Badger DAO's eBTC is not anyone's Bitcoin

BbyA...nMtW

11 Apr 2023

Badger DAO are doing a synthetic $BTC. But it's not your Bitcoin, it's not anyone's Bitcoin, it's instead a liquid staked $ETH backed token, called $eBTC, which tracks the value of Bitcoin.

Linked below are the two updates in the Badger forums about it so far

The thesis, as I read it is:

current EVM chain compatible bitcoin products (namely $wBTC) are centralised & permissioned thus essentially like a bank holding your Bitcoin.
bridging to and from bitcoin blockchain technology is hard to work with and so risky to bridge
liquid staked Ethereum is flexible, yield bearing, and mostly decentralised so can be setup to be a permission-less way of minting and maintaining a peg to the $BTC price via tracking the $BTC/$ETH delta with a Chainlink oracle.
people love stablecoins that track the price of USD, people also love Bitcoin, so why not have both?

From the forum posts linked above:
Liquity’s LUSD architecture stood out as an exception, excelling in providing censorship-resistant borrowing with a stable floor peg. Designed with a focus on censorship resistance and decentralization with only ETH as collateral, it was similar to our vision for eBTC. We decided to borrow from Liquity’s design as the foundation for eBTC’s architecture on the grounds of their stable performance, quality of research, and commitment to immutability.

Luckily the first thing that springs to mind, the 21 million cap, was raised in the comments on the announcement post.

Q: But, one of the problems will be, there will be more bitcoins in the market and the MAX supply of Bitcoin will be more than 21mm?

A: eBTC is a collateralized crypto asset soft pegged to the price of Bitcoin and built on the Ethereum network. It is backed exclusively by Liquid Staked ETH (LSD) and powered by immutable smart contracts with no counterparty reliance. It’s designed to be the most decentralized synthetic BTC in DeFi and offers the ability for anyone in the world to borrow BTC at no cost.

Two assumptions particularly stand out to me about Badger's thesis.

Bitcoin is regarded by people as a similar reserve asset to USD
The USD is an inflationary currency which maintains its stability through its integration with the multi trillion dollar US economy and as the reserve currency for much of the global economy.
Bitcoin, in contrast, has always paid it's miners almost entirely in block rewards (which are slowly halving themselves into non-existence) because there's so few transactions fees generated on chain.

You can reliably algorithmically maintain a token value peg with two volatile assets.
It's not unusual for $BTC to move 10-30% month on month. $ETH too.
If you want to use Bitcoin to it's full potential in defi then you need bridge it to a smart contract blockchain. $wBTC might not be the greatest solution but at least it's actual bitcoin backing that asset.

Maybe this is how actual Bitcoin dies. Not through some hack or people losing faith in it, but by it being made technologically obsolete by derivatives.

There are better options

A better solution is a permission-less and decentralised bridge to and from the bitcoin blockchain herself.

That's why I'm so optimistic for what Threshold Network are building with $tBTC https://dashboard.threshold.network/tBTC/how-it-works

And what Stacks are building with $sBTC https://stacks.org/sbtc-nakamoto

Both are looking to address the centralisation that wrapped bitcoin products by maintaining a trustless and secure connection to the Bitcoin blockchain in order to see value currently locked there able to participate as native BTC in the broader crypto industry