Thread by @harmonyprotocol

1/ @Harmonyprotocol’s new trustless BTC bridge offers users an opportunity to put their BTC to work and participate in DeFi protocols without liquidating.

Here's a synopsis of a report by @MessariCrypto on Bridging BTC to #HarmonyONE's EVM👇
messari.io/article/bridgi…

@MessariCrypto 2/ Since Bitcoin does not have smart contracts, it is challenging to create conditioned & complex transactions.

This makes programmatic custody of bitcoin & bridging it trustlessly to other chains quite difficult and most BTC used on other chains is via centralized custodians.

@MessariCrypto 3/ The report examines the new @harmonyprotocol BTC bridge designed to be secure and completely trustless.

The bridge operation, economics and risks are evaluated as well as the implications of BTC functioning on an Ethereum Virtual Machine (EVM) compatible network.

4/ Different chains are better suited for different uses and bridges help them become interoperable.

Different protocols have different rules and standards, which means tokens you can use on one chain are not usable on another.

Bridges allow the use of tokens on new chains.

5/ Bridging Bitcoin and Harmony has potentially significant implications for the #HarmonyONE ecosystem.

The ability to bridge over an asset worth ~$1 trillion could substantially increase TVL and the value of the Harmony network, which currently stands at over a billion USD.

6/ The Harmony BTC bridge enables the wrapping of BTC, representing it as 1BTC.

As a supply peg is used and not an algorithmic price peg, BTC can always be redeemed 1:1 with 1BTC (plus fees) and vice versa on the bridge, regardless of any price premiums.

7/ BTC on the Bitcoin blockchain is first locked in a vault. This transaction is verified in a trustless manner through a relayer and enables the minting of 1BTC on Harmony.

On the way back, the 1BTC is burned and the user can redeem the originally locked BTC after verification.

8/ To ensure a lower entry barrier for everyONE, the process involves registering the vault and running a vault client.

This is designed to be easy and profitable to attract more vaults and improve decentralization.

docs.harmony.one/home/general/b…

9/ Vaults are punished if they go offline or fail to provide service to users. The severity of the punishment is determined by each actor's SLA score, ranging from 0 to 100.

The higher score a vault has, the lesser it is punished if it fails to provide service and vice versa.

10/ This reputation system is used to give vault operators history & credibility that they can use to escape hefty fines should they fail for reasons beyond their control.

This is because extreme punishments for first-time offenders may deter actors from participating as vaults.

11/ Users pay a fee of 0.5% for using the bridge and minting/redeeming 1BTC - paid in 1BTC. These fees are paid to fee pools and distributed across Relayers and Vaults according to their SLA.

Furthermore, direct fees are paid to Vaults and Relayers directly for their service.

12/ What should be noted is that a secure bridge to Harmony is a win for all EVM chains and BTC holders.

The use of the EVM is a standard that many different chains use. This universality dramatically reduces the complexity of using bitcoin on other EVM chains.

13/ Future plans and developments include

➡️Moving to a fee market instead of a fixed fee
➡️Changing security deposit for locking BTC in a vault to be a percentage of the vault’s collateral
➡️Introduce a token to be used for decentralized governance of the bridge & its specs/fee

14/ The 1BTC bridge is one of the light clients and relays and excels in capital efficiency, statefulness and security.

The economic incentives of the bridge ensure that the federation of Staked Relayers maintains connectivity and statefulness.

15/ However, there are two areas of weakness.

First is capital (in)efficiency, which means that the utilization of resources could be more efficient.

Since collateral required to bridge BTC is 150%, the amount held in vaults must always be 10% greater than 1BTC in existence.

16/ The second is security.

A chain is only as strong as its weakest link & in this case, it is the reliance on the price oracle whose trustworthiness is assumed.

However, @chainlink Oracles have now been integrated & will provide a price feed not dependent on a single oracle.

@chainlink 17/ Ultimately, the @harmonyprotocol BTC bridge uses a network of vaults and relayers.

The merits, as well as the risks of the design, have been examined and the undeniable importance of bridges mentioned.

The multi-chain world is not an idea; it is a reality.

@chainlink 18/ The new @Harmonyprotocol—Bitcoin bridge is another step towards a future where information and value are seamlessly and trustlessly interoperable across chains.

Try out the bridge (currently in beta)👇
btc.harmony.one/bridge/issue