TEMP CHECK: Aave V3 Deployment on the Spiderchain (Botanix Labs)

Governance
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TEMP CHECK: Aave V3 Deployment on the Spiderchain (Botanix Labs)

Author: ACI

Date: 2024-11-13

Proposal Overview:

This TEMP CHECK seeks to gauge the Aave community’s interest in deploying Aave V3 on the Spiderchain, the leading Bitcoin EVM L2 developed by Botanix Labs.

Botanix Labs proposes this integration to expand Aave within the emerging Bitcoin DeFi narrative, with the first Bitcoin L2 with a full DeFi ecosystem and the largest community of users - including a new market of Bitcoiners transacting on chain for the first time. Upon mainnet launch, Botanix will also present to the market its synthetic 1:1 representation of Bitcoin on the L2, which will be the most decentralized form of “wrapped” Bitcoin in the EVM ecosystem.

This can help diversify the type of Bitcoin assets on Aave, especially considering its acceptance by the Bitcoin community. Botanix also intends to incorporate the GHO stablecoin throughout the ecosystem to further strategically align with Aave, providing incremental revenue upside for Aave DAO.

Summary:

The Spiderchain is the first fully decentralized EVM-equivalent Layer 2 on Bitcoin, where the ease and versatility of EVM meets the decentralization and security of Bitcoin. Leveraging Bitcoin’s Proof-of-Work (PoW) as a Layer 1 for base settlement and decentralization, Botanix Labs will use a Proof-of-Stake (PoS) consensus model, where the stakes (represented by bitcoin) are securely stored on the Spiderchain, a distributed network of decentralized multisigs safeguarded by a randomized subset of participants. Botanix runs on Bitcoin, with BTC as the gas token and settlement layer, and yield accrued back to stakers in native BTC. The Spiderchain is the most performant Bitcoin L2 EVM with average block times of ~5 seconds and gas fees of $0.01 per transaction. As noted above, Botanix’ form of “wrapped” Bitcoin will be the most decentralized form of Bitcoin in the L2 EVM ecosystem - with decentralized sequencers available on Day 1. As such, Aave’s counterparty risk with BTC derivatives will be significantly reduced and offer greater asset diversification, especially as the Spiderchain enjoys widespread acceptance within the technical community.

The Botanix Labs team preempted the Bitcoin Season II narrative and has been building for almost two years. As such, they have already built out the major DeFi primitives required for an end-to-end DeFi experience with ~20 native ecosystem teams and another ~40 dApps (including Tier 1 DeFi protocols such as Vertex, Frax, Kiln, etc.) deploying Day 1 of mainnet. The non-incentivized testnet v0 launched in November 2023 and garnered 1.5M transactions, 500K users/wallets connected, 30K contracts launched community. Botanix Labs also has ~60K highly engaged community members, making it the largest organic community in Bitcoin. Despite not having a chain-level points program, the team has secured significant Day 1 liquidity commitments.

By deploying Aave V3 on the Spiderchain, they aim to enhance liquidity options and provide users with more opportunities within the Aave ecosystem.

Reasons for Integration:

  1. Early Mover Advantage within Bitcoin DeFi as a Launch Partner
    • With a deployment on the Spiderchain, and considering Aave’s brand as the incumbent leader in DeFi, Aave has the potential to capture significant early mover advantage on the only Bitcoin chain with a high-quality DeFi ecosystem as the flagship lending protocol. As the most decentralized Bitcoin-aligned chain, Botanix Labs has also secured net new TVL commitments from BTC whales who have previously never engaged with DeFi.
  2. Access and Penetration to Bitcoiner userbase
    • The Spiderchain plans to be the home of Bitcoin-native DeFi, whereby once a user onboards their Bitcoin to the Botanix EVM, they can have an end-to-end DeFi experience (DEX, stablecoins, lending/borrowing, derivatives, staking, etc.) and experience native bitcoin yield without necessarily bridging to other chains. As such, it attracts a new Bitcoiner profile that is excited about DeFi and the potential of earning yield. With an integration, Aave can attract this new set of on-chain users.
  3. Integration with GHO within the Spiderchain ecosystem
    • Botanix Labs will integrate and support the GHO stablecoin across the ecosystem, as one of the key USD stablecoins that will enable users to borrow against their BTC collateral.
    • The core product of the GHO stablecoin, backed by BTC, is one of the most anticipated use cases for Bitcoiners and the Botanix team expects rapid adoption of this primitive. Assuming a linear increase in GHO borrowing caps, the team expects a high capture rate of new borrows with Aave DAO being the primary beneficiary in this interest income upside.
  4. Innovation within Bitcoin Scaling
    • The Spiderchain is well accepted as a meaningful technical innovation within the Bitcoin community, with its innovation of decentralized multisigs supported by PoS being recognized as one of the few L2 scaling designs that is possible today on Bitcoin core without any soft forks needed.
  5. Most Performant Bitcoin L2
    • The Spiderchain offers high throughput and low latency, with 5 second block times, which can support Aave’s transaction demands and maintain user experience.
    • Lower transaction fees on the Spiderchain can reduce operational costs for Aave users and make DeFi activities more affordable.
  6. Strategic Partnership with Chainlink
    • Chainlink Labs is a strategic partner of Botanix Labs, as a key infrastructure and market partner. Botanix Labs will integrate with ChainLink’s Price Feeds as the oracle provider for the market, and with the recently announced Cross-Chain Interoperability Protocol (CCIP) to enhance the functionality and security of Aave on the Spiderchain.
  7. Liquidity Provision
    • As Botanix Labs is deeply embedded in the Bitcoin ecosystem, they have been able to secure significant liquidity commitments and can bootstrap initial liquidity for Aave to run smoothly upon deployment. Exact LP details can be determined in the next phase of the deployment process, but we can conservatively expect at least $20M in BTC commitments to Aave upon mainnet launch.

Technical Feasibility:

  1. Seamless Integration and Compatibility with v4:
    • The Spiderchain is EVM-equivalent, running the rust implementation of the EVM (reth), ensuring an easy integration with Aave V3’s existing codebase.
  2. Chainlink Integration:
    • ChainLink’s Price Feeds will be available Day 1 of mainnet, along with CCIP as the canonical bridging partner.
  3. The Graph Integration:
    • Botanix Labs will have The Graph’s subgraph functionality enabled Day 1 of mainnet, ensuring an easy migration for Aave.
  4. Development and Testing:
    • Botanix Labs will coordinate with Aave’s technical team including BGD to ensure a seamless deployment, including comprehensive testing on Botanix’s testnet.
  5. Security Audits:
    • Botanix Labs will work with Aave’s security team to perform thorough audits and ensure that the deployment meets all security standards.

Deployment Plan:

  1. Phase 1: Initial Discussion
    • Gather community feedback through this TEMP CHECK.
  2. Phase 2: Detailed Proposal
    • If the TEMP CHECK indicates positive support, submit a detailed ARFC (Aave Request for Comment) outlining the technical, economic, and security aspects of the integration.
  3. Phase 3: Implementation and Monitoring
    • Upon eventual approval, deploy Aave V3 on the Spiderchain and monitor the integration closely to address any issues and ensure stability.

Risks and Mitigations:

  1. Technical Challenges:
    • Botanix Labs will work closely with Aave’s developers and service providers (such as BGD and ACI) to address any technical challenges during integration.
  2. Security Risks:
    • A comprehensive security audit will be conducted to identify and mitigate potential vulnerabilities. This would be in addition to the proposal’s review by Aave’s risk managers, Chaos Labs and LlamaRisk.
  3. Community Adoption:
    • They will engage with the Aave community throughout the process to ensure alignment and support.

Call to Action:

We invite the Aave community to express their support or concerns regarding this TEMP CHECK. Your feedback is crucial in determining whether to proceed with a detailed ARFC for the Aave V3 deployment on the Spiderchain, and will help us ensure that the integration aligns with Aave’s goals and community interests.

Links and References:

Disclaimer

This proposal is powered by Skywards. The Aave Chan Initiative is not directly affiliated with Botanix Labs and did not receive compensation for creation this proposal.

Next Steps

  1. Publication of TEMP CHECK, collect community & service providers feedback before escalating proposal to TEMP CHECK snapshot stage.
  2. If the TEMP CHECK snapshot outcome is YAE, publish an ARFC to continue gathering community and Service Providers feedback.
  3. If the ARFC snapshot outcome is YAE, publish an AIP vote for final confirmation and enforcement of the proposal.

Copyright

Copyright and related rights waived under CC0.

