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When most projects focus on how bitcoin assets are cross-chain, acBTC is more concerned about how bitcoin assets can be used efficiently after cross-chain.
Interview & Writer: Lou Yue
Interviewee: Daniel Tang, founder of acBTC & NUTS
Looking back at the development of the entire crypto field in 2020, from the sluggish market at the beginning to the booming DeFi in the mid-term, to the recent gratifying rise of Bitcoin, let us once again see how Bitcoin is regaining its pace in the ever-changing industry. The leading position of crypto assets has led the entire crypto industry to collectively exit the circle and return to the public eye. It also allows us to see that in the crypto world, Bitcoin is still the crypto asset with the strongest consensus, the best liquidity, and the largest share of assets.
Although Bitcoin was absent from this year’s feast of DeFi assets dominated by Ethereum, the exploration based on the two hot topics of ” Bitcoin + DeFi ” seems to be a huge market for combinable development. In this context, we I invited acBTC, who is trying to build an exclusive customized service for Bitcoin DeFi, and Daniel Tang, the founder of the NUTS Finance project, to chat about the project and industry progress.
This interview will take the acBTC project as an entry point, with the help of the current development of the Bitcoin DeFi field, further discuss the advantages and disadvantages of various Bitcoin-anchored currency projects, possible explosion points of Bitcoin DeFi, asset aggregation and other topics , Daniel also brought us some other wonderful points, the following is the core content of this interview.
Talking about acBTC
At the beginning of the interview, in order to give everyone a simple understanding of the acBTC project, Daniel sorted out and introduced us from the birth, development, positioning, product and design concept, and team of the project.
acBTC’s value orientation and original intention
Daniel pointed out that he and his co-founder Terry Lam both have traditional financial backgrounds. One of the reasons for entering the crypto industry is to be optimistic about the value and advantages of crypto finance in protecting users’ choice and avoiding conflicts of interest . After entering the crypto industry, Daniel and his partners found that in many existing crypto financial services, this value and advantage were not fully reflected. What currency users choose, what services they get, and terms of service are not as free as expected. Therefore, this has become the core value of the NUTS team after entering the encryption industry.
In the more than two years since entering the blockchain world, although NUTS is mainly developed on Ethereum, Daniel still believes that the free flow of assets is very important, so he has also tried a lot of work outside of Ethereum. The team itself will deliberately avoid the ETH standard, because Daniel believes that the ETH standard will affect the judgment of Ethereum, which is the development platform first.
acBTC builds a DeFi solution that is safe, easy to use, efficient, and friendly to Bitcoin holders.
When talking about the original intention of acBTC, Daniel confessed that Bitcoin will be the most important asset in the entire crypto world from the current stage to a long time in the future, but it will be the most important asset in the decentralized finance (DeFi) environment. The user experience is very rudimentary. Decentralized finance is the most important and possibly the only use case of the second-generation public chain starting from Ethereum, so I see a huge opportunity in it.
Journey started in 2018
The journey of NUTS , the development team of the acBTC product suite, began in April 2018 , when the crypto industry was at the beginning of a severe bear market.
When talking about team integration and the story behind it, Daniel shared that he and Terry met in the United States at the beginning of 2018. Both of them felt in their respective professional backgrounds that there are many places where efficiency can be improved in the traditional financial industry. there is no feasible solution appeared before the block chain, which believes there is room for a great opportunity and development.
- Team integration
On the other hand, Daniel is working in the domestic primary market such as venture capital and early-stage entrepreneurship. As a former deputy director of Standard & Poor’s, Terry mainly works in the overseas secondary market and has experience in North America and Asia. Under the background of “complementarity” and the background of traditional finance, they also have experience in the encryption industry , so they naturally gathered.
Daniel further emphasized that when the team was just formed, based on the experience of traditional finance, although the blockchain field is a huge opportunity, he does not want to follow the early development of the Internet, and does not want to bet on a specific application or It’s the time, but I think it should take about ten years to build things at the infrastructure level. This early decision has gradually become the team’s values. Compared with projects in many industries, it does not pay too much attention to short-term benefits.
