The Permissionless Revolution: Decentralized Bridging with tBTC v2 with Matt Luongo

GM. Hey y'all. If uh you're here for the talk called the permissionless revolution, that title has been bent. Uh I prefer TPTCV2 or how I learned to stop worrying and love the law of large numbers. That is Dr.

Strange Love for anyone who's I don't know uh jinzy I guess. So uh TPC CB2 and Bitcoin bridges uh I've been working on this problem for a few years and uh this is an Ethereum conference. So I guess I want to start with why should anyone care about Bitcoin? Why would anyone want to bridge Bitcoin to Ethereum? Uh so I like to show some version of this uh of this image and it changes every year.

Um, you know, ETH usually gets a little bigger every time I give this presentation, but you'll notice the one at the bottom that's not labeled. That's actually Papa Bitcoin. So, we have Baby Defi up here, Ethereum, Papa Bitcoin. So, if we want to keep growing DeFi and Ethereum, we need good collateral. And one way to do that is to tokenize real estate or cash flow or do all this weird stuff that eventually the federal government is going to crack down on, right?

The other way is to go for the collateral that we already have, pristine collateral, and that's Bitcoin. So, uh it doesn't really matter if you agree with me because the market agrees with me. So, DeFi Lama will show you uh two of the top 10 bridges right now. That's WBTC and I don't know a single person who's used this project but HBTC. So this project that I don't know anyone who's used is the sixth largest bridge on DeFi Lama.

Um so hopefully it's clear that bridging Bitcoin matters and it would be nice if we could do it in a way that was I don't know in line with our values safe. So, um, I'm going to take you guys through a quick a quick history of how Bitcoin bridges have worked so far on Ethereum and, uh, what we think is next at Threshold. Uh, please forgive the uh, bridge type two. This is bridge type one. Uh, so the first we're going to talk about is trusted parties.

Um, I don't know if you guys have used a trusted party bridge, but if you have, I'm so sorry because you're probably poor now. Um, WBTC has stood uh the test of time, but uh a number of others haven't. Uh, the largest that we've just seen is uh Ren BTC. If you have written BTC, please please uh redeem it. Um, and for those of you who might think that Ren or some of these other projects have said uh that they were decentralized or they were different, there's a really easy way to kind of show you uh a brief history of this asset.

So, uh I I'll read it. 2021 uh the RENB BTC team was acquired by Alama. Big win for the team. 2022 things are not looking good for Alamita. Um and then sort of like the the final, oh no, the Ren team is telling us we all have to move our Bitcoin because Alamita is bankrupt.

Um so look, I don't need to dance on this team's grave. They shipped a product that a lot of us used in DeFi. But there's a pretty clear lesson here. Um, we all just got stomped by FTX or Ronin or one of these other million centralized bridges uh or or exchanges. So maybe uh we can learn something.

So my goal for the rest of this talk is to talk about a censorship resistant fully Bitcoinbacked ERC20 token. Um, so we've tried this. Uh, so let's talk a bit about it. Another way to go at this problem is called an what I'm calling an economically secure bridge. Uh, so back in 2020, we launched one of these uh, TBTCV1, but there are other projects with strong teams that are that are going after it.

Uh, Interlay BTC is on Polka Dot. Stacks BTC is on a weird chain that no one uses, but you might you might hear a little bit about it. Um but the basic idea is this right? Uh you want to bridge Bitcoin which is a fairly the oldest blockchain. You want to bridge it to something like Ethereum.

So Ethereum can read Bitcoin state. It's easy. Uh Ethereum has smart contracts but Bitcoin cannot read Ethereum state. So you can go one way on this bridge but not the other. So to solve that what we have to do is we have to take extra collateral.

So, if you could imagine, um, I don't know, you want your friend to hold 10 bucks for you and, uh, they don't have a great history of keeping track of your money. Okay, let's make it a million bucks. I can tell 10 bucks didn't get you all excited. A million dollars. You're going to give this yours a million dollars.

Uh, it'd be really nice if you could have something of theirs um, that's worth more than that, right? So, in TBTCV1, which is a system of these I know best, what we did was we said, "Okay, you're going to hold Bitcoin for us signers, and we're going to hold your ETH." What was great about that is you could move Bitcoin over to Ethereum, and then you knew the signers were going to be honest because they would lose a ton of ETH if they weren't. It would it would just be very foolish, right? Um, so it was great protection for depositors.

