Proposal: Add support for TBTC

Yes, a peer of mine just asked about my post and then posted the same on Curve as they were curious. Glad to see DeFi communities getting involved on these topics! but thank you for the response, I just took a look @mhluongo.

The question still remains, given the newness of these systems and lack of testing in different scenarios and market conditions, are you confident that there is no systemic risk in tBTC that could be introduced and affect Aave users or DeFi at large?

Hah I thought my involvement as one of the the protocol authors was clear! It’s published in multiple links above in this thread :joy:

Appreciate the various ad hominems though :upside_down_face:. Happy to respond if anyone else thinks these claims are material to risks and benefits of using tBTC as collateral in Aave, but I think the inflammatory language and accusations make what’s going on pretty clear.

To repeat myself from earlier…

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.

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Appreciate your openness to discuss this. To prevent both of the TBTC and renBTC proposals from turning into dumpster fires like many of the Twitter posts I’ve witnessed, I hope that both parties just lay out all of the facts on the table and refrain from personal attacks or false information. At the end of the day, the Aave community must have accurate pictures of both protocols and their respective pros/cons.

With that said, I do have clarifying questions.

I’m not familiar with the details of your protocol, and unfortunately, this proposal does not outline or describe the mechanics of how your company works.

However, let’s play out this scenario that you’ve posed. If, for example:

  1. Your BTC/ETH collateral deposited and TBTC created are at or near max capacity and
  2. Your largest staker which is >53% of your collateral behaves maliciously

What then happens to the rest of the TBTC that is created? What are the defense measures put in place to maintain security and stability of your protocol with such concentrated players? I’d be concerned that the instability of such a scenario would have cascading negative repercussions for Aave’s ecosystem.

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Aside from my questions above, I’d hope that the Aave community seeks greater clarity of how Keep and TBTC works before moving on this proposal. As it stands, I still believe that the information provided above is not sufficient to accept this proposal.

Answers below!

To be clear… my company isn’t an active operator on the network or otherwise in the protocol, outside software development. No custody, no staking as of today.

No additional TBTC can be minted. Each deposit must have 150% ETH backing in addition to the deposited BTC, or it can’t be opened.

Every ECDSA signer puts down 150% bond in ETH of any BTC they custody. A 95% staker will still lose their ETH bond if they are malicious and walk with the BTC, because tBTC uses Ethereum for consensus and SPV for fraud proofs rather than an outside consensus system.

Maybe you can explain this further? If you’re trying to find out the worst thing that could happen with tBTC, it requires more than the above — it requires that the price of ETH drops very quickly relative to BTC, that depositors aren’t paying attention, and that signers are malicious. We’ve written this worst case scenario up in some detail

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We should focus on if TBTC would be a safe and suitable addition for lenders and borrowers and for the whole of the AAVE protocol .

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Each TBTC token is fully backed and matched by at least 1 BTC held in reserve.
And tBTC is trustless, using a random beacon to select random sets of signers, who have responsibility for the deposited BTC*. These signers put down 150% bond in ETH of any BTC they custody.
The security model is such that if the signers collude and run off with your Bitcoin deposit, users are paid back in TBTC; that’s what the ETH bonds are for (they’ll be seized and liquidated).

So yes, it’s safe.

*tBTC’s signer sets use threshold ECDSA as a Bitcoin multisig replacement. For every deposit, a new signer set is pulled together (selected by the random beacon), and they generate a Bitcoin PKH address for the depositor, which is marked on the Ethereum chain.

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You can find more info here:

And further :

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I fully support this proposal with the caveat that @defifrog 's outstanding concerns are addressed.

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I won’t be supporting this proposal. Much too nascent technology with a history of vulnerabilities.

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I see no problem. I think tBTC must be added to the AAVE protocol.

Hi guys !

Some updates on this thread:

  • TBTC System is running smooth for more than a month now.

  • Over 5000 TBTC minted/redeemed and in circulation.

  • Already accepted on Curve and paying interesting fees and rewards on the TBTC/SBTCcrv pool https://www.curve.fi/tbtc/.

  • On Maker it is also on advanced discussion. Should have good news really soon now. You can watch the Community Collateral Call replay here.

So can we move this forward ? What are the next steps ? Do we do a poll ?

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Definitely a great idea. I would be happy to see TBTC available for lending and borrowing.

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i checked this site, and counted that you had 10 liquidations for more than 50 BTC (and there is only 900 tBTC currently, so a big percentage of that). wondering how tBTCs own liquidations affect the Aave protocol which also has to liquidate if the collateral goes too low? if tBTC has a lot of liquidations because eth/btc has a lot of volatility like during black thursday, would that not crunch the supply of tBTC when liquidations happen and make it harder to do liquidations on Aave as well?

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I think it’s not a good idea to add an asset with almost 0 trading volume and very low supply. This is also already the second launch of TBTC, because a serious bug was detected after the first launch. Just give it some months more and see, how everything is going.

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Purely from a liquidity perspective, doesn’t seem like the supply of tBTC and trading volume justifies being listed on the lending market yet.

And from a security perspective, I would be recommend caution when it comes to listing something based on a complex system that has only been live on mainnet for 5 weeks.

Despite this coming from me who just started working for Ren, which is a ‘competing’ interoperability solution, I still think objectively those concerns I listed are very much valid and should be taken seriously.

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Hi, Liquidations are actually an integral part of the system. When the colateral posted as a bond for the BTC drops, measured in the price ratio of ETH/BTC, a deposit is eventually liquidated. That affects the bonds, but not the TBTC circulating. So the Node Operators take that risk on them to avoid a risk on the system.
You could compare this to MakerDAO, where Vaults are liquidated every so often. Those liquidations actually protect the DAI peg and they are an integral part of the system. Very similar in concept, different mechanism.

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100%
Even if the liquidation happens it doesn’t affect TBTC holders, so no need to worry about this.

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it absolutely affects the circulating tBTC supply, check here. the bonds are seized to buy back tBTC to burn it so there is 1:1 BTC:tBTC in the system, reducing the supply.

so if there is ETH/BTC downwards price volatility, which historically has been pretty common, tBTC lots will be liquidated reducing the tBTC circulating supply, and the Keep signers have will be less capable of minting new tBTC as it their ETH for bonds is worth less relative to BTC now, and Keep signers that have been hurt financially by the liquidations will be less incentivized to create new lots because it is so risky for them, further hampering the tBTC circulating supply.

Liquidations directly impact the number of potential additional tBTC to be minted. Which represents the TVL opportunity of the asset to Aave.

I think it doesn’t make sense to expose Aave to the risks of Keep until it’s proven itself for a relatively substantial amount of time with the ability to scale tbtc supply smoothly.

My position remains against (my initial concerns above are also not cleared). With its meta pool in curve creating additional demand however, I suggest we keep track of how Keep performs during this important time of potential growth and re-evaluate if the design operates more smoothly

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@defifrog thank you for the counterpoint. I’m probably a cynic but listing assets with ill or unknown repute could easily trigger the loss of tens, if not more, of millions in a deficit. Choose wisely, billion(s) are riding on it.

Hell, I’m not certain we should list any asset with the complete blind trust the protocol governance is apparently willing to toss out

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