- Not chasing short-term benefits, focusing on the long-term development of DeFi
Although the blockchain financial world is full of various “games” and “innovations”, in fact, most of them have occurred in the traditional financial field . For example, the generation of sovereign currency (fiat currency) seems to be a top-down process, but there was actually currency before that. Different from the perception of most people, most financial businesses were first generated by the private sector and were incorporated into the regulatory formation system after a period of market chaos. Before there was encrypted finance, for most people, the supervision of financial market segments was the only way to be verified and mature.
Daniel continued to talk about the fact that based on this background and some basic knowledge, the team will have some independent judgments in the market. For example, in the ICO market of the big fire in 2018, there were plans to try in the early stage. Later, when the ICO gradually transformed into a short-term “game”, the team decided that there was no need to chase a short-term , highly uncertain , and highly likely to damage fundamentals Something up.
From 2018 until the middle of this year, Daniel believes that DeFi has not paid enough attention to form an effective market, and this market requires long-term investment. Although he did not choose to obtain this part of resources through ICO, he faced The condition of sufficient external financial support. However, due to the support of some of the earliest angel investors and the enthusiasm for the industry, the follow-up development mainly depends on the promotion of the two co-founders , which also strengthens the hope of more precipitation and polishing in this market.
Another important point is that the entire team’s cognition needs to be iterated. In addition to the most basic things , the market is changing. The initial understanding and setting and the final result will also be different, so continuous adjustment and learning are required. Keep up with the rhythm of the market .
Technology accumulation in 2019
Entering 2019, DeFi related concepts appeared in the public’s field of vision, and NUTS slowly established a development team with core members in California , and the middle-tier platform NUTS Platform (a collection of smart contract modules designed to support the issuance of multiple financial products) Development.
Daniel pointed out that on this platform, third-party users can customize and develop the DeFi protocol and the corresponding DApp. The acBTC project is developed based on the NUTS Platform . Based on early explorations and attempts, for the launch of acBTC, a ” single asset with multiple assets ” The products of the Agreement have a certain degree of confidence and certainty.
The acBTC project will be officially launched in 2020
As the NUTS Platform takes shape, the team’s focus has shifted to the application layer. After careful and thorough observation, it is found that an obvious opportunity in the DeFi field is the availability of ERC20 BTC in DeFi . For example, there is a lack of a competitive solution. Centralized applications can improve the efficiency of BTC mortgage lending and minimize the high friction cost between native BTC and ERC20 BTC.
At the same time, BTC holders began to recognize the value of decentralized financial services, which also gave acBTC a huge opportunity to enter the Bitcoin financial market .
Bitcoin enters DeFi
The wealth effect brought about by liquidity mining has pushed DeFi to a climax. In contrast to the popularity of various DeFi applications on Ethereum , the fact that Bitcoin is absent is the fact that more than 150,000 BTCs are not low cost cross-chain After coming to Ethereum, we are still facing the embarrassing scene of high loan pledge rate and low utilization rate. In today’s DeFi world, BTC has become an ordinary ERC20 asset, and the king loses the crown.
After having a preliminary understanding of the acBTC project, as the first BTC DeFi comprehensive application project on Ethereum , we and Daniel had various discussions on the topic of Bitcoin entering DeFi .
Bitcoin decentralized solutions need to be improved
The disadvantage of Ethereum lies in the lack of assets . The most friendly to blockchain finance is encrypted assets, and the largest of these is Bitcoin. From the perspective of Bitcoin , from last year to the first half of this year, there is an obvious trend that Bitcoin mining is becoming more refined.
If Bitcoin itself has no liquidity value to support its business, it will have a greater impact on miners or Bitcoin holders. Of course, some ancient giant whales may be excluded, so its operations need to be more refined .
The process of refinement of operations will inevitably lead to operational ideas at the financial level . Therefore, more and more Bitcoin owners, including miners, are beginning to contact financial services, but all they use are centralized financial services , although centralized There is nothing wrong with financial services, but as a decentralized asset, there is no good decentralized financial service scenario, which is also more interesting.
From the perspective of Ethereum , it was originally a financial platform to serve assets, but there is no way to serve the largest cryptocurrency well. The gap between the two is still very large.
Based on these backgrounds, Daniel stated that the starting point for the acBTC project was when the market was relatively sluggish in May. At that time, it had the development capabilities of the platform and then applied it. Later, he did some user research and research on representative Bitcoin miners. Communication to determine the entry point of the project.
