tBTC acts as Bitcoin (BTC) covered in an Ethereum wrapper, making it compatible on Ethereum’s blockchain for various purposes, such as decentralized finance, or DeFi. Users of tBTC can now mint the asset on crypto exchange CoinList.
“Larger investors and retail that maybe aren’t quite confident using a fairly new DApp can actually go into CoinList and wrap and unwrap tBTC the same way they do WBTC today,” Matt Luongo, CEO and founder of Thesis, the entity behind tBTC, told Cointelegraph. Keep is another project under Thesis that is involved with tBTC.
As two separate blockchains, Bitcoin and Ethereum are not inherently compatible with each other's networks. Ethereum, however, hosts much of the activity for the DeFi sector of crypto. Wrapping Bitcoin on the Ethereum blockchain allows users to hold their value in Bitcoin while using it to interact in DeFi. tBTC is a “trust-minimized bridge from Bitcoin to Ethereum,” Luongo explained.
CoinList adding tBTC functionality improves simplicity for those looking to work with the asset. “Even though tBTC is censorship resistant and permissionless, it’s still a pain to use,” Luongo said. “It’s harder to do something without counterparties.”
Wrapped Bitcoin (WBTC), a separate asset backed 1:1 by stored BTC, has become one of the industry’s popular options for Bitcoin on the Ethereum network, although WBTC’s model is more centralized, according to Luongo.
“BitGo is the custodian on record, and merchants can basically interact with BitGo to mint and redeem. But ultimately what they’re doing is BitGo is holding Bitcoin, and then they're creating script on Ethereum. So it’s absolutely like a Bitcoin bank, would be one of the popular ways to say it, and it’s been great for DeFi.”
Essentially, the entity in charge of WBTC oversees the asset’s minting, as well as the Bitcoin that backs it. Downsides to this model, however, can mean centralized control and points of failure. “If BitGo is bought by PayPal, if BitGo is hit by The Stable Act that may or may not be a thing in the U.S., or if BitGo is hacked, the money is gone, and users really don’t have a lot of recourse,” Luongo explained.
In contrast, tBTC works with a network of blockchain validators and parties that individually contribute to the minting and backing of tBTC, kept in check by activity on the blockchain.
“In a system like tBTC, you have to hack many many many people to actually impact the system, and then even if all of those folks are hacked and all the Bitcoin is taken, you end up having all of their signer bonds, so you end up being in a good spot as a depositor. So, it’s not only that it’s more censorship resistant, but it's also just got like kind of a built in user fund safety feature.”