9 Likes
2

At the current stage I’m 100% supportive. I think with a BTC L2 we will be able to get more and especially new user to the existing user base.
EVM user are natively switching between chains while Bitcoiner never really had this kind of opportunity. I could see this being a chance to capture market share in a potential new market and also a growth opportunity for GHO.
As Bitcoiner live fit decentralization, which stablecoin could fit better than GHO?

Also I like that there is no intention of running a points system, as this has caused more problems for any project than it helped in my opinion. Projects that used points had a big and steep rise in TVL only then to fall like a stone after the program ended or the token had its TGE.

4 Likes
3

Very much in favour of this proposal! Some reasons why:

  • Onboarding more ‘pure’ (i.e., decentralized) forms of BTC into the Aave ecosystem is necessary,
  • Botanix has onboarded Tier 1 DeFi protocols already;
  • Bringing more BTC holders to Aave will even further broaden the reach of the protocol by bringing in a differentiated user base;
  • Integrating GHO is at the core of the proposal and amplifies the core KPI the Aave ecosystem should be targeting: higher GHO borrow volume;
  • $20M in BTC commitments to Aave upon mainnet launch;
  • Availability of Chainlink feeds on Day 1, which is even more crucial in this case.

The above points are more than enough reason to take this proposal through to the ARFC stage and have it assessed by Aave’s risk providers.

6 Likes
4

The current proposal has been escalated to TEMP CHECK Snapshot.

Vote will start tomorrow, we encourage everyone to participate.

3 Likes
5

Hi
I support Aave expansion to Bitcoin L2
However , I don’t understand why Spiderchain versus other Bitcoin L2…

Actually Spiderchain main net is not live.
However there is a lot of Bitcoin L2 with TVL and activity

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https://defillama.com/chains/Bitcoin%20Sidechains

There is Core, Bitlayer, RSK, BOB, Merlin , Bsquared…

Why Spiderchain is better than the others?
Could you provide some explanations?

6

Could be several reasons:

  • they aren’t compatible
  • they aren’t seen as a good candidate to the DAO
  • but most probably they simply didn’t create a proposal to get an Aave deployment.

Aave is a decentralized protocol, anyone who wants Aave needs to go to the DAO and make a proposal.
Botanix has everything in line that is needed for a deployment and also made financial commitments to the DAO, making it a good candidate in my POV.

2 Likes
7

After Snapshot monitoring, the current TEMP CHECK Snapshot ended recently, reaching both Quorum and YAE as winning option, with 777K votes.

Therefore the TEMP CHECK: Aave V3 Deployment on the Spiderchain (Botanix Labs) has PASSED.

Next step will be the publication of an ARFC to continue gathering feedback before moving forward with the governance process.

8

LlamaRisk is in communication with BotanixLabs and would like to share our preliminary findings. Further updates (and a recommendation) will be posted as more information becomes available.

Summary

LlamaRisk supports the deployment of an Aave V3 instance on the future BotanixLabs Spiderchain. Although not live yet and with a plan to slowly decentralize over time, the Spiderchain’s technical architecture proposes innovative features like full-EVM compatibility, a decentralized bridging mechanism, and forward secrecy to limit attack vectors. The protocol has received support from several DeFi protocols like Chainlink with CCIP and AvalonLabs, as well as from Bitcoin whales. If successful, the Spiderchain could become the most decentralized and liquid source of BTC on the market.

That being said, we identified some risks in the technical design. The use of BTC as a gas and reward token for its Proof-of-Stake consensus, which implies a lack of base reward for stakers, begs the question of the sustainability of its economic security. Furthermore, until the amount of staked BTC on the Spiderchain reaches a high enough share of the BTC supply, a hostile whale could bridge and obtain most of the staking share on the Spiderchain and put the security of the Spiderchain at risk.

With the Federated EVM Sidechain yet to go live, we cannot perform any qualitative assessment for now. The Spiderchain client is open-source but has yet to be audited, nor is any bug bounty available. Once live and stable, a second assessment will be needed to determine safe lending parameters.

Details

Introduction

The Botanix Spiderchain is a Bitcoin L2 scaling solution that provides an EVM environment for DeFi applications. By abstracting away the traditional UTXO accounting system of Bitcoin and providing an accounting system like Ethereum, it offers full EVM compatibility through the Spiderchain node client, a fork of the reth execution client initially developed by Paradigm. All decentralized applications currently deployed on Ethereum will be deployable on the Spiderchain.