- Project entry point
From the perspective of the scale of Bitcoin’s centralized financial services, it should be able to reach a market size of several billion dollars within the scope of statistics. There may be more that are not included in the statistics. The operation of the market is actually not complicated. There are three types of services.
The first category is live (Savings), mainly in the case of principal will maintain the security of a fixed rate of interest. The second type is financial management , that is, under the condition of assuming a certain principal risk, the funds are usually placed in funds related to the secondary market, so as to obtain about 10% to 20% of the income and supplement operating cash flow. The third category is mortgage lending. These are also the three core requirements.
Daniel believes that DeFi has a place for the two needs of interest generation and lending. It does not necessarily replace the existing centralized financial services, but provides a differentiated solution and a new option . On the other hand, when there is a very effective and safe decentralized financial solution on the market, it will in turn promote the optimization of the centralized financial service solution. At the same time, the scale of Bitcoin assets is large and there is still a lot of room for market exploration. This is the perspective of acBTC as a decentralized financial service.
The future of various bitcoin anchor coins may go hand in hand
In order to enter DeFi, Bitcoin holders are currently converting their Bitcoins into various Bitcoin anchor coins on the Ethereum chain. According to DeBank data, the number of Bitcoin anchor coins has continued to rise since the middle of this year. , the flow of DeFi Bitcoin has more than 150,000, and the number is rising. The Bitcoin cross-chain track has also attracted many projects scrambling to enter.
The acBTC project can be simply understood as better aggregation and ecological application assistance for ERC20 format bitcoins transferred through cross-chain and other methods, and there is also a “complementary” relationship with the Bitcoin cross-chain project, so we also invite Daniel He shared his views on the development of the Bitcoin-anchored currency track , the opportunities and challenges between projects.
Daniel explained that the anchor currency Bitcoin has a different scenario, it may begin to realize then gradually become popular on the market a solution from one cross-chain solutions. The main feature of these schemes is to use a centralized or decentralized method to mortgage Bitcoin, and then issue it on Ethereum or other chains at a 1:1 ratio. The solutions on the market have their own advantages .
But no matter whether you use a centralized solution or a decentralized solution, there is the problem of “trust ceiling” . The centralized scheme needs to trust the issuer or the mortgager, and the centralized trust has its upper limit; the decentralized scheme requires mortgage, and the mortgage size determines the upper limit of its coinage, which can be called the upper limit of decentralized trust.
The second problem is that independent cross-chain solutions can not eliminate cross-chain costs , especially for decentralized cross-chain solutions. The economic model depends on cross-chain fees. This means that it is basically impossible to build a very portable and low-cost cross-chain financial market from Bitcoin to Ethereum. As a result, as it is now, the overall Bitcoin liquidity is only partial and specific. The demand came to Ethereum, and was stuck in Ethereum because of the high redemption cost. From the perspective of meeting the needs of financial services, there were many restrictions.
Affected by the invisible hand of the “upper limit of trust”, cross-chain solutions that run faster today do not have an absolute first-mover advantage. New, especially decentralized solutions, will still have an advantage before approaching the “upper limit of trust”. There is a lot of room for coin minting, and the final issued orders of leading solutions may be more balanced . The market may not be dominated by one institution. For example, it is extremely unlikely that a project of WBTC will have a 7-digit issuance volume. It is more likely that the issuance volume of the leading solutions is in the 6-digit level . Together, the liquidity may reach 7-figure scale.
Daniel believes that through the joint efforts of BTC DeFi ecological contains acBTC including, Ethernet Square on the existing 150,000 Bitcoin is only a beginning, will eventually be between 1 million to 10 million, the amount is still only coins 10 times the upside .
- acBTC focuses on solving the pain points of existing ERC20 BTC
In this case, for Bitcoin holders, choosing which cross-chain mechanism to believe has a certain cognitive cost and a single risk problem, that is, no matter which solution is chosen, it means that all assets will be lost. risks of. For acBTC, a set of mechanisms will be used to form a more optimized solution after the combination of competitive and inherently basic Bitcoin anchor coins, which will diversify risks and avoid some security issues.