It was a nice safe kind of self-insured bridge. Um but it wasn't uh the best. We have learned some things. Uh and we learned them in a very painful way. Uh the biggest is that a system like this doesn't scale.

So if a bridge for every dollar you put in it needs an extra $150 in collateral um very quickly you're going to start racking up the numbers. So, we grew this thing to 300 million in TVL, which today is great because we're in like a down cycle, but you know, our goal isn't 300 million TVL with the Bitcoin bridge. It's 10 to 20% of the Bitcoin supply on Ethereum. So, this 300 million is not going to cut it. In particular, if you have something this collateral inefficient and you're competing with ETH2 staking, it's just not it's not a bridge that's going to work.

So, you don't have to take my word for it. Um, watch Interlay BTC and STAX BTC over the next couple years. I imagine they're going to have to change their models. It it just it doesn't work on a chain with DeFi. Um, but obviously I'm setting up the problem so we can maybe solve it.

Um, so this new model that we're working on, uh, and that I'll tell you a bit about, I'm calling probabilistic security. And uh the idea is actually if if you're if you're into consensus mechanisms or um sort of like pre- cryptocurrency cryptography, it's not that weird an idea. Um but sometimes at events like this, it comes over strange. So the idea is to take advantage of something called an honest majority. So what an honest majority means is we have about half here.

If I if I were to start picking from you all and I had to pick 10 of you and I split my million dollars across 10 of you, how confident am I that I would get that money back? So, uh, what I can tell you from the literature, um, and I also have some pretty strong evidence on mainet is I'll probably get it back. Um, there are situations where I won't. A lot of people were worried about Bogota. Obviously, that was nonsense.

But, you know, you could you could imagine going someplace where uh a bunch of people wanted to steal your money. But for the most part, when you sample people, they're not actively malicious. Uh they just want to follow the rules and and make some money. So, the first thing we need is a bunch of people who want to follow the rules and make some money. Um I'm calling this group wellistributed stakers.

Um, but just imagine it's like at least a hundred people and you want people who are um economically distinct. So you don't want a civil attack here. This has to be a civil resistant group. You need to be very confident uh that they're not just like one person with a 100 wallets. And then the next thing you need, and this has historically been hard on Ethereum, uh is a random beacon.

So it turns out we have one. Uh we've built one uh using BLS threshold signatures. It's been on mainet for quite some time. And here's the cool thing that you can do with these two. So, you can do the same jelly bean picking game that I just did with all of you, right?

If you have, let's say, uh, 60 blue jelly beans and 40 red, and if you have a random beacon, you can start picking from that pot. And if you remember from high school, you can pick, uh, you can choose with replacement or without replacement. It actually doesn't matter. there's an incredibly low likelihood that you're going to get 51 of 100 out of a 60/40 group that's malicious. So, um this is the big sticking point with this entire mechanism and uh folks struggle with it because we're constantly building for what if uh you know users did the worst possible thing.

Uh and we we still should. It's just that most users won't do the worst possible thing. And then you need one more piece uh to make this uh functional and that's SPV proofs. So earlier I said it's quite easy to uh read Bitcoin from Ethereum. Uh so this is a Satoshi era idea.

So if you guys are interested in googling this, it's simple payment verification. You basically just have Ethereum read block headers. Uh I say read, someone delivers block headers to Ethereum from Bitcoin and it verifies the work. Uh it does some hashes. It's not too bad.

Uh it's expensive for end users gas-wise, but uh it works and it's worked for years on TBTCV1. Um but you take all of these things together and suddenly you can create an entirely different kind of bridge. So instead of asking people to put down a whole bunch of ETH to even participate in this system, you just ask them to put in one work token. It's very simple. uh instead of you know requiring people to keep a BTC ETH position suddenly they just have to manage a single a single asset.

But the most important thing here and the difference between TBTCV1 and TBTCV2 is that in a system like this there is never an opportunity for a smart contract to tell you we don't have capacity. That's not an idea in a bridge like this. this can and 21 million BTC can be committed to something like this. Uh and the question you just have to ask yourself is how much money does it take for all of those blue jelly beans to turn red. So uh we built this thing uh and one of the biggest learnings from TBTCV1 and if we have mechanism designers here uh who are interested in governance minimization please hear this.

One of the biggest things we learned from TBTCV1 is that immutable contracts are a y'all. So, we shipped this thing and there was very little governance. Uh, nothing could be upgraded. It was wonderful. Uh, we did all the audits.

