Proposal: Add support for TBTC

Governance New Asset
1

Proposal: Add support for TBTC
Joint Proposal by @ramaruro and @Estebank

Summary

We propose to add TBTC to AAVE for lending and borrowing. TBTC is the first fully decentralized Bitcoin version on Ethereum.

Details about TBTC

tBTC is a decentralized, trustless and insured custody system for Bitcoin that creates TBTC Ethereum ERC-20 tokens, with a 1:1 BTC supply peg. Bitcoin holders who want to spend their BTC on Ethereum and DeFi don’t have to trust custodians, aka signers, because signers must deposit a bond higher than the value of the BTC they hold in custody.

The tBTC system is developed by the Keep Network.

Benefits for AAVE
TVL Growth: Bitcoin on Ethereum is a fast growing category of Assets. Bitcoin has an enormous amount of value and it is important to attract that volume to AAVE and DeFi in general.

Risk Mitigation: TBTC is decentralized and does not have a central point of failure like renBTC or WBTC. Its addition reduces systemic Risk. It supports Point 3 of the AAVE Risk Framework evaluation for adding an Asset (which talks about the risk that centralized assets bring to the AAVE protocol).

Benefits for the general DeFi Community

Bring Optionality to the DeFi Community with a decentralized Bitcoin Exposure.

Decentralized Assets are essential for DeFi to stay “Decentralized”. It is very important to keep that prospective in mind as a lot of liquidity based on Centralized Assets has flown into the DeFi Ecosystem.

Current Liquidity and Availability

TBTC Contract: (https://etherscan.io/address/0x8daebade922df735c38c80c7ebd708af50815faa)

Pools available in Uniswap, Mooniswap, Curve and Balancer

References

tBTC Website: https://tbtc.network/

Discord: https://discord.com/invite/TytRYBe

Twitter: https://twitter.com/keep_project

Developer Resources: https://tbtc.network/developers/

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I fully support this idea, all parties will benefit!

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I also support this proposal. TBTC is the first example of a wrapped/tokenised Bitcoin with a strong claim to being trust minimised today.

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A solution that is far from being tested enough. Over 50% of the staking value is from one address. 70% is from 3 addresses. Matt said he does KYC on 100% of all stakers. So how can that be decentralized?
Last time they launched in a hurry and switched it off because of critical flaws.

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tBTC is too short on the market, tBTC crashed few months ago, give tBTC some time to prove it is stable. No rush.

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1253×649 469 KB

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Far too early to allow TBTC,last time it launched it failed after 2 days please allow some months for this new launch to prove itself to be viable before it being revaluated.

As a user of AAVE I don’t want things added without a proven track record it places to much risk when I am lending out funds if peoples collateral is a new token without a proven track record .

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Does tBTC need KYC for signers?

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KYC no needed. https://keep-network.gitbook.io/staking-documentation/about-keep/keep-network-101

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Considering that tBTC is completely decentralized, open source and passed audits I think everyone will benefit when adding tBTC

11

track record was a failure after 2 days last time it launched is a lot for aave users to lose by adding something this early

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Matt Luongo said (CEO): “I’ve done KYC on all of our private purchasers and all of our employees.” (i.e. those that currently own KEEP that allows them to stake).
Source https://www.youtube.com/watch?v=Zw7638OgHhI&t=2222s

Time: 34min.

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Hi everyone,

Considering the timing that I also just submitted a proposal for another BTC on Ethereum asset, I understand that my comment here will be perceived as biased. I’d like to state that I actually believe that greater volumes of liquidity from multiple BTC types would be overall beneficial for Aave protocol. However, with this particular asset, I am very hesitant for the following:

Here are my objective points of concern cited with sources:

  1. TBTC’s previous failed launch history 5 months ago where people outside of the team identified the issues,
  2. Lack of proven track record for this launch which has been 1 week according to their official Twitter,
  3. Concerning concentration of staking as shown in @Arviee’s comment, and
  4. Uncertain dashboards for collateralization ratios

As a heavy user and mindful investor of Aave, I am strongly against this proposal. I believe Keep has addressed only issue #4 in the past 2 days (please correct me if I’m wrong). Assuming Keep addresses these other concerns and proves it’s security and reliability over time, I do believe there is possibility to add their asset in the future.