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Source: Spiderchain documentation, November 17th, 2024

Federated EVM Sidechain

According to the roadmap, the Spiderchain has completed a first testnet deployment (testnet v0) and is now on track for a second permissioned testnet (testnet v1) called the Federated EVM Sidechain. This new testnet allows users to bridge their BTC over to the Spiderchain and will support multiple dApps in which users can use and exchange their bridged BTC. However, this version will only support some of the features and decentralization qualities of the final technical design.

The Federated EVM Sidechain will propose blocks using a permissioned set of 15 orchestrators with a Round-Robin Proof-of-Authority consensus. They will also form an 11/15 bridge multisig for users to deposit and withdraw BTC from the Spiderchain L2. BotanixLabs and third-party partners will operate those orchestrators and be selected based on their expected uptime, security practices, and geographic locations. The Federated EVM Sidechain will include any staking and slashing features later. Users can run a Spiderchain node using the modified reth client but won’t be able to participate as orchestrators.

It is important to note that the Federated EVM Sidechain will act as the foundation upon which the Spiderchain mainnet will be built. The Federated EVM Sidechain is a stepping stone, and the protocol will gradually decentralize over time.

Future Protocol Overview

In its final iteration, the Spiderchain will switch from Proof-of-Authority to Proof-of-Stake. Anyone can become an orchestrator by posting a bond in BTC. Correctly behaving orchestrators will be rewarded through yield on their locked BTC, while misbehaving orchestrators will be sanctioned by taking part of their stake away. They will have multiple responsibilities, including:

  • Managing the different FROST multisigs
  • Bridging BTC to the Spiderchain (Pegging-in)
  • Bridging BTC out of the Spiderchain (Pegging-out)
  • Proposing blocks

Economic Security

Because the Spiderchain uses native BTC as its native currency and gas token, no base reward will be offered, and the staking yield will be solely dependent on the transaction fees. This introduces a security risk for the Spiderchain and could result in a death spiral scenario: fewer transaction fees would make staking unprofitable, resulting in fewer validators and, therefore, less security for the chain. Less security and trust could lead to less usage and, hence, less transaction fees. This is why other Proof-of-Stake chains commonly have a staking base reward (which implies a potentially inflationary token) to maintain a minimum level of economic security.

Another way through which the economic security of the Spiderchain could be at risk is the potential for a bad actor to gain more than 1/3 of the Spiderchain staking share. Given the relatively low share of BTC that will be bridged over to the Spiderchain initially, and for the foreseeable future, a whale could easily bridge and stake more than 1/3 of the current staking share to corrupt the chain. Although this risk is mitigated by the forward secrecy guarantee of the multisig setups, the funds of the multisig corresponding to the block with a hostile majority could still be at risk.

Bridging through FROST multisigs

Bridging to the Spiderchain will be achieved through a set of multisigs whose signers will be a random subset of orchestrators. At each block, a subgroup of orchestrators will be randomly selected to secure a new multisig. This process is verifiably random, using the current Bitcoin block hash produced by the Proof-of-Work consensus as an entropy source. Those orchestrators use the FROST (Flexible Round-Optimized Schnorr Threshold Signatures) scheme to exchange signer keys securely. The created multisig will be used to receive BTC deposits to the Spiderchain for the next block duration. Subsequent blocks will have their multisig and set of signer keys.

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Source: Botanix documentation, November 18th, 2024

After 6 Bitcoin block confirmations, orchestrators will mint the deposited amount of BTC in the Spiderchain for users to use. Notably, deposits to a given multisig will be limited in duration to the block they correspond to. This characteristic is known in cryptography as forward secrecy, and together with LIFO (Last-In-First-Out) withdrawals, guarantees that deposits from previous blocks are safe even though a hostile actor gained a 1/3 majority in the current block. However, funds deposited to the multisig in the current block would still be at risk if a hostile majority were present.

Disclaimer

This review was independently prepared by LlamaRisk, a community-led non-profit decentralized organization funded in part by the Aave DAO. LlamaRisk is not directly affiliated with the protocol(s) reviewed in this assessment and did not receive any compensation from the protocol(s) or their affiliated entities for this work.

The information provided should not be construed as legal, financial, tax, or professional advice.

