Why dlcBTC

Bitcoin's DeFi Limitation: Bitcoin, despite being the largest digital asset, can't be directly used in DeFi. This necessitates transferring it to custodians or bridges, which have historically been prone to hacks and failures, leading to substantial losses.

dlcBTC Solution: dlcBTC is a decentralized wrapped Bitcoin offering a theft-proof bridge to DeFi, backed by the security of the Bitcoin network.

How dlcBTC Works

Locking Bitcoin: Users initiate the process by locking their Bitcoin into a Discreet Log Contract (DLC) using the dlcBTC bridge. This action triggers the minting of dlcBTC tokens, which represent an equivalent value of the locked BTC.

DLC Mechanism: The DLC acts as a secure "lockbox" on the Bitcoin blockchain. It's a pre-signed agreement outlining potential transaction outcomes between the user and the protocol.

Key Distribution: Users retain one key to the multisig UTXO (Unspent Transaction Output), ensuring they maintain control. The second key is distributed across a decentralized network of attestor nodes, enhancing security.

Attestor Layer: A network of seven trusted node operators oversees blockchain events, facilitates DLC creation, and validates outcomes on the Ethereum Virtual Machine (EVM) blockchain. This layer ensures reliable cross-chain communication without compromising user custody.

Using dlcBTC: Once minted, dlcBTC tokens can be utilized in various DeFi activities. They can be used as collateral in lending protocols, added to liquidity pools to earn rewards, or employed in DeFi options like Covered Calls to generate yield.

Benefits of dlcBTC

Enhanced Security

• Safer: dlcBTC is minted from self-custody through a process called "self-wrapping," eliminating reliance on third-party custodians like BitGo and reducing the risk of central points of failure.

• Theft-Proof: DLCs ensure that locked Bitcoin can only be returned to the original depositor, even if the system is compromised.

• Bitcoin Network Protection: Transactions are secured by the Bitcoin network's hashrate, providing robust protection against attacks.

Increased Efficiency

• Faster: Minting/burning dlcBTC is 3-10X faster than wBTC or tBTC, currently taking around 1 hour (6 Bitcoin block confirmations) with potential for further improvements.

• Lower Fees: Our mint/burn fees are 25% cheaper than wBTC, with the possibility of negotiating volume discounts.

Ease of Use

• Ease of Onboarding: Simple onboarding process for merchants, requiring only KYB (via Fractal ID) and a software agreement. Minimal compliance impact due to unchanged custody, suitable for complex compliance environments.

• Broad Compatibility: Easy launch on new chains due to BTC being locked on the Bitcoin side, enabling quick access to emerging opportunities.

• Not a Bridge: Unlike tBTC or other options, dlcBTC is not a Bitcoin bridge or L2, avoiding concerns from institutional risk teams.

Regulatory Compliance

• KYT Integration: Partnership with Chainalysis for Know Your Token (KYT) to enhance compliance

• Software-as-a-Service: Designed to simplify compliance processes for institutions

Flexible Yield Generating Potential

• DeFi Integration: dlcBTC can be used across various DeFi protocols, enabling merchants and users to earn yield through activities like staking, lending, and liquidity provision.

• Multiple Chains: The protocol's compatibility with multiple blockchains expands the range of yield-generating opportunities available.

Strong Institutional Adoption:

• Existing Relationships: Currently onboarding ~20 institutions with over 100 more in the pipeline, demonstrating growing interest and trust.

Become a Merchant

Role

Authorized participants in the dlcBTC network with exclusive rights to mint and burn dlcBTC tokens.

Key Responsibilities

• Mint dlcBTC by locking BTC into a Discreet Log Contract (DLC).

• Burn dlcBTC, redeeming Bitcoin for dlcBTC tokens upon request.

• Facilitate transactions between the dlcBTC network and retail users, managing KYC/AML processes.

Benefits

• Control the supply of dlcBTC in the market.

• Profit from price differences between dlcBTC and BTC through arbitrage.

• Earn trading fees (0.05% - 0.2%) from OTC transactions.

Advantages over wBTC

• Self-custody eliminates counterparty risk associated with custodian failures.

• Faster minting process (30-60 minutes vs. 3-12 hours for wBTC).

• Lower fees due to the absence of custodian vault fees.

Offer

• Earn 10% APY in $DLC: Annual interest, vesting over 12 months.

• Additional Yield: Gain an extra 5-15% yield through Curve's tAPR rewards.

Fee Structure (as of May 20, 2024) 

Mint Fees

Burn Fees

Generate Regulatory-Compliant Yield Without Becoming a Merchant

Institutional investors can leverage dlcBTC to generate regulatory-compliant yield on their Bitcoin holdings without becoming merchants themselves. 

Several DeFi protocols offer opportunities to earn attractive returns:

• Maple Finance: Lend dlcBTC in a term loan for an 8-10% APY ($5M minimum).

• Karak: Earn a 3% staking yield, plus potential APYs of 60-200% on Karak points (early adopters with a $5M minimum).

