The Meaning and Value of vBTC
Today: Price pegs of tokenized BTC are maintained by arbitrage between trusted bridges.
vBTC and the Strudel Protocol is about trusting crypto-economic incentives without middlemen. It is the next logical step towards a trustless bridge of Bitcoin to Ethereum.
The Importance of Crossing Trustless
There is systemic risk in the ecosystem! Trusted bridge solutions like $REN and $WBTC lock BTC in insecure multisig setups (<8 signers). They raise concerns of total value collapse causing harm to protocols and pools locking these assets. Strudel is here to help. vBTC has a fully auditable supply and no risk of compromise. It is the asset of choice for traders and DeFi users.
By crossing only in one direction vBTC is covering the basic supply of tokenized Bitcoin that stay on the Ethereum blockchain.
The Purpose of vBTC
Currently, centralized and decentralized tokenized BTC solutions are just a gateway for people to join the Ethereum ecosystem. They are depended on 3rd party protocols to make use of their assets.
Strudel is offering a shortcut. Once the BTC bridge is crossed — vBTC and the earned $TRDL tokens can be put to use immediately. The Strudel Dapp allows instant yield farming and rewards claiming through incentivized market mechanisms. vBTC is BTC with an ERC20 interface allowing smart-contract interoperability, lending, options and other DeFi use-cases. All of these, reducing its volatility and potentially increasing market value. Additionally, vBTC has a flash loan capability making it even more attractive and allowing it to be a core function in the pegging algorithm.
Securing the Value of vBTC
How does Strudel peg BTC and vBTC on a 1:1 ratio?
A pegging algorithm is used by offering a global short position for liquidity providers and a long position for asset holders. Those willing to be slightly leveraged-short on BTC, deposit liquidity into the reserve pool to earn fees by facilitating market-making activities between ETH and vBTC. The value of vBTC is designed to track a price feed within an allowed deviation range.
Strudel Pegging Algorithm
The algorithm makes use of a Balancer smart pool. A highly incentivized reserve pool (50% $TRDL rewards) with configurable weights and a less incentivized spot pool with a fixed 50/50 weight are connected through a Peg Manager contract. The Peg Manager uses its ability to flash-loan vBTC and it’s privilige to set the weight between vBTC and ETH in the reserve pool to execute ring trades. Through a price oracle the price feed is updated every 15 minutes. Based on this price feed the peg manager can calculate the trade and weight adjustment in order to bring the price of the respective pools back to peg.
Spot pool lagging behind BTC peg
Reserve pool lagging behind BTC peg
When the spot price deviates from the feed price (oracle) by more than an acceptable margin (e.g. +/- 2%) for more than an allowed period of time (e.g. 24 hours), the Peg Manager moves ETH between the reserve pool and the spot pool by flash-loaning and adjusting weights in the reserve pool.
Black Swan
By taking a global short position on BTC dominance the risk occurs that BTC strength increases stronger than ETH. When BTC rises vs ETH so that the weight of vBTC in the reserve pool exceeds MAX_WEIGHT, the Peg Manager stops its operation. vBTC consequently floats free. Liquidity providers can still withdraw their underlying assets, consisting mostly of vBTC.
MAX_WEIGHT is considered a governance parameter.
Market Conditions
The Ethereum ecosystem is gaining strength through new uses-cases such as DeFi and many more e.g. NFTs, Governance. Strudel is optimistic and the bridge is a signal for all that feel the same.
Be part of the future and enter the Strudel.
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Read More
📜 Have a look at the Strudel Manifesto.
👉 Follow the Strudel instructions for a save crossing.
🧐 Read about Strudel’s trustless bridge here: Bridging without Intermediaries
