When you think of DeFi, what are the first coins that come to your mind? Odds are you mentioned ETH, SOL, DOT, or some others, but was it Bitcoin? Being the first cryptocurrency, it definitely revolutionized the financial world through secure decentralized transactions, but it was the more programmable Ethereum and other cryptocurrencies that led to the development of decentralized finance (DeFi). Though there have been efforts to integrate Bitcoin with DeFi such as with wBTC and others, they still carry some issues with centralization and security. Here’s where Interlay makes a difference with its iBTC!

‍

Interlay and iBTC as a DeFi Bridge for Bitcoin

Traditionally, Bitcoin has had difficulty integrating with different DeFi protocols due to its unique design and security model. Interlay addresses this by essentially acting as a bridge, allowing Bitcoin to participate in various DeFi activities. It does this by creating a wrapped version of Bitcoin in iBTC and offering a plethora of DeFi services to use iBTC with!

‍

iBTC is a type of cryptocurrency designed to represent Bitcoin on blockchains other than Bitcoin's own functioning as a wrapped version of Bitcoin. What this means is that, iBTC takes your actual Bitcoin and "wraps" it into a new token that can be used on the Polkadot blockchain. Each iBTC is pegged 1:1 to the value of Bitcoin, ensuring a stable and reliable representation. This allows the value and functionality of Bitcoin to be transferred to a different network. 

‍

Using iBTC gives users access to Interlay’s comprehensive DeFi hub providing Bitcoin holders access to general DeFi services that most other blockchains have. Users can seamlessly swap their assets for other cryptocurrencies using Interlay's own decentralized exchange (DEX), lend or borrow Bitcoin, USDT, USDC, DOT as well as other coins using a lending protocol, and even stake their INTR, the native token of Interlay, to secure the network and earn rewards. 

‍

Interlay’s vision is to help Bitcoin achieve mass adoption by unlocking decentralized use cases for BTC and removing the need for centralized services. People won’t need to use centralized exchanges (CEXes) or deal with middlemen if they don’t want to. 

‍

Security with the Vault Network

‍

Did you know that iBTC is also secured by a decentralized network of vaults, eliminating the risk associated with single points of failure. Interlay's bridge plays a critical role in its DeFi ecosystem, allowing users to transfer Bitcoin between blockchains. But how exactly does it ensure the security of these valuable assets during transfer? This is where Interlay's innovative vault system comes into play! 

‍

Imagine a secure vault that holds your Bitcoin like a safety deposit box. When you want to transfer Bitcoin using the Interlay bridge, here's what happens:

‍

1. Depositing Bitcoin: You send your Bitcoin to a designated Bitcoin address controlled by the Interlay network.
2. Vault Locking: Once the network confirms your Bitcoin deposit, it gets locked in a secure vault on the Bitcoin blockchain. This essentially removes the Bitcoin from circulation on the Bitcoin network.
3. Issuing Wrapped Bitcoin: On the target blockchain (like Ethereum or Polkadot), Interlay mints an equivalent amount of wrapped Bitcoin tokens. These tokens represent your locked Bitcoin and can be freely traded within the Interlay DeFi ecosystem.
4. Redemption: When you want your Bitcoin back, you simply send back the wrapped Bitcoin tokens you received earlier. Interlay verifies the transaction and unlocks an equivalent amount of Bitcoin from the vault on the Bitcoin blockchain. The previously issued wrapped Bitcoin tokens are then burned, effectively taking them out of circulation.

‍

‍

This method is secure because the locked Bitcoin in the vault acts as collateral for issued wrapped Bitcoin tokens. This ensures that the value of the wrapped tokens is always backed by real Bitcoin. The vault network is also operated by independent validators who are incentivized to secure deposits responsibly. These validators must lock up more capital than the value of the Bitcoin they secure. This acts as a safety net, ensuring that even if a validator malfunctions or attempts to act maliciously, user funds remain protected. Furthermore, Interlay allows secure and efficient verification of Bitcoin transactions on the source chain by introducing Cross-chain Light Clients. These are special nodes which don’t require users to store the entire blockchain yet still receive enough information to accurately verify transactions. All of these contribute to the overall security of Interlay. Better safe than sorry!  

‍

Benefits of Interlay

Interlay offers a compelling proposition for both Bitcoin holders and DeFi enthusiasts:

‍

• Unlocking DeFi Opportunities: Bitcoin holders gain access to a plethora of DeFi applications. Users can lend their Bitcoin to earn interest or borrow against their holdings to access liquidity. This expands the utility of Bitcoin beyond simply a store of value. 

‍

• Enhanced Security and Transparency: The decentralized vault network and light client technology ensure a high degree of security and transparency in all transactions. Users can be confident that their assets are safe and that the network operates fairly.

‍

• Unlocking Potential Liquidity: Normally, one would have to sell off their assets or exchange them for something else when entering different networks. However, through Interlay, people can bring their Bitcoin into Polkadot without having to give up their BTC positions. This would unlock a lot of potential liquidity and allow many to participate in the Polkadot ecosystem while still keeping their Bitcoin exposure. 

‍

Benefits of iBTC compared to other wrapped BTC alternatives

iBTC also holds several advantages over its counterparts:

• Decentralization: Most wrapped Bitcoin options, like wBTC, rely on centralized custodians to hold the underlying Bitcoin that backs each wrapped token. You essentially have to trust these third-party institutions to safeguard your Bitcoin. On the other hand, iBTC leverages a decentralized network of validators on the Polkadot blockchain. This eliminates a single point of failure and reduces counterparty risk, meaning you don't have to trust a central entity with your Bitcoin and instead get to hold it yourself. 

‍

• Security:  With other wrapped Bitcoin options like wBTC, security depends on the reputation and practices of the custodian backing the tokens. A security breach at a custodian could potentially compromise your wBTC holdings. iBTC borrows security from the Polkadot blockchain, which has a strong track record of security. Additionally, the decentralized validator network on Interlay introduces redundancy and reduces the risk of a single point of failure.

‍

• Minting and Redeeming Transparency: The entire process of minting and redeeming iBTC is transparent and verifiable on the public Polkadot blockchain. Anyone can see how many iBTC are in circulation and how they are backed by real Bitcoin. This enhances trust and security compared to other wrapped Bitcoin options with opaque procedures where it is difficult to track the underlying Bitcoin reserves. 

‍

• Interoperability: Existing as a token on the Polkadot blockchain, iBTC is designed for interoperability. This means it can potentially interact more seamlessly with other DeFi protocols built on the same network. This opens doors for new financial applications and integrations not readily available with wrapped Bitcoins on other blockchains.

‍

With recent failures of CEXes such as FTX and current lawsuits against industry leaders, it's now more important than ever to have a decentralized alternative to anything. Interlay's new approach paves the way for a future where Bitcoin easily integrates with DeFi. It encourages Bitcoin holders to explore dApps without worrying about security or speed. It also introduces a new type of wrapped Bitcoin prioritizing decentralization and user security. As the DeFi space grows, Interlay will surely play a key role in providing more use cases to Bitcoin! Check out Interlay now and enter the new world of Bitcoin DeFi!

‍