The RSK venture introduced the creation of Token Bridge, an interoperability protocol between the Bitcoin-pegged sidechain and Ethereum, on Feb. 6. It might have vital implications for the burgeoning decentralized finance (DeFi) ecosystem.
RSK is a great contract platform hooked up as a sidechain to the Bitcoin (BTC) blockchain. It makes use of a wrapped model of Bitcoin referred to as rBTC as its native token. Customers purchase the token by depositing BTC into RSK’s bridge pockets, which works as a two-way peg.
The crew has now opened the same bridge for the Ethereum blockchain. It permits a two-way switch of any token between the RSK and Ethereum ecosystems. Because of this Ethereum customers can transact with wrapped representations of RSK’s rBTC and RIF tokens, thus gaining oblique publicity to the Bitcoin ecosystem. The identical goes for RSK customers, who’re uncovered to Ethereum-based stablecoins corresponding to DAI.
How does it work?
When a consumer deposits a token from both blockchain to an handle supplied by RSK, an equal quantity of the suitable Facet Token is minted within the different chain. The Facet Token is written in keeping with the ERC-777 specification, a more moderen token commonplace that’s backward-compatible with the extremely frequent ERC-20 specification.
Any commonplace token on both blockchain will be ported to the opposite by the bridge. The whole provide doesn’t change from this operation, as the unique tokens are locked up till their mirror picture is redeemed.
Cointelegraph reached out to Adrian Eidelman, RSK Strategist at guardian firm IOVLabs. He defined in additional element how the bridge works, revealing that the present system just isn’t but totally decentralized.
Eidelman stated that to attach the 2 blockchains collectively, a federation of “well-known and revered neighborhood members” oversees the peg course of. The process is triggered when builders on both chain work together with the bridge good contract. Utilizing Ethereum for instance, he defined what occurs:
“The unique tokens will now be locked on the Ethereum chain, and an “occasion” is created. At this level, the federation initiates the bridge and sends the data to the RSK chain. As soon as 50% or extra of the federates have voted for a similar transaction — the bridge on the RSK chain creates RRC20 tokens for a similar quantity locked on Ethereum.”
The crew doesn’t contemplate this a totally decentralized measure, however Eidelman reassured that the system ought to attain “full decentralization” by the tip of Q3 2020.
Potential for Bitcoin DeFi
The DeFi motion is basically restricted to Ethereum and its token ecosystem, the place it lately surpassed $1 billion in locked assets. ETH is used as the primary collateral asset to generate the DAI stablecoin by its complicated lending system. Nonetheless, Bitcoin-based DeFi is usually thought-about DeFi’s subsequent frontier. In a November 2019 interview with The Spartan Group, MakerDAO’s founder Rune Christensen stated:
“Relating to a stable decentralized collateral, I feel ETH is king. The one factor that may come near ETH by way of its significance is after all Bitcoin.”
However Bitcoin has very restricted good contract performance, which severely limits this use case. Christensen famous that porting Bitcoin into Ethereum would enable for it for use as collateral, pointing to present options corresponding to Wrapped BTC (WBTC).
Nevertheless, WBTC’s switch course of is custodial, as an alternative of being a decentralized atomic swap. He defined that “it’s basically unattainable to construct extra decentralized cross-chain options.”
The one accessible resolution, in keeping with Christensen, is to have many suppliers of Bitcoin on Ethereum:
“The best way that we’ve to attempt to remedy that with Maker is fairly than simply for WBTC to be the only supply of Bitcoin on Ethereum, we wish to have tons of of various variations of wrapped Bitcoin.”
Thus the discharge of RSK’s Ethereum bridge may very well be a further step towards Bitcoin-collateralized DAI residing on Ethereum.
Although Maker is the largest decentralized stablecoin supplier, it’s not the one one. Cash on Chain is the same venture constructed on RSK, which makes use of rBTC for collateral. The venture already expressed curiosity in utilizing the RSK bridge to enter the Ethereum ecosystem.
RSK additionally sees a possible use case for Ethereum DeFi to switch to its platform. Eidelman claimed that the Ethereum market is “experiencing many difficulties,” pointing to greater charges and decrease capability. The venture sees itself as an extension of Bitcoin, which it believes is the “strongest ecosystem within the blockchain area.” Regardless of the shut affiliation, RSK continues to be its personal community.
Bitcoin DeFi may very well be shut, but it surely appears unlikely that will probably be primarily based on the Bitcoin blockchain.