Compared with the over-collateralized cross-chain solution, the DeCus team designed a decentralized cross-chain solution with higher mortgage efficiency and the same security based on Dr. Yang Guang’s paper .
Original title: “What is eBTC? Getting started with decentralized cross-chain BTC? 》
Written by: Yang Guang, graduated from Yao Class of Tsinghua University and PhD in Computer Science from the Institute of Interdisciplinary Information Research of Tsinghua University
eBTC is a trustless ERC 20 token based on Bitcoin. It is designed to bring BTC liquidity into multiple DeFi protocols. BTC can be exchanged with eBTC in both directions at a 1:1 exchange rate.
Summary:
- eBTC is the first decentralized cross-chain BTC solution without excess mortgage burden and settlement risk;
- 5-15 times mortgage efficiency can be achieved, because each BTC invested in the system can provide custody for more than 5 BTC (5 eBTC respectively minted);
- Driven by the emerging decentralized custody mechanism DeCus, eBTC has cross-chain interoperability and can be extended to other blockchains.
With the rise of automated market makers AMM and other DeFi applications, the demand for moving encrypted assets across blockchains will become particularly strong in 2020. However, more than two-thirds of the world’s crypto assets are rejected from the feast of DeFi, such as “less smart” blockchains such as Bitcoin (as of this writing, the global cryptocurrency market value is approximately US$530 billion, and Bitcoin alone has a market share of 350 billion U.S. dollars).
In fact, the idea of cross-chain portable assets has been proposed for many years, and it is still such an awkward situation. BTC tokens on Ethereum, such as wBTC, renBTC, tBTC still face significant settlement risks, mainly due to the following shortcomings:
- Centralization: Some cross-chain BTC tokens are issued by centralized organizations. For example, wBTC and HBTC are issued by issuing institutions. Therefore, once the central institution goes bankrupt or is censored, it will cause the dilemma that these tokens cannot be exchanged.
- Low utilization of collateral: Cross-chain BTC tokens issued in a decentralized manner, such as tBTC and renBTC, in the final analysis need to be backed by non-BTC collateral locked in smart contracts. In order to reduce (rather than eliminate) the risk of volatility and misbehavior, the current solution uses an overcollateralization approach. For example, each minted tBTC token requires the value of collateral ≥ 1.5 BTC, and each renBTC requires the value of collateral ≥ 3 BTC. This over-collateralization will greatly increase the cost of using cross-chain BTC tokens.
Therefore, the current cross-chain BTC token is far from retaining the essence of the original BTC. How to keep the essence of BTC as authentic as possible while realizing decentralized cross-chain BTC? Here are some ideas:
- Each minted cross-chain BTC token must be anchored at a 1:1 exchange rate with BTC, otherwise there is no guarantee that such BTC tokens can be exchanged back to BTC on the Bitcoin network;
- The BTC as the underlying asset must be safely stored somewhere. In order to improve reliability and security, BTC assets should be kept by many custodians in a decentralized manner;
- Collateral is necessary, and the custodian who misbehaves must be punished and compensated for the loss. In addition, the collateral should be sufficient to prevent a small number of custodians from using their collateral to trade BTC under custody.
Some people may say that the third point proves the necessity of overcollateralization. But this is not the case, as can be clearly seen from the following simple but impractical solution.
Assuming that BTC assets are kept by 10,000 custodians in a multi-signature address, each transaction requires at least 5001 signatures. As long as the majority of custodians are honest, opponents cannot steal any custodial BTC. In this case, the minimum amount of collateral is sufficient to enforce the correct behavior of the custodian.
Please note that dividing these custodians into 1000 groups (one group for every 10 participants) will not work. Since the opponent only needs to destroy most of the participants in each custodian group (including 10 custodians), they can take away the BTC held in the group, which is much easier than corroding the 5,001 custodians in the entire system .
However, to use a multi-signature address on the Bitcoin network to be kept by 10,000 custodians, each transaction requires at least 5001 signatures, which is too expensive, and a transaction containing 5,001 signatures is necessary for all custodians The coordination work between the two put forward quite high requirements.
In order to balance the security provided by large groups and the accessibility provided by small groups, DeCus has introduced a decentralized hosting solution based on overlapping group tasks. The following toy example will illustrate how it works. The following example visually illustrates the overlapping group task.
Suppose there are six custodians divided into two multi-signature teams composed of three custodians. If the opponent corrupts two custodians in a group, they can completely control a group of assets, which accounts for 1/2 of the total assets under custody.
Based on the above analysis, DeCus has implemented a decentralized custodial solution, which reduces the number of custodians and achieves an impressively low mortgage rate. For example, through the polynomial design of the prime number domain, when the custodian n = 121, DeCus can The realization efficiency factor η = A/C is as high as 20, which means that the collateral is less than 5% of the total assets under custody!
Based on the above results, the collateral can also be kept together with other assets. We launched eBTC through this function, which is a decentralized cross-chain BTC token based on Bitcoin and supported by BTC 1:1. The mortgage rate is low and BTC is really used as collateral.
In eBTC, custodians are assigned to overlapping groups according to the DeCus model, where each group is a multi-signature BTC address, and each custodian belongs to multiple groups. Specifically, it is divided into three processes:
Minting: Users who want to mint eBTC first submit a minting request to the eBTC contract on Ethereum and get the BTC address of the designated custodian group. After receiving the required BTC in the minting request, the corresponding amount of eBTC will be sent to the user’s Ethereum account.
Redemption: Users who want to exchange their eBTC back to BTC will first send eBTC to the eBTC contract in Ethereum together with a redemption request. The request includes the user’s BTC address. Then the contract selects a custody group and executes the redemption request by sending BTC from the multi-signature BTC address to the user’s BTC address. Once the BTC is sent, the redemption request is completed and the corresponding eBTC will be burned.
Arbitration: Once a custodian is misbehaving, the Simple Payment Verification (SPV) evidence of the misbehavior can be submitted to the eBTC contract on Ethereum, and then the misbehaving custodian is kicked out, and the collateral is immediately deducted to fully compensate the corresponding Loss. This is always feasible, because the damage caused by a small number of malicious custodians will not exceed all their collateral, and misbehavior is easily detected on the blockchain.
Source link: decus.medium.com