If the above-mentioned assumption that “there will be many mainstream Bitcoin solutions in parallel in the future” is correct, then acBTC plans to build on this basis in addition to combining, when the future ecological development reaches a certain scale Help users share part or all of the risks caused by problems with a certain kind of Bitcoin-anchored currency cross-chain solution , and as long as the market itself is relatively dispersed, this idea is still possible to realize.
Another point is that the economic model of the acBTC project itself does not depend on cross-chain fees. It can even be used to subsidize cross-chain costs through profitable agreements in the entire ecosystem. This is also where the entire ecological agreement can cover costs. It is hoped that users can cross-chain more indiscriminately and cost- free, so that the entire Bitcoin circulation will be more released.
As a single-asset, multi-protocol , acBTC includes a complete set of protocols optimized for Bitcoin assets including exchange, interest generation, and lending. It may seem to do a lot of things, which are more complicated than general protocols, but in fact the project follows a minimal design The principle of allowing the agreement to self-circulate, focusing on solving the unusable parts of the existing ERC20 Bitcoin.
At present, most projects pay more attention to how bitcoin assets are cross-chain, and the acBTC project is more concerned about how bitcoin assets are used efficiently after cross-chain .
For example, after Bitcoin enters DeFi through a cross-chain method, the biggest usage scenario is mortgage lending, but because there will be many different formats and forms of Bitcoin mortgage lending, acBTC will do a benchmark Bitcoin lending business. Through this business, some profits can be further accumulated , and then some costs brought by the cross-chain can be subsidized by the profits, and the entire ecosystem can be economically self-consistent.
And can be optimized in this way existing ERC20 bitcoin in need of improvement, and this is one of acBTC design purposes, and not to do the entire BTC DeFi market.
To put it simply, some of the functions or applications supported by acBTC are ultimately designed to enhance the ease of use of the acBTC project itself, thereby increasing the issuance volume and becoming more stable. In addition, DeFi itself is an open market, not a closed ecology.
Existing problems with Bitcoin DeFi
In response to some existing problems in the Bitcoin DeFi market, Daniel said that the current situation is that the cost of both the Bitcoin cross-chain time and the cross-chain fee is too high.
There will be security problems, but each person’s understanding of security are not the same, some more fancy decentralized technical people may choose to go to the center of the scheme, others may choose to have a center of financial institutions Endorsement or mortgage plan.
What acBTC wants to do is to optimize time and cross-chain fee costs . Although this is a heterogeneous cross-chain, there may not be a perfect solution, but acBTC’s goal is to make it as close to perfection as possible. The chain may need to calculate the time in days. RenBTC is relatively better. It may be calculated in minutes. The experience has been improved, but acBTC wants to shorten the time and bring a smoother experience.
The second is that there is room for reduction in handling fees . For example, now the handling fee for Bitcoin is around one thousand three times (cross-chain), acBTC wants to explore the space again, such as whether it can be reduced to one thousand, or even in an ideal state. After the subsidy is finished, it is almost negligible.
However, Daniel also pointed out that for Bitcoin DeFi, it is not very sensitive to Gas fees and transaction speed. Assuming that the cross-chain can be done well, based on the current Ethereum transaction fee and transaction confirmation time, you can see most of the Bitcoin The liquidity of currency applications is liberated.
Daniel also mentioned a more interesting idea. Ethereum will have more second-tier solutions in the future, and more assets will enter the second-tier. There may be a problem of not being able to afford high fees. If something like Bitcoin After assets enter Ethereum, they may evolve into Ethereum and become the second layer of Bitcoin . The so-called Layer 1 and Layer 2 are actually a relative concept, but in the end, no matter what, the corresponding assets should enter the same speed and cost. The corresponding chain or solution.
For the Bitcoin lending business, there is no need to consider deploying in Layer 2 now, and Layer 1 should be sufficient.
Bitcoin DeFi lending scenario
Daniel believes that after Bitcoin enters DeFi, the first development scenario will be lending , because the asset properties of Bitcoin or properties similar to digital gold have become more and more obvious, so it is not appropriate to directly use it for liquidity, but more It is suitable for some loan reserve applications.
Uniswap provides a general asset transaction protocol, while Curve chooses to focus on stable currency assets , providing a stable currency exchange protocol with the best liquidity and lowest slippage. The acBTC project will focus on Bitcoin assets and provide a complete set of DeFi protocols most suitable for Bitcoin’s characteristics.
