Institutional bitcoin holders who wish to receive a profit on their bitcoin today in the commonly used DeFi protocol can do this only by sending them to BitGo to be wrapped in bitcoin (wBTC).
DLC.Link has launched a new way of wrapping bitcoin that minimizes trust. It is aiming to be a viable option.
It is important to note that the word “you” means “you”. “DLC” The name Discreet Log Contracts is a predefined set of conditions for the transfer of locked bitcoins.
A representation is then minted on a target chain as dlcBTC — an ERC20 token which debuts on Arbitrum.
Aki Bálogh, CEO and co-founder at DLC.Link says that this ensures the BTC will only return to the original deposer.
“It’s literally a theft proof protocol,” Balogh has told Blockworks.
This process uses a number of different components. “attestors” — trusted node operators that run both a Bitcoin full node and a node on the destination chain — which function like an oracle, monitoring blockchain events and validating outcomes.
At the start, there will be seven participants, with each of them holding their own private key. Balogh noted that five people are required for the transaction to take place on the blockchain.
“We are starting with seven named institutions that have brands and that have something to lose from a reputation perspective if they collude,” Balogh is explained.
Project plan calls for a gradual decentralization, starting in the third-quarter with a DLC Token.
The system is different from other methods of staking or bridging bitcoin like Babylon and Nomic which use additional validator sets in order to safeguard the BTC.
DLC.Link is a service that allows the user to self-wrap their BTC and not send it externally.
Blockworks has confirmed that Nomic co-founder Matt Bell believes the DLC method is better. “something we even want to get to eventually.”
“I think that’s a smart way to do it, but that is a fundamentally different thing than Babylon-based staking,” Bell Tell Blockworks
Through the issuing contract, users can use the redemption process to burn the tokens. The consensus is then built by the witnesses to unlock the locked bitcoin of the user, instead of relying solely on BitGo.
“We took it from a more maxi perspective,” Balogh says. “You can’t ever trust an intermediary and expect it to scale to trillions of dollars of value — no bridge or custodian would be secure enough to hold that much.”
The project resembles BitGo’s Merchant System, in which a number of companies obtain a license through the wBTC-DAO. Balogh explained that DLC onboards the same companies who are wBTC retailers to also be dlcBTC sellers.
Amber Group is the first merchant. The Arbitrum Foundation encouraged them to find a way of deploying bitcoins on Ethereum that was faster and more affordable.
Balogh stated that DLC.Link does charge a burn and mint fee. However, this is not as high as the wBTC fees from BitGo.
BitGo’s spokesperson informed Blockworks that its fees vary depending on several factors, such as the speed of the conversion and the volume.
dlcBTC is a product that competes with BitGo. However, it requires the merchants using dlcBTC to have a wallet or custodian who supports Taproot. This group includes BitGo Ledger Live, and Cobo.
“[BitGo has] actually been surprisingly open-minded, and maybe that’s because they see that this is actually a future solution that they don’t want to miss out on,” Balogh says.
Amber Group has integrated Taproot into its proprietary wallet, and Balogh is proud to have accelerated Taproot adoption.
On Arbitrum, dlcBTC is deployed to Curve and Uniswap pool, with the expectation that it will also be used in borrowing and lending protocol.
Retail users are only able to access dlcBTC through secondary trading via DeFi protocols, as wBTC can only be created and redeemed exclusively by merchants.
Balogh revealed that, through a partnership between STS Digital and dlcBTC he will be able to offer covered calls.
THORchain offers a completely different method of earning yields on bitcoin native.
Balogh anticipates that dlcBTC will be made available to other chains in the future. This could happen either using a native cross-chain message protocol, like CCIP, or Wormhole.
“We’re following customer demand on which chains and where we should go, but Arbitrum seemed a really good choice for starters,” “He said”
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