Proposal: List Threshold Network’s tBTC on Venus Core Pool

[FREDY]

Summary

The proposal recommends listing Threshold Network’s tBTC, as a supported asset on Venus Core Pool for Ethereum. By adding tBTC, Venus will unlock the borrowing demand for this pegged BTC assets to provide a foundational source of yield for BTC lending within the Venus ecosystem while fostering greater liquidity and user engagement. tBTC is backed one-to-one with Bitcoin.

Motivation/Background

tBTC is Threshold’s decentralized and permissionless bridge that brings BTC to Ethereum, Arbitrum, Base, Polygon, Optimism, Solana and other chains. Users wishing to utilize their Bitcoin on Ethereum and other chains can use the tBTC decentralized bridge to deposit their native Bitcoin into the system and get a minted tBTC token in their EVM wallet.

Through an acquired Chainlink oracle, tBTC enables Venus users to have access a wrapped Bitcoin, which can be permissionlessly minted and redeemed, where the BTC that backs it is not held by a central intermediary, but is instead held by a decentralized network of nodes using threshold cryptography. This implies a fully decentralized and permissionless lending and borrowing experience for BTC (i.e. bridge native BTC to tBTC and borrow via Venus).

tBTC is present on other markets such as AAVE Ethereum market and following its approval, tBTC’s initial supply cap was reached within 72 hours, prompting an increase to meet the overwhelming demand. This rapid adoption underscores the market’s appetite for trust-minimized BTC solutions in DeFi.

tBTC on Ethereum has a current supply of 4,641 BTC worth $450M at current price.

Benefits for Venus

• Further decentralization and trust minimizationin the Venus stack.
• A range of lending options for those who wish to earn yield on their BTC.
• High User Demand, since its initial deployment on Aave’s Ethereum market, tBTC reached its initial 500 BTC supply cap within the first week. The cap has been increased multiple times, now sitting at 2200 BTC, highlighting strong user interest.
• Collaboration with the Threshold Network DAO, opening up the opportunity to incorporate other Threshold products such as thUSD into the Venus offering.
• A range of lending options for those who wish to earn yield on their BTC.
• Preferable yields on tBTC through active incentive participation, boosting Venus protocol use, fees and TVL.

Specification

Ticker: tBTC

Contract Address:
Ethereum: 0x18084fbA666a33d37592fA2633fD49a74DD93a88

Chainlink Oracle:
Ethereum: 0xF4030086522a5bEEa4988F8cA5B36dbC97BeE88c

Useful Links:

Project: https://www.threshold.network/
Minting Dashboard: https://dashboard.threshold.network/tBTC/mint
Bridge to other Chains: Portal tBTC Bridge
GitHub: GitHub - keep-network/tbtc-v2: Trustlessly tokenized Bitcoin everywhere, version 2
Docs: tBTC Bitcoin Bridge | Threshold Docs
Audit: About
Immunfi Bug Bounty: Threshold Network Bug Bounties | Immunefi
Llama Risk Report: Collateral Risk Assessment: Threshold BTC (tBTC) - HackMD
Twitter: x.com
Discord: Threshold Network ✜
Dune: https://dune.com/threshold/tbtc / https://dune.com/sensecapital/tbtc-liquidity

Emission schedule

tBTC is one-to-one backed with real Bitcoin, meaning that there isn’t an emissions schedule, but a mint and redeem function that adjusts the supply of tBTC based on native BTC coming into and out of the system.

High-level overview of the project and the token.

tBTC is a decentralized wrapped Bitcoin that is 1:1 backed by native BTC. Unlike other wrapped Bitcoins, the BTC that backs tBTC is not held by a central intermediary, but is instead held by a decentralized network of nodes using threshold cryptography.

tBTC is trust minimized and redeemable for native BTC without a centralized custodian. It can be used across the entire DeFi ecosystem.

tBTC can be used as collateral, liquidity, a store of value, and can be integrated with DeFi apps across all supported blockchains.

As with other BTC wrappers, tBTC provides cryptocurrency traders and general users with a BTC-pegged token, that can be used to generate yield whilst holding native BTC.

Positioning of the token in the Venus ecosystem. Why would it be a good borrow or collateral asset?

Adding support for tBTC on Venus Core Pool as an asset would allow tBTC holders to obtain a yield on their tBTC holdings.

tBTC is the only way to permissionlessly borrow and lend BTC in a decentralized manner. This gives Venus direct access to the 1.9 trillion market of BTC, for which centralized competitors provide limited access to.

History of the project and the different components: DAO and products.

tBTC was created by a decentralized effort of contributors at the Threshold Network DAO, and extensively utilizes the Threshold Network’s threshold cryptography to create a secure BTC asset. tBTC is a product launched on Threshold Network, on which many other decentralized applications are being built.

Threshold Network DAO was born out of the first on-chain merger between two decentralized protocols, Keep Network and NuCypher early in 2022. The DAO has successfully operated since that time, and supports an active community of contributors that work towards building tBTC liquidity and usability.

