[TEMP CHECK] Onboard dlcBTC to Aave v3 on Ethereum and Arbitrum

Governance New Asset
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[TEMP CHECK] Onboard dlcBTC to Aave v3 on Ethereum and Arbitrum

Author: Aki Balogh & ACI ( Aave Chan Initiative)

Date: 2024-06-24

Simple Summary:

Proposal to onboard dlcBTC to Aave v3 on the Ethereum and Arbitrum pools.

Motivation/Background:

dlcBTC is a decentralized wrapped Bitcoin on Ethereum, enabling Bitcoin holders to participate in DeFi protocols while retaining full ownership of their assets. It leverages Discreet Log Contracts (DLCs) for secure cross-chain transactions, ensuring trustless and decentralized asset management. dlcBTC is minted by a decentralized set of merchants who lock BTC with themselves (a process we call “self-wrapping”), ensuring self-custody and reducing central points of failure.

Unlike other bridges, dlcBTC merchants “self-wrap” Bitcoin, meaning funds are never sent to an external address, reducing the risk of theft or loss. dlcBTC has a Chainlink proof of reserve feed. See https://data.chain.link/feeds/arbitrum/mainnet/dlcbtc-por.

Benefits of listing that token:

Listing dlcBTC will enable Bitcoin holders to use their assets as collateral within Aave, increasing liquidity and user engagement on the platform. It will attract a broader user base from the Bitcoin community and enhance the diversity of collateral options within Aave. Additionally, it supports DeFi platforms such as Nektar and Swaap, which can generate staking yield using dlcBTC.

Market Impact:

Including dlcBTC will positively impact Aave’s liquidity and user adoption, leveraging Bitcoin’s status as the largest digital asset by market cap and its global brand recognition. The secure and decentralized nature of dlcBTC will contribute to the platform’s growth and stability, enhancing security for users and expanding the overall market reach of Aave. While wBTC has seen great success, its reliance on a single custodian introduces significant counterparty risk. dlcBTC addresses this by decentralizing the merchant set, substantially reducing the potential for counterparty failures.

Chain to be deployed/listed:

Ethereum, Arbitrum

Proof of Liquidity (POL) and Deposit Commitments:

  • Use dlcBTC as collateral within Aave, enhancing liquidity options
  • Commitments from the federated set of merchants to ensure “self-wrapped” Bitcoin deposits, visible at the DLC.Link dlcBTC Website. Merchants in the process of onboarding include Amber Group, IMC, HashKey and Time Research
  • Integration into DeFi platforms such as Nektar, Swaap and Archimedes to generate yield using dlcBTC
  • As an exclusive offer to Aave users:
    • Earn 6X points when you use dlcBTC as borrow collateral on Aave
    • Earn 8X points when you deposit dlcBTC and mint GHO
    • Note: Health Factor of the position must be between 1.5 and 3 to qualify for this offer

Useful Links:

Overview:

Explainer Videos:

Technical Docs:

Socials:

Disclaimer:

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

The co-author is a team member of DCL.Link.

Next Steps:

  1. If consensus is reached on this TEMP CHECK, escalate this proposal to the Snapshot stage.
  2. If the Snapshot outcome is YAE, escalate to ARFC stage.
  3. Publication of a standard ARFC, collect community & service providers feedback before escalating proposal to ARFC snapshot stage.
  4. If the ARFC snapshot outcome is YAE, publish an AIP vote for final confirmation and enforcement of the proposal.
5 Likes
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The dlcBTC serves as a trustless bridge, bringing the value of BTC directly into the Ethereum DeFi ecosystem without additional Layer 2 solutions. It eliminates the need for custodians or bridges, allowing users to retain full control by securely “self-wrapping” their deposits and ensuring integrity through attestors. Importantly, dlcBTC depositors maintain ownership and control over their BTC throughout the process without relinquishing custody to any other entity.

3

Hi,

dlcBTC sounds like an interesting asset and I like the idea behind it.
Can you tell me how many dlcBTC are there right now on both chains?
I would like to know if the amount is big enough or at least growing fast enough to make it an useful asset that generates revenue but also has demand from user.
If not, its just an asset that risk has to manage.

4

Hi - great question. We’re a new protocol and are just now onboarding our first dlcBTC merchants.

Last week, Amber Group was the first merchant to complete their onboarding. They minted approximately $1 million worth of dlcBTC on the first day. Our next merchants are looking at minting $7Mn and $10Mn, respectively.

Unlike most of crypto, where liquidity is limited, wrapped Bitcoin draws on the liquidity of Bitcoin. So, the success of a wrapped Bitcoin token depends more on demand than supply. Our merchants can mint dlcBTC at any time, by simply buying more BTC on the open market.

Instead, the TVL of dlcBTC is almost completely driven by demand. Demand comes from both retail and institutions seeking yield on their latent BTC. The success of dlcBTC is driven by integrating dlcBTC + AAVE into more DeFi protocols that can then generate yields.

On that note, we have a handful of protocols listed on our Earn page https://www.dlc.link/earn-with-dlcbtc. We’re soon announcing our partnerships with Nektar, Curve and others, and have a major announcement with the Arbitrum Foundation over the coming weeks as well.

3 Likes
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The current proposal has been escalated to TEMP CHECK Snapshot.

Vote will start tomorrow, we encourage everyone to participate.

6

Hi @akibalogh,

Thanks for the proposal. While dlcBTC seems rather novel, we unfortunately cannot justify supporting its listing on Aave at the moment due to its infancy and lack of demand. Based on the Chainlink POR there are about 15.4 dlcBTC in circulation and the Curve pool has ~$900k in liquidity. Even if dlcBTC gets added to Aave we don’t really see how it can be supported with sufficient borrow/supply caps for it to be a useful asset on the platform.

We’d be happy to reconsider its listing once dlcBTC supply and DEX liquidity has grown!

1 Like
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After Snapshot monitoring, the current TEMP CHECK Snapshot has ended, reaching both Quorum and YAE as winning option with 326K votes.

Therefore the TEMP CHECK has passed. Next step will be the publication of an ARFC to keep gathering both community and Risk Service Provider feedback.