[DRAFT][GF: Phase 1] Growth Experiments Grant: BTC holders bridge to Ethereum in a trust-minimized way

ARCHIVED & OLD Missions Grants Council Cycle 10-11
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Growth Experiments Grant: BTC holders bridge to Ethereum in a trust-minimized way

Basic Details

Project name:

Threshold tBTC

Author name and contact info:

John Packel, john.packel@gmail.com, hello@threshold.network

L2 recipient address:

0x7fB50BBabeDEE52b8760Ba15c0c199aF33Fc2EfA

Which Voting Cycle are you applying for?

Season 3, Cycle 11

Project Details

What are you building?

tBTC is a decentralized, permissionless, and censorship-resistant Bitcoin bridge. However, Bitcoin holders cannot leverage their BTC in the Optimism ecosystem in a trust-minimized way.

With the launch of tBTC v2 it’s now possible to bridge Bitcoin to Ethereum in a trust-minimized way. We propose a solution to bridge tBTC to Optimism in the near-term.

To make the user experience of bridging tBTC from L1 to Optimism as seamless as possible and to avoid the proliferation of non-compatible wrapped tBTC tokens resulting in fragmented liquidity, Threshold will implement a minter contract that delegates restricted minting authority to the native Optimism bridge, along with a short-list of ecosystem bridges (e.g. Wormhole, L0, etc.).

This contract will have a minting authority for TBTC on Optimism but can be paused by any one of n tBTC guardians (Threshold tBTC Guardians - General - Threshold Network), allowing avoidance of contagion in case of a chain- or bridge-specific incident.

Later, Threshold may implement the ability to mint tBTC directly from Bitcoin on Optimism, without Ethereum L1 as an interim step, if it is sensible to do so.

Please see a full discussion of the approach here: https://github.com/keep-network/tbtc-v2/pull/542/files?short_path=1eac321#diff-1eac3218e60358ae0a0073e86b51a233f1b9294b6d0b441a534d41f92c983f7c

Why do you believe what you are building is going to succeed?

Threshold is the network formed by the first-ever decentralized network “merger” between NuCypher and Keep. Version 1 of tBTC went live in April 2020 and hit a peak of ~$300M TVL, but the security model of stakers providing 150% collateralization in ETH was very capital inefficient.

Combining networks, communities and stakers, we launched tBTC v2 on January 31st. In the several month period before permissionless minting, a nominated group of “Minters” (in partnership with Curve DAO), Yearn.Finance, Synthetix, Connext and Alchemix) make the decision to mint tBTC instead of stakers, with a failsafe group of “Guardians” (Catalog, BadgerDAO, Stake Capital, Entropy, and many community members) given the opportunity to cancel fraudulent or improper mints.

If this grant is approved, the solution will bridge Optimism to the largest digital asset in a trust-minimized way, enabling BTC to be used as collateral in the lending protocols, AMMs, and derivatives platforms on Optimism.

How many users does your project have currently? Please include how you arrived at this estimate:

Version 1 of tBTC went live in April 2020 and hit a peak of ~$300M TVL. Key metrics for v2 are available here: https://dune.com/threshold/tbtc

How will receiving a grant enable you to further the mission of maximizing the number of users interacting with Optimism? Please include a step-by-step flow of how you imagine this grant can lead to a greater number of user interactions with Optimism:

We propose to deploy a canonical tBTC contract on Optimism that is flexible enough to:

  • Delegate restricted minting authority to a short list of ecosystem bridges
  • Delegate restricted minting authority to the native Optimism bridge, in the future
  • Be paused by any one of n guardians, allowing avoidance of contagion in case of a chain- or bridge-specific incident.
  • Be governed by the Threshold Council until we can land on a longer-term cross-chain governance mechanism.

Rather than change our L1 implementation to be aware of L2s and sidechains, we’ll start as simply as possible. Every tBTC mint will continue to require transactions on Ethereum from the user — first a deposit reveal, then a lock to bridge to Optimism.

Tell us about the users you plan to target with this grant. Include any defining characteristics that will help you identify and target them.

tBTC targets Bitcoin holders who want to do more with the asset by participating in DeFi. Defining characteristics include a strong preference for decentralized solutions over the highly centralized WBTC with its custodied asset approach by BitGo and selected merchants.