• Hashnote Harbor (coming soon): Implement covered calls for an estimated 5% APY.

• Swaap.finance (coming soon): Employ a 4X leveraged ETH staking strategy for an estimated 10% APY.

Project Progress

Current TVL: $2.5 Million

Notable Investors: OKX Ventures, ABCDE, Waterdrip Capital, Foresight Ventures, Animoca Ventures, and others.

Use-Cases Unlocked

Coming soon to AAVE & Compound (lend/borrow), Chakra (LST), Symbiotic & YieldNest (Staking/Restaking)

Helpful Resources

dlcBTC Overview

Technology Deep Dive

FAQ for Institutions

Regulatory & Compliance

Q: What are the regulatory requirements for using dlcBTC?

A: dlcBTC itself operates as a decentralized protocol. We do not hold user BTC, so we do not require a Money Transmitter License or SEC/CFTC registration. However, institutions acting as merchants may have specific regulatory obligations depending on their jurisdiction and business activities. We recommend seeking legal counsel to ensure compliance.

Q: Does becoming a dlcBTC merchant require KYB/KYC?

A: Yes, we require merchants to undergo KYB/KYC procedures. This helps ensure the integrity of the dlcBTC ecosystem and mitigate risks associated with money laundering and other illicit activities.

Q: Is dlcBTC considered a security?

A: No, dlcBTC is not classified as a security. It's important to recognize that Bitcoin itself is widely recognized as a commodity, not a security. dlcBTC, being a decentralized wrapped version of Bitcoin where merchants retain full control and ownership of their assets, inherits this commodity attribute. Furthermore, there's no scenario where we take custody of user funds, further distinguishing it from securities which often involve investment contracts and the expectation of profits from the efforts of others.

Q: How does dlcBTC address compliance challenges in the traditional financial sector?

A: We understand the complexities of navigating the regulatory landscape. dlcBTC is designed as Software-as-a-Service, aiming to simplify compliance for institutions. We're actively working on providing comprehensive flow diagrams, legal opinions on tax implications, and security classifications to assist institutions in their due diligence process.

Q: What are the tax implications of using dlcBTC?

A: Tax implications can vary depending on jurisdiction and specific use cases. We recommend consulting with tax professionals for personalized advice. We're also working on providing general legal opinions on potential tax considerations related to dlcBTC.

Operational & Technical

Q: Can large institutions like Blackrock adopt dlcBTC?

A: Yes, large institutions can adopt dlcBTC. For those requiring additional control and security, we can facilitate the setup of a private attestor network, allowing them to manage keyshares directly.

Q: What are the smart contract risks associated with dlcBTC?

A: While DLC Attestors cannot steal BTC, smart contract risks like unlock censorship theoretically exist. We mitigate these risks through rigorous security audits, bug bounty programs, and ongoing monitoring.

Q: Can the DLC oracle be manipulated?

A: dlcBTC leverages Chainlink's Cross-Chain Interoperability Protocol (CCIP) to securely transfer data and commands between blockchains, ensuring the integrity of cross-chain operations. While dlcBTC itself is designed to be oracle-free, enhancing its security and decentralization, CCIP relies on a decentralized oracle network to securely transfer data and commands between blockchains. However, Chainlink's decentralized oracle network has a robust reputation for security and reliability, minimizing the risks associated with oracle manipulation.

Q: How does dlcBTC handle the onboarding of large Bitcoin holders (whales)?

A: Whales have two primary options:

1. Mint dlcBTC through an existing merchant.

2. Onboard as a dlcBTC merchant themselves if they meet the qualification criteria. We carefully vet merchants to ensure they are reputable and capable of serving their clients responsibly.

Q: Can we use a multisig wallet setup for minting and burning dlcBTC?

A: Yes, a multisig wallet setup is compatible with dlcBTC. This allows for greater flexibility and control, especially for institutions with specific security and operational requirements. We're exploring ways to streamline the whitelisting process for multisig addresses to enhance user experience.

Q: What are the risks for merchants in the dlcBTC ecosystem?

A: Merchants face reputational and business risks if they fail to return BTC when clients redeem their dlcBTC. This behavior would erode trust, deter future customers, and go against industry best practices. We encourage merchants to act responsibly and uphold the highest standards of service.

Important Links

• Intro to dlcBTC Video

• Documentation

• Litepaper

• Dune Dashboard

• Social Media

  • Twitter

  • Telegram

  • Discord

  • YouTube

• Security Audit Reports

  • July 4, 2024 - MetaTrust completed a security audit of dlcBTC's newest EVM smart contracts.

  • May 7, 2024 - MetaTrust completed a security audit of dlcBTC's architecture (attestors and Solidity)

  • November 29, 2023 - CoinFabrik completed a security audit of dlcBTC's infrastructure.

  • August 2023 - CoinFabrik also completed a high level review of dlcBTC's architectural.

• Smart Contracts

  • Arbitrum

  • Base

  • Ethereum

  • Chainlink POR