We piled on the security. But at the end of the day, if you're shipping something that doesn't have product market fit, if it's too expensive to use, it doesn't matter that you minimize governance. Uh, ultimately, it's it's a it's a what is it? It's a doors stop. You know, it's nothing.

So uh this time around what we've done is we focused on shipping components to mainet with real money in parts. It's not progressive decentralization. Uh custody is decentralized now. But uh for example, you can't take Bitcoin out of the bridge we have on mainet which is a pretty big uh pretty big missing feature. So So this is live today.

Um and what I want to do is invite you all. I understand this is an Ethereum conference and it's possible some of you have never used Bitcoin. Uh maybe even most of you. I don't use it that often anymore. I just hold it on a ledger.

But if you are holding Bitcoin on a ledger, um please I would love your feedback on TBTC. Um you can go and you can mint today. Uh I I hear that the DAO is planning on raining tokens on people soon. Uh so I'm excited to start seeing the incentives flow. Um it's growing at a nice pace.

I thought you all might appreciate our latest depositor who decided decided to meme up our our Dune dashboard with their 109.7 BTC deposit. Um, but yeah, it's growing. I want to invite all you guys to try it. Um, and then it I guess I guess I just want to say thanks to our partners who have launched with us.

I don't really know why I put that slide in. Let's keep going. Um, so what's next? So we have a Bitcoin bridge. It's decentralized.

you can't get Bitcoin out of it yet, which for some people is a huge deal and for others they don't really plan on going back to the Bitcoin chain anyway, right? Um so first obviously you need to be able to get Bitcoin out. Uh so that'll be happening. Give it maybe two months. Uh you'll see it on test net sooner.

Um but then things get really fun because then we have this opportunity to be Bitcoin everywhere. So, um, maybe instead of Bitcoin just sliding into irrelevance, uh, which I know if David Hoffman is in the house is is is the stance, right? Maybe what we can do is we can make sure that wherever you are, you can use your Bitcoin, you can buy, sell, trade it, but mostly you can borrow against it. I don't know. Maybe you want to go long ETH.

I don't know. You do you. But the plan is to have that live on Optimism and Arbitum Next, uh, followed by Everywhere. But don't worry, we're not just about DeFi here because I don't know if y'all have heard, but Bitcoin has NFTTS now. Um, one of my co-workers the other day saw ordinals and she said, "Bitcoiners are so funny.

They copied Ethereum NFTts and now they're acting like they discovered fire." And I told her, un fortunately, well, fortunately, I guess for my own pride, uh, actually, Bitcoin has had NFTs since between 2011 and 2014. Okay, y'all, based on how how you how you want to define an NFT. Um, but things are getting really fun on Bitcoin again, surprisingly. Uh, I don't know if you guys have been following ordinals, but I would check it out.

Uh, what matters for us though is this same bridge that we've built can also be an ordinal NFT bridge. So suddenly with remarkably little code, you can buy, sell, and trade inscriptions from Bitcoin directly on OpenC. And then finally, and this is the one that I'm the most excited about, but the least involved with. Why would you ever want to use your Bitcoin on Ethereum? And I keep saying collateral.

Um, collateral for what? So the Threshold Dow has been working on a project called Threshold USD. And uh if you guys are tired of hearing about stable coins getting censored um denialists, blacklists, people losing their money, um this is the project for you. Uh and the basic idea is uh it's liquidity, but it's liquidity with only ETH and TBTC with only pristine collateral. So I'm really excited to see this roll out.

I'm remarkably uninvolved in it. So if you have questions, uh I'll I'll invite you back to the booth later. Um, but I think what we can do is we can take this whole generation of Bitcoiners who have never played with Ethereum or or any of the other chains that we use daily. We can bring them over. We can help them get USD loans and uh and really, you know, take them along for the ride.

So, uh, I invite all of you to join us. I want you to mint. That would be cool. But if you're not convinced yet, uh we have a booth right over there, uh under Threshold, which is the Dow and the work token behind TBTC. Um also check it out.

We got some early Reddit Bitcoin vibes, y'all. So, please uh come check out some of these limited uh TBTC Magic Internet Money shirts uh that we'd love to hand out. And I'm told we're also giving away Bitcoin. Uh I can neither confirm nor deny this, but it landed in the slide. So, uh it sounds like also there's free money.

Please come see us at the booth. And uh yeah, if you remember anything, just let's like make love, not war. Invite our Bitcoiner friends over and uh DeFi with us. Thanks y'all. [Applause]