How would these users interact with Optimism? For how long?

The process of bridging from L1 to Optimism would look as follows:

  1. There is a tBTC holder on L1. The holder goes to the Wormhole Portal and selects Optimism.
  2. The holder submits one transaction to L1 locking their tBTC tokens in the bridge’s smart contract. After the transaction is mined, they wait about 15 minutes for the Ethereum block finality.
  3. The holder submits one transaction to tBTC on Optimism. After that transaction is mined, they have their tBTC on Optimism.

The process of bridging from Optimism to L1 looks as follows:

  1. There is a tBTC holder on Optimism. That holder goes to the Wormhole Portal and selects Optimism.
  2. The holder submits one transaction to tBTC on Optimism that is burning the token. After the transaction is mined, they wait about 15 minutes for block finality.
  3. The holder submits one transaction to L1 unlocking their tBTC tokens from the bridge’s smart contract. After that transaction is mined, they have their tBTC on L1.

This smart contract is integrated with step 3 of L1->L2 bridging and step 1 of L2->L1 or L2->L2 bridging. When the user redeems token on Optimism, this contract receives the Wormhole tBTC representation and mints the canonical tBTC in an equal amount. When the user sends their token from L1, this contract burns the canonical tBTC and sends Wormhole tBTC representation through the bridge in an equal amount.

Provide us with links to any of the following for the project:

Do you have any metrics on the project currently? (TVL, transactions, volume, unique addresses, etc. Optimism metrics preferred; please link to public sources such as Dune Analytics, etc.):

Version 1 of tBTC went live in April 2020 and hit a peak of ~$300M TVL. Key metrics for v2 are available here: https://dune.com/threshold/tbtc

Who are your competitors, and are they on Optimism?

tBTC is the decentralized alternative to wBTC, renBTC, BTC.b, and multiBTC. wBTC is on Optimism, but the bridge is centralized (BitGo custodies the BTC deposited and controls the minting) and thus requires more trust assumptions. renBTC was on Optimism but the 1.0 network was shut down in December when funding from Alameda stopped.

Please link to code audits (if any):

Links to Least Authority, CertiK and Chain Security audits here: Threshold · About

Links to ConsenSys, Trail of Bits and Sergi Delgado audits of tBTC v1 here: https://keep.network/info/

Team

Who are your founders?

Threshold is the network formed by the first-ever decentralized network “merger” between NuCypher and Keep. The founders of NuCypher are MacLane Wilkison and Mikhail Egorov, who later founded Curve Finance. The founder of Keep is Matt Luongo.

What makes your team well-suited to carry out the project described in this proposal?

Threshold contributors have a track record of shipping multiple Top 100 projects with meaningful adoption, as referenced above. Other projects built by former or current NuCypher/Keep core team members include Fold, Taho Wallet, Curve Finance, Entropy, and Sunscreen.

Is this your first Web3 project?

No.

If not, what else have you built? (Share links, Github repository, or any other useful information.):

Please reference the previous answer above.

Grant Request

What is the size of the grant request? (250k OP max)

200,000 OP

How do you justify the size of the grant?

This is an appropriate amount given the enormity of the capital in Bitcoin and holders desire to lend, borrow, stake, etc. The OP tokens will be allocated as incentives on qualified protocols.

Roadmap and Distribution Plan

Describe in discrete steps how you will successfully implement your grant plan:

Minter contracts will be deployed to Optimism. The first ecosystem bridge will be whitelisted on the contract. A liquidity pool will be deployed on Curve and, potentially, Velodrome. After a sufficient amount of liquidity builds (facilitated by OP incentives), tBTC will become an interesting collateral for lending protocols like Sonne and Euler. Further use cases may be developed across the Optimism ecosystem, such as derivatives (e.g. Lyra, Synthetix v3).