Threshold Network operates thUSD a decentralized overcollateralized stablecoin backed by tBTC and ETH, meaning that users can mint thUSD by locking up tBTC or ETH as collaterals. The stablecoin is designed to maintain a 1:1 peg with the US dollar while leveraging Bitcoin liquidity in a trust-minimized manner.

It also operates TaCO (Threshold Access-Controlled Off-Ramps) which is designed to provide decentralized and permissionless access control for off-ramping assets from crypto to fiat. It leverages Threshold cryptography to enable secure, private, and censorship-resistant transactions, allowing users to move assets without relying on centralized intermediaries.

How tBTC is currently used

tBTC is used across a variety of chains and use cases. Some key utilities include Aave, GMX, EigenLayer, Synthetix, Morpho, Symbiotic, collateral asset for crvUSD, thUSD and solvBTC.

A comprehensible list can be found here:
https://defillama.com/yields?token=TBTC & Earn yield on your Bitcoin | Linktree

Token & Protocol) permissions (minting) and upgradability, multisig and signers

For tBTC, wallets are created periodically based on governance. In order for the wallet to move funds, it produces signatures using a Threshold Elliptic Curve Digital Signature Algorithm, requiring 51-of-100 Signers to cooperate. The 100 signers on each wallet are chosen with our Sortition Pool, and the randomness is provided by the Random Beacon. More can be found here - Wallet Generation | Threshold Docs

The Threshold Council multisig is a 6/9 Gnosis Safe multisig with 9 unique signers that form the Threshold Network Council. The Council has limited upgrade privileges over the smart contracts. However, those privileges do not include any custodial power over deposited BTC:

Council Multisig Ethereum Address: 0x9F6e831c8F8939DC0C830C6e492e7cEf4f9C2F5f

Social channels data (size of communities and activity)

Discord: 10,175
Twitter: 38,400
Github: 4,596 commits
Date of Deployment: August 2021
Number of transactions: 2.393.648 (across all chains)
Number of token holders: 15.918 (across all chains)

Risk parameters

Suggest waiting for the feedback from risk teams for suggested parameters.

[Tomm]

Good proposal. It’s time for Venus to cooperate with more BTCFi protocols!

[FREDY]

Kindly requesting review and considerations from @chaoslabs

[satisfiend]

here for tBTC, the more options for btc the better but especially the decentralized kind. obv still under the trust assumptions of any evm but the bridging itself is censorship resistant and trust minimized

[chaoslabs]

Overview

Chaos Labs supports the listing of tBTC on the Venus Ethereum Core Pool. Below is our analysis and initial recommendations.

Technical Overview

tBTC is a decentralized bridging solution that allows Bitcoin holders to mint tBTC tokens on the Ethereum network and participate in the DeFi ecosystem while maintaining exposure to their original BTC. Built on threshold cryptography and an honest-majority assumption, tBTC eliminates the need for centralized custodians by distributing key shares across a wide network of nodes.

At the heart of tBTC’s security lies a threshold cryptography model that distributes key generation and signing responsibilities among 100-node signer groups, each required to stake T tokens to become eligible. tBTC employs a (51,100) threshold ECDSA scheme where wallet operations require collaboration between 51 signers. This design ensures that no single entity can control private keys outright, significantly reducing custodial risk. However, an attacker who accumulates enough T stake to influence the random selection process could theoretically disrupt or commandeer wallets. To mitigate such threats, the network rotates signer groups regularly, imposes strict staking requirements, and employs slashing rules for misbehavior.

The T token underpins the system’s security budget, with each node operator staking at least 40,000 T to participate in signing groups. Historically, the staked amount has surpassed two billion T, creating a robust economic deterrent for attackers. Nodes gain yield for their service but risk significant slashing for dishonest behavior, aligning operator incentives with network integrity. For instance, nodes face a 10% stake loss for late responses, ensuring active participation in network operations. More severe penalties apply for fraudulent activity, with a 100% stake loss enforced for signature fraud. Despite this substantial protection, fluctuations in T’s market price could undermine the security budget if rapid devaluations occur.

Decentralization Model and Economics

The Threshold Network’s wallet generation protocol deploys a new Bitcoin wallet every 14 days or whenever the previous wallet’s balance crosses 100 BTC. The deployment of a new Bitcoin wallet is done through the updateWalletParameters governance function. As explained previously, the signers’ group, composed of 100 nodes, is selected randomly with a probability equal to their proportional T stake, with 51 signers required to control the wallet’s operation and the possibility of a single staker being chosen as a signer multiple times. Thanks to this information, we can calculate the likelihood of controlling a new wallet over a variable time period depending on the % of the total stake controlled:

Where p linearly represents nominal stake control. Given the creation of a new wallet every 14 days, deriving the probability of controlling at least one of those wallets over a variable timeframe under some static relative stake assumption with the singular entity:

where T represents the associated number of wallet creations within some timeframe. The relative T stake required to probabilistically control a new wallet created under specified duration assumptions can be visually observed below.