@ramaruro, I appreciate you citing Aave’s Risk Framework. However, it seems you may be referring to it only with a positive bias for point 3. When reviewing the framework, point 2 outlines that a portion of the risk from each currency flows into the Aave protocol’s total risk - at least that is how I interpret it. Given my bullet points 1, 2, and 3 above, I strongly hope that the Aave community chooses not to subject the Aave protocol to such uncertain risk that TBTC brings. Please see a screenshot of Aave Risk Framework below to confirm or form your own interpretation of the risk.

Aave Risk Framework

Thank you for your proposal, and I welcome your thoughtful responses to my concerns.

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tBTC should be tested out in the open for at least 3 months prior to adding, way to risky right now. They are already having issues with their signers.

From discord:
"We’ve already had one signing group lose money from a catastrophic signer failure. We’re working on a few checklists and emergency recovery procedures to make operation more fool-proof”

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Hey everyone! Thanks @ramaruro and @Estebank for the proposal — I’m catching up here on the thread.

First, I want to kick off by asking that everyone be respectful, and please disclose your bags. I see a number of folks here who comment on every Twitter thread related to tBTC, both for and against. Let’s not make the Aave forums a mess with mud slinging, and stick with technical and economic analysis, please.

Now, to respond to a couple issues I’m seeing.

We haven’t KYC’d all stakers. We’ve KYC’d anyone that company has sold directly to, complying with all related regulations. That doesn’t include stakers that have bought on the open market or those that have earned rewards.

To be clear, we launched after a 6 week audit of our fully open source clients and protocol. The team found an issue in a dApp clearly marked as alpha in our own testing, and decided to pause and spend over a quarter on additional audits and security practices. We take user fund security very seriously, and have avoided any shortcuts — including centralized custody of BTC.

I still think we can have a good discussion! Let’s just level set and be straight about tradeoffs.

The team identified the issue in rc.0, and had paused new deposits within 3 hours of discovery.

Agreed. I think this proposal is early, and that we should see 1000 tBTC minted before this would make sense.

Fortunately, thanks to the guarded release, we know that won’t be tomorrow.

This is the most interesting point in this whole thread. So addressing it head-on…

Even if tBTC only had one signer, it still provides stronger user deposit guarantees than other systems on the market, like renBTC.

Why? If a staker in tBTC decides to censor a transaction, their bonds are seized and used to refund the harmed user. That’s the upside of a heavily collateralized system.

I’m still learning about Aave’s governance process and risk framework — I’m an occasional user and have huge respect for what the community and team have built, but I won’t pretend to be an expert. I’ll be available in this thread to answer questions and address concerns while I read up!

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Great point. This was the contracts working as intended, and protecting user deposits despite a custodian having switched off their machine.

What’s killer about this incident is actually what you don’t mention — that a signer had an issue, and lost funds because the user was able to seize their bonds and maintain access to their money. tBTC is designed to fully offload custodial risk to signers rather than depositors.

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While observing the test period, I can say with complete confidence that it is quite reliable and stable today! I am in favor of adding tBTC to AAVE

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tBTC is far to new to consider at this point, I would encourage waiting at least 4 months to see how it performs.

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Thanks @mhluongo, can you explain these various 10 BTC liquidations and further, the ‘Setup Failed’, TXs and what you all are doing to resolve this?

Given these, are you confident tBTC should be included in Aave at this stage?

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Hey! I responded to a remarkably similar question on the Curve governance forum just a moment ago… can you disclose if that’s your account and anything else relevant to this discussion?

Liquidations are the system working as intended and protecting user funds — they ensure user fund access even if a signer is offline.

Not sure why you’re concerned about the failed setups, as they’re completely irrelevant frankly. But you can learn more about them in the spec.

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