When Bitcoin is transformed into ERC20 format WBTC or renBTC to participate in the Ethereum DeFi ecosystem, on the one hand, they are enjoying the dividends brought by DeFi, and on the other hand, they also face many constraints. For example, the loan pledge rate of Compound is generally 130%-150 %, the pledge rate of different tokens is different.
The fundamental reason for this high pledge rate design lies in the volatility of the price of digital assets, but it is unreasonable for Bitcoin holders. Because compared with most ERC20 tokens, Bitcoin’s price is more stable, has more complex derivatives markets, and its liquidity is much better than other cryptocurrencies.
Therefore, the ERC20 Bitcoin DeFi lending agreement is entirely possible to achieve a lower and more flexible pledge rate and a more efficient interest rate game. The acBTC project achieves a lower and more flexible pledge rate through interest rate games by adding options to the lending agreement, based on the consensus of both borrowers and lenders on the price of Bitcoin.
On the other hand, Bitcoin-based transaction applications in centralized finance, such as contracts and CEX, are also very large markets, but acBTC will not do everything, and will choose applications that can help acBTC become a better asset . At the same time, it is also hoped that other lending agreements or option agreements can choose to use acBTC and treat acBTC as the same asset as WBTC and renBTC. If acBTC’s future features and other items are scored high enough, other agreements will also increase corresponding support, forming a DeFi Lego Different combinations and constructions.
How acBTC solves existing problems
The acBTC project wants users to better participate in the Bitcoin DeFi market through low slippage, low friction, and low cost. So how does acBTC choose the best solution for users , and how does it ensure that the protocol is safe and efficient? It operates in a way to solve the existing problems in Bitcoin DeFi. We also asked Daniel to answer this question.
- Safety and cost
Daniel explained that, first of all, the acBTC project must ensure security at the bottom, because for BTC holders, very few users will use tens of dollars in assets to participate, and (participants) Bitcoin assets will It’s relatively large, so safety comes first.
When designing the asset basket , liquidity will not be placed in the agreement with a certain risk, so only one or two functions that will not affect the underlying asset risk are supported, such as Swap. This function will only affect the basket. The composition ratio of assets, and this composition ratio itself is ensured by the algorithm to balance. For another example, flash loans that may be supported in the future, flash loans will not affect the security of the assets in the basket, so acBTC will first ensure security.
The second is how to reduce costs, such as xcSwap , which supports BTC and ERC20 BTC through a decentralized market-making network, a cross-chain protocol that is swapped in a secure and non-custodial manner, and the decentralization of swaps between ERC20 BTC The two different applications of acS wap have both low slippage and competitive transaction fees.
These two exchange methods are actually unnecessary costs for users. From the perspective of users, the cost will be reduced as much as possible. In addition, the acBTC project is not an economic model supported by these two costs. It can subsidize user costs, so it can help users save time and economic costs better and feed them back.
From the perspective of economic cost saving , acSwap of the acBTC project is similar to Curve’s StableSwap mode to a certain extent, but because it only supports Bitcoin assets , it will be simpler to implement and does not need to support stablecoins or other DeFi. more complex protocol, so acBTC of Gas costs are also superior to the Curve, in addition to fees charged to users that prevent arbitrage addition, fees as well as a further decline in space.
For a wide variety of Swap applications on the market, the reason for existence is because the application scenarios of bitcoins in different formats are fragmented after entering Ethereum . So it needs to be exchanged, but if there is a core scenario such as acBTC, it can be completed through a project, and there is no need to exchange into Bitcoin anchor coins like WBTC and renBTC.
From the perspective of friction costs , for example, WBTC is troublesome whether it is minted or destroyed or redeemed. In addition to the cost, the time will be particularly long, and the ratio of minting to destruction is not high. There will be a certain ratio between renBTC minting and burning, indicating that renBTC will have liquidity between Ethereum and Bitcoin, and WBTC is more one-way.
acBTC Cross-chain Swap avoids the process of minting and burning between different Bitcoin anchor currency formats. For example, some users have minting needs, and some users have burning needs. Everyone is doing transactions with decentralized market makers. In this process Among them, in fact, the final tokens are neither cast nor destroyed, so the two different needs can be matched in the middle to make subsidies, thereby reducing friction costs.
