Building a bridge between crypto and real world with tBTC and Keep Network
Overview of tBTC
tBTC is designed by Keep Network and Summa. It is a token on Ethereum blockchain, which is backed by Bitcoin. In order to acquire tBTC, the user has to deposit Bitcoin in the application and then, after some magic, the user receives a tBTC on his Ethereum account. The process is automatic and there’s no middleman. If you want to redeem Bitcoin, the process also quite simple.
tBTC makes it possible for Bitcoin holders to take part in Ethereum growing ecosystem, namely DeFi (decentralized finance). For instance, tBTC can be converted into a collateral for a loan.
Building a bridge
The idea of this article is building a bridge between crypto and real worlds. In reality, in most countries, there are not many ways to convert Bitcoin or any other crypto currency into fiat money. And that’s one of the major problems in crypto. If such ways exist, they require a middleman, which takes high commission rates.
However, usually regulation allows to refer to Crypto as a property. If you have property, you can use it as a collateral for a loan. Recently, in Russia there was a case when the bank called «EXPOBANK» gave a loan, while the collateral was represented by WAVES tokens. However, any Ethereum asset can be much more volatile than Bitcoin and the value of the collateral can be several times higher than the loan itself. Also, there are thousands of crypto currencies and every has to be carefully audited, which is followed by high costs of due diligence.
Usage and guarantee system
There are two ways of using tBTC in terms of connecting real world and crypto.
- Using tBTC to borrow fiat money
- Using fiat money to borrow tBTC, which can later be used in DeFi products.
In order to prevent any fraudulent activity, this article proposes a guarantee system. The guarantee can be a person or a copnay and can serve as a real-world validator. In order to acquire guarantee status, a person or a company has to deposit certain amount of KEEP tokens (really valuable amount).
The process can be applied to both physical entities and companies.
The role of guarantee is to provide fiat and tBTC liquidity for tBTC loan contract, verifying the existence of the person (or a company). Guarantees have to stake a big amount of KEEP tokens to be able to participate in the process (an alternative to authorized (share) capital. Guarantees can set a participation threshold. For example, if a person (or a company) wants to borrow 100$, there should be 10 guarantees with 10% participation. In other words, loan in conducted of 10 smaller loans. The more KEEP tokens guarantee stakes, the less participation percentage can be set. For example, with a stake of 10 000$, participation will be 15–25%, but with 20 000$, it will be 10–25%. The more guarantee stakes, the more his risk is diversified.
A person (or company) deposits his Bitcoin and receives tBTC on Ethereum. tBTC can be locked into a smart contract and this gives signal to the guarantee that collateral is secured and fiat loan can be given. Guarantee does regulations-necessary paper work (may be not actually paper — all documents can be signed instantly with electronic signs) and signals the system that he is ready.
Random system (similar to Random Beacon, designed be Keep Netwok) selects other guarantees to participate in the loan, judging by their stake. The more stake guarantee has, the more chances of participating in the loan.
Guarantees are rewarded for their work with KEEP tokens or tBTC. By having many guarantees, risk if each one is diversified and the system is more decentralized.
One more thing…
What is much more interesting — is fiat (or any physical asset) as a collateral for tBTC. The loan process is reverted and companies and physical entities can have access to tBTC, which can be converted to BTC, or can be used to access DeFi products, this opens new horizons of financial markets!
Opening new horizons with tBTC
Building a bridge between real-world and crypto with tBTC can solve the problem of mass-adoption of crypto. This unlocks real bitcoin value in real world and opens a lot of opportunities of crypto-derivatives which can give much more attractive yield than traditional finance markets. In addition, this brings up a possibility of economic growth, since traditional finance markets and their development is imminent to slow down in the near future.
Though the idea of this article is more like a thought-experiment, it can be used for further developments of tBTC and Keep Network.