormhole in May and four subsequent partner launch announcements, three involving Ethereum “Layer 2” (L2) scaling juggernauts Polygon, Arbitrum and Optimism.
The reason given by Threshold for the years of building and the phased launch is security: “Quality was our focus, especially after high-profile Bitcoin bridge failures like Ren and Multichain. We ensured comprehensive testing for security and functionality — employing a phased release that began in January with ‘optimistic minting’ supported by prominent crypto partners like Curve DAO, Yearn.Finance, Synthetix and others,” NuCypher co-founder MacLane Wilkison (a Threshold contributor) told Modern Consensus.
Scalable, decentralized solutions that don’t require users to ask anyone’s permission are of critical importance to the DeFi ecosystem and the ethos of crypto generally. This redemption feature means that tBTC now enables Bitcoin holders to transfer and use BTC within the DeFi ecosystem without having to go through a trusted intermediary — as has been the case with the majority of Bitcoin-to-Ethereum bridging activity since 2017.
BitGo and Kyber Network launched WBTC (also known as “wrapped Bitcoin) that year, and while it’s been the most widely used Bitcoin-to-Ethereum bridge, it’s a highly centralized solution. In fact, BitGo CEO Mike Belshe is admirably candid about the company’s desire for more decentralized solutions and the fact that the technology was not available at the time to build WBTC in a more decentralized way. Speaking on a Twitter Space hosted by the decentralization watchdog Blec Report in December, Belshe told Chris Blec, “Although we’re running this centralized custodian, that was never my career ambition… I would love for it to be decentralized. I have no ambition of being the world’s holder of tons of asset in a centralized way. We see centralized things fail a lot.”
Indeed, centralization has been a key theme in the spectacular crypto failures in the last year. To pick one of the two bridge failures cited by Threshold’s Wilkison in the quote above, Ren Protocol saw its development team “join” Alameda Research in 2021, only to give token holders a few weeks’ notice before shutting down operations amid the FTX collapse in November 2022. Fast forward to April 2023 and the FTX estate seized Ren’s assets, including any Bitcoin collateral that users hadn’t withdrawn.
Threshold Network, which includes the protocol itself (a Dapp running on Ethereum), a DAO and a utility token, was formed January 1, 2022 in the first on-chain protocol merger of two pre-existing networks, Keep and NuCypher. Both those companies for several years had been developing privacy solutions for public blockchains when several active members of each community championed a merger as the best way to bring robust solutions to market and, in the case of tBTC, take market share from WBTC.
In his blog post announcing the launch of tBTC redemption capability, Keep co-founder Matt Luongo cited as “prophecy” a March 2020 call by Ethereum inventor Vitalik Buterin for “a proper (trustless, serverless, maximally Uniswap-like UX) ETH <-> BTC decentralized exchange. It’s embarrassing that we still can’t easily move between the two largest crypto ecosystems trustlessly.”
Now that movement between Bitcoin (market capitalization of $570 billion as of July 30, 2023) and Ethereum ($225 billion market cap) is possible without trusting a centralized custodian to hold the Bitcoin, Modern Consensus will be following how much of the resulting DeFi activity stays on Layer 1 Ethereum vs. moving to lower-cost L2 scaling solutions like those mentioned above — and covering the concomitant and debates and developments around them.
Disclosure: As noted in his Modern Consensus editor’s bio paragraph, John Packel currently serves in elected part-time roles on Threshold’s Council and its Treasury and Marketing Guilds. He holds Threshold’s native work token.