- Disperse cross-chain risk
Due to the synthesis of multiple cross-chain assets, acBTC can to a certain extent diversify the risks brought by the use of a single cross-chain asset, including centralized trust risks and decentralized technical risks; further, when the ecological development of acBTC reaches a certain level At scale, acBTC has the ability to help some users (through insurance) or global users (through the economic model of governance tokens) to hedge the risk of failure of underlying assets within a certain range.
acBTC is a brand new project, and will not compete with Bitcoin cross-chain assets such as WBTC, renBTC, HBTC, oBTC (BoringDAO), but through complementarity, it will be Bitcoin, the most valuable encrypted asset on Ethereum, Build a comprehensive application of Bitcoin DeFi.
Token Economic Model
Since the token economic model of a project is an important part of supporting its network security and sustainable development, we also explained the design of acBTC’s own token economic model by Daniel.
Daniel stated that acBTC’s governance token is AC , which has the same value capture function as other projects. As for the distribution of dividends, it depends on the choice of the later community. AC adopts an open reward program to motivate anyone who provides resources and contributions to the function and use of the ecosystem.
The total supply of AC , like Bitcoin, is 21 million , mainly composed of the following two parts:
- Liquidity distribution: 15 million ACs (71.4%) are distributed through the liquidity mining plan to incentivize liquidity providers, ecosystem users and community managers. The distribution mechanism is determined by the community vote organized by the DAO.
- Development: 6 million ACs (28.6%) , the entire development distribution will be distributed to NUTS DAO to motivate developers, strategic partners, community members and core team members, who will pass continuous security audits, application development, System upgrades and marketing to help ensure the availability and growth of the project ecosystem.
AC as a governance token can be used to capture value. For example, users who participate in Swap in the acBTC ecosystem need to pay a handling fee, and users who participate in lending also need to pay interest in certain usage scenarios. The value is captured by AC tokens. It is different from other projects because acBTC has multiple protocols, which can build an intrinsic value loop between multiple protocols .
For example, acBTC’s approach is similar to that Maker will use a portion of the stability fee income to subsidize the minting cost of WBTC users, because if WBTC users have more convenient conditions for minting, it will also help raise the debt ceiling for Maker . But because the two are different projects and Maker has its own token economic model, this logical subsidy cannot be realized. acBTC can do it, optimizing the cost of heterogeneous cross-chain .
For another example, there are ETH and WETH on the Ethereum blockchain. In some scenarios, there is a cost to exchange the two, but in some scenarios, the process of swapping the two is costless. The cost incurred after Bitcoin cross-chain is because it requires some infrastructure, but for users, this is actually unreasonable, so acBTC wants to cover the cost and provide a smooth experience.
When the user does not have time to follow the cross-chain fee cost, it is possible that the entire application scenario will be different. For example, Bitcoin can go to Ethereum and then to the Bitcoin chain within a day, thereby constructing A real cross-chain application scenario. Ethereum now uses its advantages to attract liquidity and its disadvantages to keep it, but in the long run, this is disadvantageous.
acBTC project progress
In response to the current progress of the acBTC project and project planning issues, Daniel stated that the current full functions of acSwap and a c BTC minting /redemption have been launched , and acVault V1.0 has also been launched . These modules, together with liquid mining, constitute The cold start phase of the entire project (Phase0).
Starting from the 11th week (a few weeks later), acBTC will enter the Phase1 phase. The focus is on the landing of interest-earning (acVault) and lending (acLoan) operations, and the construction of acBTC’s minimum value closed loop. The critical convergence stage of operation and development drive.
After Phase2 / 3, the starting points are xcSwap (BTC and acBTC lossless cross-chain acceptance) and acUSD (stable currency based on acBTC single mortgage asset). In particular, 70% of the 21 million ACs (14.7 million) will be locked until Phase 2/3 is officially launched.
Finally, Daniel emphasized that in order for ERC20 BTC to achieve a 10-fold increase in coinage, in addition to most current projects that focus on how bitcoin assets are cross-chain, it also needs to focus on how bitcoin assets are used efficiently after cross-chain. project. If the scale of coinage and usage efficiency are increased by 10 times, the entire market will have 100 times room for growth.