How will the OP tokens be distributed? (please include % allocated to different initiatives such as user rewards/marketing/liquidity mining. Please also include a justification as to why each of these initiatives align with the problem statement this proposal is solving. Distribution should not include the sale of any tokens by the grantee or the use of tokens for compensation, protocol expenses, etc. See the no sale rule here 1):

To encourage the rapid development of tBTC TVL, 100% of the OP tokens will be distributed as incentives for users to mint/bridge tBTC on Optimism. The OP tokens will be allocated as incentives on qualified protocols potentially including Curve and Velodrome for liquidity, Sonne Finance and Euler for lending, and Lyra and Synthetix V3 (once new collateral types are enabled) for derivatives.

Over what period of time will the tokens be distributed for each initiative?

We propose distributing the OP tokens over 2-3 months towards qualified protocol (e.g. Curve, Velodrome, Sonne, Euler, Synthetix V3, Lyra).

Please define benchmark milestones for this project.

Baseline milestones:

  • tBTC minter contract deployed on Optimism by May 1, 2023

  • tBTC factory pool on Curve deployed on Optimism by May 15, 2023

  • Integration with at least one lending protocol (e.g., Sonne or Euler) - timing dependent on that protocol’s readiness

Please provide critical milestones for this project.

Remaining 60% of OP grant allocated after the following critical milestones have been reached:

  • 100 tBTC bridged by July 15, 2023

  • tBTC factory pool surpasses current size of sBTC/wBTC pool (66 BTC as of 3/13/23) by July 15, 2023

  • Potentially integration with at least one derivatives protocol (e.g. Lyra or Synthetix V3)

If the OP tokens are for direct distribution to users, why will incentivized users and liquidity on Optimism remain after incentives dry up?

Liquidity begets liquidity. The OP incentives period will enable tBTC to bootstrap itself on Optimism via integrations with Curve, Velodrome, Lyra, etc. With a sufficient amount of tBTC bridged to Optimism, liquid spot + derivatives markets, and arbitrage opportunities between OP tBTC<>L1 tBTC<>native BTC continued organic usage of tBTC on Optimism is likely after incentives dry up.

Please provide any additional information that will facilitate accountability (smart contracts addresses relevant to the proposal, relevant organizational wallet addresses, etc.):

Optimism Relationship

Does your project solve a problem for the Optimism ecosystem? If so how?

Bitcoin holders cannot leverage their BTC in the Optimism ecosystem in a trust-minimized way. tBTC on Optimism will provide the decentralized, permissionless, and censorship-resistant Bitcoin bridge that many Bitcoin holders prefer.

Why will this solution be a source of growth for the Optimism ecosystem?

tBTC’s long-term goal is for 10-20% of Bitcoin to bridge to Ethereum. Our version 1 proved the demand in spite of its capital requirements, tBTC v2 is the best decentralized solution and many of our users will choose to bridge via Optimism.

Is your project Optimism Native?

No

Confirmations

I confirm that I have read the landing pages for the Builders 28 and Growth Experiments 29 Sub-Committees and that I have determined my proposal is best suited to be reviewed by the Growth Experiments Sub-Committee:

Yes

I understand that Growth Experiments grants are subject to a “no sale rule,” as explained in this post, and I have read the terms of the rule:

Yes

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@John_Packel Hey this is Doug from the growth council, please revise your milestones to include your selected critical milestones. Throughout the application process, this forum thread will be one of the official means of communication. Please be sure to monitor it for updates over the course of the review period.

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OK, I have edit access now; thank you. I’ve updated the proposal post to include both benchmark and critical milestones. If any further questions or feedback, please let me know!

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Please note that while grant evaluations are being completed, the grant distribution process will proceed as follows:

If your grant plan is approved, you will receive 40% of the total funding. However, in order to receive the remaining funds, it is crucial that you meet certain critical milestones. We recommend that you carefully review your milestones and ensure that they are easily verifiable. In addition, if applicable, please be ready to provide documentation that demonstrates that the milestones have been met. This will help avoid any delays in disbursing the remaining funds.

If you feel confident that your milestones are achievable and verifiable, then no further action is required at this time.

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Hey john congrats on your grant, needed to fix some small things with your milestones, so the initial 40% of your grant is distributed immediately and the remaining 60% is distributed once your critical milestones are achieved, so just need to remove the 50% distribution part from your benchmarks and change your critical milestone distribution to 60% other than that your milestones are great.

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Very exciting; we appreciate the committee’s support for this build! I’ve updated the percentages. Thank you.

