Cao Yin: Can Tezos open a new DeFi situation with tzBTC?

On April 8th, the Swiss Bitcoin Association, the Tezos Foundation and several partners jointly announced that it will issue tzBTC, another tokenized bitcoin, on Tezos, but this time on Tezos. According to a press release from the association, the asset will become the first tool for DeFi based on Tezos.

"TzBTC brings bitcoin's brand and liquidity to Tezos and gains the potential for rich features brought by Tezos smart contracts." Lucas Betschart, chairman of the Swiss Bitcoin Association, said in a statement.

tzBTC release statement: Announcing tzBTC-Tokenized Bitcoin

In fact, this is not the first DeFi attempt of Tezos. As early as August last year, Tezos co-founder and CTO Arthur Breitman disclosed that he was developing a MakerDAO-like Tezos stable coin Checker. Arthur hinted that XTZ locked on Checker also has Eligible to receive Tezos Staking rewards.

However, after that, the Check message disappeared, and it seemed to be no drama. Arthur only left a FAQ page with no sincerity, https://checker.is/ , a page written by Arthur in French, even in English. No, and it will not be provided in the future. Picture: Arthur tells the reader very directly that there will be no English version of the webpage

Although Tezos was launched on the mainnet as early as 2018, and both founders were from financial backgrounds, it was not until mid-2019 that the Tezos Foundation became interested in DeFi. In June 2019, the term DeFi only appeared in the second round of request for proposals (RFP) of the Tezos Foundation.

The reason may be that before Tezos, Narrative has always emphasized the characteristics of governance, and the foundation has been busy playing legal proceedings with the SEC, as well as the conservative and sluggish peculiarities unique to Europeans. However, with the success of Ethereum's DeFi, the Tezos Foundation began to focus part of its attention on this area. At present, Tezos lists the DeFi protocol on the highest list of Grant RFP. However, Tezos lacks a developer-friendly language and development tools, which severely limits the ability of developers to build DeFi protocol on Tezos.

However, even if Tezos DeFi started late, the release of tzBTC is still worth looking forward to. The mechanism of tzBTC is similar to WBTC on Ethereum. The tzBTC system is governed by a set of keyholders. Keyholders use multiple signatures to manage the security of Bitcoin in the tzBTC contract , And is responsible for the casting and destruction of tzBTC. Above the Keyholder, the Swiss Bitcoin Association supervises the Keyholder. Under the Keyholder, a series of Gatekeepers act as user-oriented intermediaries, responsible for issuing and recycling tzBTC. Gatekeeper is responsible for KYC and AML for users, and accepts the user ’s BTC and There is no upper limit for the number of Gatekeepers issued by tzBTC. Any institution can apply to become a Gatekeeper like Keyholder.

Figure: tzBTC governance and issuance structure

Although Tezos' DeFi ecosystem has just started, tzBTC has the following advantages over ERC20 Bitcoin competitor WBTC on Ethereum:

1.tzBTC is more decentralized than WBTC: WBTC's BTC is only managed by wallet company BitGO alone, while tzBTC is managed by four institutions as Keyholder based on multi-signature escrow Bitcoin, and the Swiss Bitcoin Association is responsible for supervising Keyholder.

2. Swiss policy is more friendly: Compared with the United States where BitGo is registered, the Switzerland where tzBTC is located has always been open to BTC and blockchain finance. TzBTC is endorsed by the Swiss Bitcoin Association, which can get more space in compliance . Switzerland also issues licenses to financial institutions to provide users with bitcoin wealth management services.

3. Switzerland's rich bitcoin ecology: Xapo, the world's largest bitcoin custodian company, is registered in Switzerland, and its total amount of bitcoin custodians exceeds 7%. Even Grayscale's bitcoin is also hosted in Xapo.

4. Tezos' financial relationship network: Unlike the Ethereum community, the Tezos Foundation has been maintaining close relations with the mainstream financial community, has cooperated with many financial institutions, and regards finance as the only main application direction of Tezos, according to Tezos Foundation's official website, Tezos lists digital securities, payment, central bank digital currency, and DeFi as the most important industry applications.

Previously, Tezos had been lacking in financial assets for universal finance. As a result, Tezos ’external financial cooperation was often dominated by technical cooperation, and it was difficult to form an asset-like DeFi issuance and trading ecosystem similar to Dai on Ethereum. The launch of tzBTC may become an important fulcrum of Tezos' financial strategy. It is worth noting that tzBTC's current Keyholder and Gatekeeper have a deep financial background, including the famous Bitcoin financial company Bitcoin Suisse, and Switzerland's first licensed digital Money Bank Sygnum.

European financial institutions cooperating with Tezos have multiple ways to use tzBTC to provide services for users. Financial institutions can become the gatekeeper of tzBTC, provide users with tzBTC coining services, or use tzBTC as a basic asset and develop various types of DeFi based on the Tezos main chain Applications, such as the use of tzBTC as a collateral asset, the issuance of over-collateralized stablecoins linked to the Euro or Swiss Franc, provide traditional financial users with both compliant, open and transparent HyFi (Hybrid Finance combining CeFi and DeFi) services.

The launch of tzBTC provides a new direction for DeFi and cryptocurrency to expand the new financial frontier. Although tzBTC may not be so decentralized in the eyes of DeFi fundamentalists, tzBTC is supported by the friendly compliance environment in Switzerland and Tezos Under the pragmatic operation of the foundation, tzBTC may become a wallbreaker who breaks the traditional financial assets and DeFi's dimensional wall.