We observe that a range of 40% to 55% of the total T stake controlled by a singular entity starts to become problematic, assuming the staker maintains his share of the pool for a time window between 2 weeks to 2 years. To quantify whether such an action is economically feasible to perform under historical market valuations of the asset (which can be considered a general heuristic given the practical implications of such a scenario), the total dollar value of T stake and the associated 50% relative share representation is portrayed below, alongside the historical dollar value of 100 BTC, aiming to reflect the worst-case outcome of a new wallet generation and its comparative value to a scenario whereby malicious behavior is a rational outcome.

While the stakers can be observed to be significantly decentralized, currently, only 35 operators are whitelisted to stake T tokens, as can be found through the OperatorsInPool function on the SortitionPoolcontract.

New operators can be added through governance, and some of the biggest stakers appear to be institutional Staking providers.

SPV Proofs

Verifying the Bitcoin blockchain’s state on Ethereum requires cross-chain communication. tBTC achieves this through SPV proofs, utilizing an open-source relay. The verification process involves relay nodes submitting Bitcoin block headers to Ethereum smart contracts, maintaining an up-to-date representation of Bitcoin’s blockchain state. This model still operates under “SPV assumptions,” which provide a weaker security model compared to the full verification performed by a Bitcoin full node. The proofs don’t rely on an honest federation, as the Bitcoin state is verified in the smart contract itself.

Currently, the protocol safeguards roughly $435M in bridged BTC, having peaked at higher levels in the past.

Mint and Redeem

Minting tBTC begins when users send BTC to a monitored wallet address associated with a randomly selected signing group. The Optimistic Minting System enables accelerated issuance through Trusted Accelerators. These entities detect deposits via SPV proofs and trigger rapid mint requests, subject to a three-hour dispute window where Guardians validate transaction finality and system integrity. Uncontested mints auto-finalize, minting tBTC while accruing debt until wallet sweeps reconcile balances. A 0.2% fee is applied, with proceeds funding the Treasury and Coverage Pool. Withdrawing tBTC back to Bitcoin follows a similar process, requiring proof of signer control over the original address before redemption occurs.

The primary Minters authorized for optimistic minting include Curve DAO, Synthetix, and ACI.

Market Cap and Liquidity

tBTC’s suppy on Ethereum has been growing steadily over the last year, with its current supply on the chain being roughly 4,600 BTC or $435M. Additionally, its transaction volume and count have been steady over the last year.

tBTC’s DEX Liquidity has decreased significantly over the last 6 months, with the majority of it concentrated in WBTC pairs on Curve and Uniswap DEXs. A minor portion of the liquidity is within WETH and Stablecoin pairs. The total buy liquidity for tBTC at the current time is $8.4M.

Volatility

tBTC’s volatility relative to BTC has remained very stable over the last 180 days, recording an average Daily Annualized Volatility of 6.56%, which is further improving in recent weeks, reaching 5.58 over the last 30 days.

Its biggest recorded price drop against BTC has been 1.95%. However, the asset tends to revert to its peg, allowing us to recommend less conservative parameters.

LTV, Liquidation Threshold, and Liquidation Bonus

We recommend aligning its parameters to WBTC on the same chain. As such, we recommend an LTV and LT of 75% and 80%, respectively, with the Liquidation Penalty set to 10.0%.

Supply Cap and Borrow Cap

We recommend utilizing our normal methodology, in which the asset’s supply cap is set to 2x the amount of liquidity available at a price slippage equivalent to the Liquidation Penalty. This leads to a recommendation of 120 tBTC. Given the limited demand for borrowing BTC-related assets , we recommend limiting the Kink of the asset to 45% in order to improve the withdraw liquidity available.

Pricing

Given tBTC’s higher-than-usual volatility but its consistent tendency to revert quickly to its underlying value, we recommend utilizing Chainlink’s BTC/USD oracle. This setup mitigates risks of price manipulation and protects against liquidation cascades caused by significant price fluctuations.

Currently, the only market-rate oracle for tBTC on Ethereum uses tBTC/USD pricing with a 24-hour heartbeat and a 2% deviation threshold. Because of those parameters, relying on this oracle introduces notable deviation risks under volatile conditions. Although more conservative risk parameters could help mitigate these issues, such measures would significantly diminish market efficiency and user appeal.

Recommendation

Following the above analysis, we recommend the following parameter settings:

Parameter	Value
Asset	tBTC
Chain	Ethereum
Pool	Core
Supply Cap	120
Borrow Cap	60
LTV	75%
LT	78%
Liquidation Incentive	10%
Base	0
Multiplier	0.15
Jump Multiplier	3.0
Kink	45%
Reserve Factor	25%

Disclaimer

Chaos Labs has not been compensated by any third party for publishing this recommendation.

Copyright

Copyright and related rights waived via CC0

[sour_milk]

Hi community, I am in great support of this proposal. BTCfi has great potential, and Venus being a lending hub for BTC related tokens is great exposure for the future IMO