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for your critical milestone of * Integration with at least one lending protocol (e.g. Sonne or Euler) would you say july 15, 2023 is a fair date for that integration? let me know if that works.

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Definitely a proposal that is put together here looks great
All BTC holders actually have some issues with integrating and synchronizing their assets specifically in BTC with the rest of the market, it seems to me

Even when it comes to the DeFi market and farming, BTC pools are not that popular

I think in the end, the proposal definitely makes sense and implementing something like this could potentially improve the market and ecosystems by plugging in opportunities to integrate all BTC holders

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Thanks, Doug. Since both Sonne and Euler are permissioned protocols (in terms of adding new collateral), we can’t credibly commit to a specific timeline since it’s not in our control. Ultimately the decision on whether to add tBTC and on what timeline is up to their respective dev teams and/or governance processes. Additionally, the timeline for Euler’s deployment on Optimism is currently unclear given their exploit on Ethereum L1.

Are there other permissionless lending protocols on Optimism that you would recommend? If so, we would be able to credibly commit to a date. Otherwise, it may make sense to leave this milestone open-ended in terms of dates or remove it entirely.

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Yeah fair point, i would be comfortable with moving it to benchmark milestones with an open ended date that way if its not achievable you could still obtain the rest of your grant funds.

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OK, I’ve updated as suggested. Thanks

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Sharing an update on progress and next steps:

Thanks!

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Hey @John_Packel! Thanks for these updates. Just wanted to circle up here and ask if there were any new updates here?

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Hey @John_Packel, following up here with a message on behalf of the milestones subcommittee of the grants council. Just wanted to kindly bump again for an update. We see you’re almost done with all of your required critical milestones and want to make sure you get them in before the one year deadline on April 18th! :slight_smile:

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Apologies, Juanbug - Gmail has been sending these to a folder and so I just happened to see your email (missed the prior one).

I know we’ve deployed the initial grant % as incentives, so let me check on progress and get back to you with an update.

Thanks,

John

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Hello @John_Packel, just wanted to follow up here! The deadine is only a couple weeks away and want to make sure everything is good to go or else it will be clawed back. Could you please provide an update?

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Apologies for the delay here. We’ve been working to deploy more of the initial OP grant and wanted to show how well that’s working.

Regarding tBTC bridged, we are pleased to share the update that total to date is nearly 215.7 tBTC ($13.6 million at today’s price). Current supply is 70.5 tBTC on Optimism.

1600Ă—243 98.5 KB

This Dune dashboard provides tBTC supply volume on Optimism, total bridged, volume aggregate charts, as well as TVL on Uniswap and Curve.

984Ă—820 144 KB

From the portion of the OP grant received, 28,000 OP have been distributed as liquidity incentives to date via Merkl protocol. These incentives have been very successful, especially at specifically targeting tBTC liquidity. The chart below demonstrates the growth in tBTC in the UniswapV3 tBTC/WBTC pool since the start of OP incentives.

1600Ă—632 107 KB

The incentive distribution was weighted to incentivise fees/tBTC/WBTC in the ratio 20/60/20, which has also supported an increased volume of trading activity in the pool.

1600Ă—772 92.7 KB

Given Uniswap is where we’re incentivising, we note that the tBTC pool shown above ($4.1M) is more than 4 times larger than the current sBTC/wBTC Curve pool ($975k).

We’re also excited to share that Chainlink recently started a tBTC price feed, which we expect to be an unlock for an integration with one or more derivatives protocols.

Please let us know if any questions; thank you!

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Hello -

Just wanted to ping you that we were deploying the OP incentives and have seen nice results, which I just posted as an update. Please LMK if any questions. Thanks!

https://gov.optimism.io/t/draft-gf-phase-1-growth-experiments-grant-btc-holders-bridge-to-ethereum-in-a-trust-minimized-way/5638/18?u=john_packel

John

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Thanks for the updates!

Your critical milestones in order for the funds to be disbursed are:

  • 100 tBTC bridged
  • tBTC factory pool surpasses current size of sBTC/wBTC pool
  • Integration with at least one lending protocol (e.g. Sonne or Euler)

When you are ready to submit all three milestones, can you reply with an update again that lists all three and proof? Thanks

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