RFC-000-005: Adding Liquid-BTC Sidechain

Name: Adding Liquid-BTC Sidechain to REN Network
Category: Protocol / ren-LBTC Token
Status: Draft
Scope: Allow users of Liquid-BTC Sidechain to gain access to REN network

Overview:

Currently, the REN network supports BTC, ZEC, and BCH chains to be utilized on ETH. This proposal seeks to enable the Liquid-BTC sidechain to this group and thus creating a new token (ren-LBTC) in the process. Holders of Liquid-BTC would be able to transfer directly into ETH DeFi products by going directly from Liquid-BTC -> renLBTC thus skipping the entire conversion to on-chain BTC (and all the associated fees and wasted time).

History:

As of Oct 6, 2020 the relative value of these chains transferred thru the REN network are:

* BTC: $900M
* ZEC: $247K
* BCH: $224K

This represents an approximate ratio of 0.9995/0.0005 of BTC vs All-Other-Coins. The implication is crystal clear: The value of REN Darknodes is almost exclusively determined by BTC holders using the protocol. To say it another way, without BTC there would be no value to owning a REN darknode. This fact must be recognized, accepted, and used as a basis for further developments. We should follow the money!

Liquid-BTC is a sidechain to the main BTC network with a few important differences: The network is secured by a consortium of financial institutions (Kraken, BitMex, Bitfinex, Ledger, etc). In this way, it is somewhat analogous to REN with our darknode model. The Liquid-BTC is “backed / bonded” by the real BTC entering the network. Likewise, Liquid-BTC is burnt when it moves back on-chain to BTC.

The purpose of the Liquid Network is to serve as a fast, secure, and confidential inter-exchange network. Therefore, instead of traders needing to move funds on-chain from Kraken to Bitfinex - and thereby exposing them to possible 60 min conf times AND broadcasting a public visible trade which could be front-run by competing traders - the Liquid network instead offers guaranteed 1-min conf times and confidential transactions. In short: It is a traders network for large BTC holders.

What better group of people could REN holders hope to have as customers? Large BTC traders who would be interested in quickly getting in/out ETH DeFi products should be our core audience.

Other Details:

An important side-note to this, the Liquid network supports “Assets” (ie. Tokens) as well. In fact, Tether Liquid-USDT is available on the Liquid network. Currently, there are a few hundred tokens on Liquid Network – most are just proof of concepts – but over time this number will obviously grow. Because of the existence of Tokens on Liquid, there are current projects to create “DEXes” on Liquid. Two examples see: https://liquiditi.io/ and https://github.com/RCasatta/LiquiDEX

The point on the above is that Liquid could well develop into “the native DeFi / DEX network for Bitcoin”, thus it is important for REN to act as a bridge as there will undoubtedly be flow from BTC <-> Liquid <-> ETH

Implementation:

The Liquid Network uses Elements as its node (https://elementsproject.org/). Like BCH & ZEC, the Elements Node is in fact just a fork of Bitcoin-core node, therefore implementation should be straight-forward for REN developers.

3 Likes

Apologies that I’m not super familiar with the solution. I have a few questions.

Could you provide figures on the adoption of LBTC? Such as:

  • How much LBTC is in circulation,
  • How many/which protocols currently adopt it

Hypothetically, we’d be adding an additional layer of solution which will inherently bring on additional risk:

  • Could you also provide information around the risk of LBTC?
  • Is there insurance / what controls/risk mitigations has the consortium undertaken?

Maybe, it would also be helpful to hear from some devs on the team/community that understand how Ren Alliance members might be addressing these issues as well. I last heard that 0confirmation had some sort of initiative to address the confirmation speeds? (might be unrelated, fact check with @mitche50).

Overall, I feel hesitant to support this RFC initiative purely on the basis of not being familiar with it / not having enough information. Answers to the questions above and thoughts from the community may change my hesitation.

Sure.

Could you provide figures on the adoption of LBTC? Such as:

  • How much LBTC is in circulation,
  • How many/which protocols currently adopt it

There is only about $30M active LBTC at the moment. At first glance, that figure may seem low, but its important to point out that the goal of Liquid is to be a “trading network for Bitcoin holders” that interlinks the big exchanges.

Therefore there is little reason for a big trader to “Hold LBTC” since the network is used as transit mechanism to get from Exchange A -> Exchange B.

Liquid has been integrated by a number of exchanges (approx 50). The full list can be found here: https://blockstream.com/liquid/

The point of REN integration with Liquid is that it is our target audience: Active Bitcoin Traders (moreover it’s Bitcoin holders with enough money that they want to seek arbitrage oppurtunities by flicking money from Exchange A -> B as quickly as possible).

Hypothetically, we’d be adding an additional layer of solution which will inherently bring on additional risk:

  • Could you also provide information around the risk of LBTC?

The Liquid Network is secured by a Federation of 15 members who are a subset of those 50 above Exchanges. The current Federation members are generally the largest of those above 50. So the risk would be if BitMex, Binance, Kraken, Blockstream, etc all decided simultaneously to exit-scam us.

Its an interesting idea, because regardless of Liquid integration if that were to happen REN would probably die as a project anyway (ie 99% of our money comes from Bitcoin so if the 15 biggest Bitcoin centered companies decided to exit-scam it would destroy us regardless).

  • Is there insurance / what controls/risk mitigations has the consortium undertaken?

1 LBTC is created each time 1 BTC is deposited into the Liquid Network.

Its almost perfectly analogous to how REN operates (1 renBTC issued on deposit of 1 BTC).

3 Likes

Are there any numbers on the LBTC volume going through Liquid, and how much of this volume can be attributed to exchange-exchange traffic?

If most of the volume is exchange traffic, I fail to see why they would move LBTC off of Liquid to a different chain.

Are there any numbers on the LBTC volume going through Liquid?

The transactions themselves are “Confidential” so we don’t get the ability to see volume (otherwise WhaleAlerts would just announce every movement and ruin arbitrage opportunities). However we do see “Total Transactions Per Day”…it hovers somewhere 800-1000 txn per day.

If most of the volume is exchange traffic, I fail to see why they would move LBTC off of Liquid to a different chain.

Well its traders moving their funds from Exchange A -> Exchange B.

I guess that begs the question: Are BTC holders who active traders a good match for REN? I would say yes.

1 Like

Time for an RIP? seems like there isn’t much commentary on this but LBTC would be a great addition.

Isn’t it Exchange A moving funds to Exchange B on behalf of traders?

Maybe I’m missing something, but I still fail to see why the funds would ever move off of Liquid in this case. BTC moves from one Liquid address to another to transfer it from exchange A to B, where in this process would it be beneficial to move this BTC to e.g. Ethereum?

Could be wrong but maybe if your arbitrage opportunity was buying btc on exchange a and selling renbtc on exchange b. You could thé maybe use liquid btc to move through RenVM and out to exchange b.

Not convinced there’s a valid use case For combining the two protocols but it’s the only reason I could see…