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The Keep Network has published information about the second version of its tBTC Bitcoin tokenization protocol, which is “trust-minimized.”
In an April 11 blog post, Keep Network developer, Evandro Saturnino, outlined several changes the protocol is considering to address it’s past issues with collateralization.
The second version of tBTC is supposed to force stakers to lock up just KEEP rather than both KEEP and ETH, as well as updates to its wallet generation process. Users may use the protocol to tokenize their Bitcoin for use on the Ethereum network.
Though Saturnino acknowledges that the amendments “will provide a way of greatly decreasing[ing] the collateral ratio of the staking assets,” he warns of new risks associated with the planned changes.
Saturni advances uses insurance liability pools to defend against dishonest validators to mitigate a “small risk to the peg” caused by the updates, labelling the pools as “perfectly suited to insure against fraud in tBTC v2.”
tBTC operates with ETH collateral on a network of blockchain validators and parties that each contribute to the minting and backing of the asset, with behaviour recorded on the blockchain. Saturnino elaborated:
“In this mission that tBTC emerged to be the first solution to bring tBTC in the Ethereum Network in a trustless and truly decentralized way using Keep Network infrastructure which is able to store and compute data hidden even from itself.”
A randomly chosen signing party creates a public BTC wallet address for the user after the user submits a submission to mint tBTC and a deposit bond. Members of the signing party are chosen from a qualified pool of signers who agreed to bond ETH as collateral.
The bonded ETH serves as an invitation for signers to align their values and can also be used to penalise participants for misbehaviour. Signers must bond 150 percent of the cumulative deposit amount in ETH as collateral, equivalent to the MakerDAO and Dai stablecoin systems.
After the second launch of the tBTC mainnet in September 2020, the team has learned a lot, according to the developer. Keep protocol was temporarily shut down only a few days after its initial introduction in May 2020 due to a flaw in its redemption codes. Saturnino added that the protocol was also difficult to scale.
Despite being backed by venture capital giant a16z and other big names, Keep’s tBTC has failed to gain traction among DeFi users with a circulating supply of just 1,293 tokens according to CoinGecko.
Existing Bitcoin tokenization technologies have seen tremendous development and adoption in the last year, with Custodial Wrapped BTC currently ranked as the second-largest DeFi protocol, with a TVL of $8.7 billion, according to DeFi Llama. Non-custodial rival renBTC has amassed a TVL of $926 million and is currently ranked as the 27th most valuable DeFi project.