2 Likes
9

It’s weird to see this is passed the Temp Check. I was expecting it to be rejected since they will launch as federated sidechain with 15 members, according to their docs (see here)

I know it’s just a Temp Check but this proposal is completely misleading people and I don’t think it’s by mistake.

Firstly they will launch as federated sidechain with only 15 people/entities running multisigs. They can steal the funds if they want. They describe themselves as an alternative Bitcoin L2 however it will be just a sidechain with bunch of multisig in their initial lunch.

Secondly calling their operators as sequencer is also misleading. Normally, you don’t need to trust sequencers because they do only block building, however in their design you need to trust those operators not to collude to steal funds or censor transactions.

AAVE is an industry leader money market which should avoid this type of deployment. Botanix should first reach their optimal setup, which I know their long term vision is to do it, then show some ecosystem growth and user interest before reaching out AAVE to deploy on there.

I don’t think this can pass ARFC phase in this format. You are “missing” lots of important informations…

Screenshot 2024-11-25 at 16.35.16
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1 Like
10

Hi, thanks for raising those concerns.
The TEMP CHECK in general is to gauge DAO interest. Its not there to pass anything which will be done in the end. For this we do have the ARFC.
At the ARFC we will have risk SP and also BGDLabs making a evalution of the chain and the risks associated. If for example, speaking here for myself, they both think at the current stage the spiderchain isn’t in a good stage for an Aave deployment, I will vote against it.
Botanix Labs will probably read this and adjust accordingly so we could revisit this proposal in a few weeks or months.

Additionally regarding the multi-sig problem you mentioned, this is more or less the case with every wrapped BTC asset you will find, even cbBTC. In the end they are all in a stage where you have to trust them right now, which will hopefully change in the future.

3 Likes
11

Yes, I know it’s just a Temp Check however this proposal misleading people from many parts. The proposal should be more transparent even in Temp Check stage. People just sold to an decentralized Bitcoin L2 idea which is not their initial setup. [quote=“Tervelix, post:9, topic:19792”]
I know it’s just a Temp Check but this proposal is completely misleading people and I don’t think it’s by mistake.
[/quote]

Also I want to clarify your comment about being “every BTC versions are using multisig, even cbBTC” is not completely correct / it doesn’t need to be like that. I know many “L2” or wrapped BTCs are relying on custody services or multisigs but there are much better designs currently, built after BitVM whitepaper which are not secured by multisig.

Teams can build optimistic bridges with 1-of-N trust assumptions. I would happily share more information about BitVM and the rollups (eg: Citrea, Strate) which are using BitVM for their Peg-In-Out programs. It has been developing for over a year and ZeroSync recently announced their BitVM alliance with the related teams (see here) to implement it before end of the year.

AAVE shouldn’t make a choice between those high trust assumption solutions, even for cbBTC, which doesn’t even have a POR, but should maintain it’s sectoral leader position. One badly calculated mistake could harm a lot to AAVE’s reputation.

12

Hi Tervelix, thanks for raising your concerns. We want to make this deployment as constructive as possible, so let me shed some light on the different points made.

Botanix holds transparency and clarity around trust assumptions as our absolute priority, as it’s by far the most important thing in our industry, especially for Bitcoiners. The proposal clearly outlines our long term product roadmap (stage 0…2), while the docs are very transparent around trust assumptions on the current stage and the day of deployment.

One of the main benefits of the Spiderchain is decentralized sequencing - with the orchestrators doing the sequencing. On Day 1 of the network, the sequencing of transactions will be done by 15 separate entities spread geographically, providing better censorship resistance than a central operator. This initial distribution of sequencers is relevant for any DeFi protocol deploying on the Spiderchain.

As for BitVM and multisig/trust assumptions, as you might be aware, any widely adopted L2 today comes with a multisig security council. They play an important role for upgradeability. Not having upgradeability for bugs poses a significant risk. In that light, while BitVM is early stage, calling it a 1-N optimistic setup without defined multisig assumptions today is at best theoretical. It also contends with a central operator design, which presents censorship and liveness concerns. In further development stages, the same questions will arise for BitVM as existing L2s face today: who will upgrade the BitVM instance in case of bugs?

In any case, the proposal here is for the Spiderchain’s deployment, and I trust the DAO will provide the associated security analysis and recommendation for the Spiderchain.

2 Likes