Wrapped Bitcoin Evolved: Welcome to tzBTC 2.0

Launched in April 2020, tzBTC brought Bitcoin to Tezos along with the vision to always be transparent, stable, and compliant. It’s one of the ecosystem’s true OGs.

The original tzBTC was a trailblazer, but now, four years later, we’re proud to present tzBTC 2.0, the next generation, an improved iteration of the original vision. Still transparent, stable and compliant, but much more cost-effective and accessible – and due to be launched soon.

The tzBTC journey #

When it was launched, tzBTC enabled users and decentralized applications to transact directly in BTC – combining the performance and composability of Tezos with the liquidity and stability of Bitcoin.

The setup behind the original tzBTC entrusted the custody of the bitcoin collateral – the bitcoins that back tzBTC – to a public group of trusted independent institutions.

These institutions act as Keyholders, in charge of signing transactions and managing the supply of tzBTC, minting or burning tokens to keep the 1:1 peg.

To ensure compliance and an orderly distribution mechanism, the concept of Gatekeepers was introduced. Authorized by the Keyholders, licensed institutions could mint or burn tzBTC on behalf of their clients – but only after conducting the appropriate anti-money laundering checks.

With these pieces in place, the vision of a transparent, compliant wrapped bitcoin on Tezos was achieved.

tzBTC on Tezos is a success. Since its inception, more than 1,000 BTC have been wrapped, with a current market capitalization of over 60M USD.

The shortcomings #

The original tzBTC had also some room for improvements. While accessible for on-chain transactions on Tezos, the minting and burning route via Gatekeepers and Keyholders was limited to a few large organizations, and for an unattractive price.

This cost led to price differences between BTC and tzBTC due to a lack of arbitrage opportunities.

Another consequence of the limited transactions was the unwillingness of certain crypto venues to list tzBTC.

Enter tzBTC 2.0 – wrapped bitcoin evolved #

The new version of tzBTC takes the original vision and builds on it to make it more accessible and cost-effective. Here are the improvements:

Gatekeeper optimization #

The first touchpoint for a user who wants to mint or burn tzBTC is the Gatekeeper.

Until now, this incurred a lengthy and manual process with conditions for users set by the Gatekeeper that were often not viable, such as high minimum amounts.

Papers, one of the development teams of Acurast and hsc (a firm co-owned by Roman Schnider) has been working with LEXR Finance (a tzBTC Keyholder and SRO* regulated partner) to offer minting-and-burning access to tzBTC on the tzBTC website – all via an automated self-service, and for no fees other than gas fees.

Their goal is to onboard most individuals within one hour2. For smaller transactions, they’re aiming to make it even faster. More complex cases, such as corporations or citizens of countries with regulatory uncertainties, can continue to approach any of the Gatekeepers.

Keyholder automation and fee elimination #

Currently, minting and burning tzBTC requires pre-scheduled meetings and a strict protocol. This makes the process slow and expensive.

One key innovation of tzBTC 2.0 is leveraging the Acurast execution environment for the automation of this security-sensitive process.

The Acurast execution environment leverages secure elements inside mobile devices to ensure that not even the operator with physical access to the device (in this case the Keyholder) can interfere with, or manipulate, this automation logic. It effectively allows for the automation of minting and burning, so that tzBTC will be instantly available to Gatekeepers.

This automation reduces the work for Keyholders and, going forward, enables them to offer their services for a flat yearly fee. This fee will be subsidized by the Tezos Foundation, which means minting and burning will be free of charge for Gatekeepers.

A transparent, stable, and compliant setup: the original vision remains #

During the brainstorming for a new tzBTC setup, the teams looked at different wrapped bitcoins, such as WBTC or BTC.b.

They realized that a BTC.b setup without KYC and with an opaque minting mechanism would end up having acceptance problems with institutional partners.

From a setup perspective, WBTC is closer to the original tzBTC. However, WBTC’s reliance on a centralized entity presents risks that are mitigated on tzBTC’s setup, which relies on a group of five independent and licensed institutions that act as Keyholders.

Thus, the teams decided to keep the previous setup, including the Gatekeeper KYC requirements. With the high-level KYC providers available today (they’re looking to work with Sumsub), the user experience remains acceptable.

Multi-chain future: from Tezos to the world #

The result of these improvements will be the most cost-effective and secure wrapped BTC available. However, keeping these benefits within the boundaries of Tezos alone would be slightly selfish.

That is why, as soon as the automation work is done, the team of builders will kick off a project to enable the minting of tzBTC on other blockchains. Meaning that, going forward, users will be able to choose selected blockchains when minting or burning tzBTC.

This feature will add immense value and a big push towards increasing the business case for tzBTC – and that will, in turn, lead to wider acceptance and exchange listings.

tzBTC 2.0 timeline #

March 2024

• tzBTC Gatekeeper and compliance automation in partnership with LEXR Finance;
• Keyholder automation using acurast.com; and
• Keyholder and Gatekeeper legal contracting.

June 2024

• Multichain tzBTC minting and burning for selected blockchains.

Follow tzbtc.io to stay up to date with the latest tzBTC news.

*: SRO: Self-Regulatory Organisation under Swiss civil law as a way of preventing money laundering **: 2 Individuals that are not flagged as higher risks after initial KYC checks.