dlcBTC is a decentralized wrapped Bitcoin offering a theft-proof bridge to cross-chain DeFi, backed by the security of the Bitcoin network, by leveraging Discreet Log Contracts (DLCs) and Chainlink’s Cross-Chain Interoperability Protocol (CCIP). Users can use dlcBTC to participate in decentralized finance (DeFi) activities like staking, lending, and trading, benefiting from enhanced security, seamless cross-chain compatibility, and the potential for earning returns through these activities.
This article explores how dlcBTC works and what it means for the broader blockchain ecosystem.
dlcBTC in a Nutshell
On paper, dlcBTC presents itself as “a decentralized wrapped Bitcoin offering a theft-proof bridge to DeFi, backed by the security of the Bitcoin network.”
One of the core ideas underpinning dlcBTC is its decentralized nature, stemming from merchant self-wrapping. Unlike traditional wrapped Bitcoin tokens, dlcBTC merchants retain full ownership of their assets throughout the process. This adds up to dlcBTC’s overall security, which leverages Bitcoin’s native security and its hashing power to secure assets.
The second core idea at the foundation of dlcBTC is interoperability. In particular, it is designed to be compatible with DeFi apps cross-chain. dlcBTC uses Chainlink’s CCIP and Proof-of-Reserve to secure all transactions across different blockchains.
As a result, dlcBTC transactions are faster and cheaper than those of centralized wrapped Bitcoin tokens like wBTC. The minting process is also quite fast, and fees are considerably lower.
Users cannot buy dlcBTC directly, instead getting it by swapping on DEXs like Uniswap,Curve, Garden, and Paraswap. It is pegged at a 1:1 ratio to Bitcoin, and its supply dynamically adjusts depending on the demand for minting and burning dlcBTC.
How dlcBTC Works
dlcBTC works using several cryptographic and blockchain technologies to ensure that its wrapping method is decentralized and properly secure.
- DLCs (Discreet Log Contracts) are similar to smart contracts except they can be run on the Bitcoin network, they ensure that locked Bitcoin can only be transferred back to the original depositor, even in the event of a system compromise.
- Chainlink’s Proof-of-Reserve is a security feature for providing on-chain proofs that verify the full backing of the wrapped dlcBTC token by an equal amount of BTC stored in reserve.
- Chainlink’s CCIP, which is integrated with dlcBTC, ensures that it can move across different blockchains.
- On the chains where Bitcoin is bridged, smart contracts automate the wrapping and unwrapping processes for dlcBTC. They handle the issuance of dlcBTC when BTC is locked and facilitate its release when dlcBTC is redeemed.
Another important concept that dlcBTC uses is the attesters, which will be further discussed in the next section.
Everstake’s Role in dlcBTC
Everstake is happy to work with dlcBTC as an Attestor Node Operator.
Attestors’ role in the dlcBTC ecosystem is to provide decentralized validation and verification of blockchain events. In particular, they independently monitor the Bitcoin blockchain for the minting and burning of dlcBTC, thus ensuring the transparency and reliability of the entire system.
Attestor nodes prevent fraud and collusion by ensuring the network remains decentralized. It takes many nodes to agree on any event, so a single entity or a group of them cannot easily hijack the consensus. Additionally, they provide real-time verification of minting and burning requests and generally enhance the ecosystem’s transparency by ensuring there is an auditable record of all operations within it.
Final Thoughts
dlcBTC’s approach to wrapping Bitcoin for use in DeFi is quite innovative and can dramatically enhance it over time. The security and simplicity of using dlcBTC can attract more users and thus enhance Bitcoin’s liquidity and usability within Ethereum and the broader DeFi ecosystem.
The use of DLCs in token wrapping, along with Chainlink Proof-of-Reserve and CCIP, can set a new standard for security in the wrapped Bitcoin market and drive down the risk of hacks and custodial failures for the entire industry.
For those reasons alone, dlcBTC is a solution that everyone in the industry should keep a finger on. It can lead to a broader adoption of Bitcoin and further reinforcement of cross-chain DeFi at the same time.
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