Decentralized Bitcoin Bank (and decentralized stablecoin)

General DFINITY
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Hi.

TL_DR: When Terra and ICP native decentralized Bitcoin integration?

ic_terra.drawio (2)
ic_terra.drawio (2)1267×672 105 KB

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I believe we have an opportunity for a perfect storm to catapult Internet Computer and the entire crypto industry with the Bitcoin integration. There is a unique value proposition and a perfect fellow crypto ecosystem to collaborate with.

For context, Terra is rapidly building out their decentralized stablecoin (UST) on a “decentralized gold standard”. I have been thinking about this for a week now and I am pretty blown away by its potential. Opinions may vary, but IMHO, their move towards being the (second) biggest Bitcoin holder is obvious, genius, and powerful. Their short-term plan is accumulating $3B in Bitcoin, mid-term (this year) is $10B, long-term, who knows. With a full-stack web-speed Bitcoin integration, the reserves of UST are open to growing globally/ scalably. The entire crypto space wins if we create a completely decentralized stablecoin.

The next step for UST is to build the bitcoin integration into the minting process - that is, part of the seigniorage would burn $LUNA, and part of it would buy Bitcoin (that’s how it could really start flying). They are on a search to find the best tech for BTC reserves - that is, the Internet Computer - with a native fully on-chain Bitcoin support (no wrap, no bridge, async, scalable).

It would roughly look like that:
icp_luna.drawio (1)

As I said, I feel this would be a great opportunity to flex our muscles and show the world what we are capable of. That is, form a decentralized bank that holds the $BTC reserves for the biggest decentralized stablecoin. The Chain Key Technology (a’ka decentralized signature) is designed for this. It feels like a match made in heaven.

For this, we obviously need the soon-to-be-released BTC integration and to speed it up, possibly the Chain Key Bitcoin. We would also need to integrate with Terra as a strategic partner-network. I feel this could be great marketing for all and funnel (tens+ of) billions through our ecosystem in the process.

Let’s seize the day.

Through strategic collaboration (integrating IC and Terra platforms directly) we can solve decentralized stablecoins end-to-end.

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I don’t know much about Terra, but how exactly would they use the IC’s native integration with BTC?

They have their own smart contract platform, and they want the algorithmic peg between UST and fiat USD to be maintained by retail arbitrageurs who trade on a DEX smart contract hosted directly on Terra.

From this article, it seems like they are doing the wrapping of BTC themselves.

I’m not sure how another L1 can access the native BTC functionality of the IC. It’s not like they will use the IC’s canisters to implement the DEX. And even if they do, they would need their smart contracts to be able to call smart contracts on other blockchains, which still requires a centralized bridge anyways.

(To be fair, I have no idea how they plan on wrapping BTC… but my guess is it won’t be nearly as native or powerful as the IC’s BTC integration.)

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And another thing I don’t understand:

They are trying to create a decentralized stablecoin that’s backed by a decentralized gold standard (i.e. BTC), but the BTC reserves have to be accumulated by a centralized entity for this to work. Is the idea that after they buy the $10 billion of BTC, the Luna Foundation Guard can just step back and let the market maintain the peg? What if the price of BTC drops drastically? Wouldn’t the foundation have to purchase more BTC to replenish the fund?

It seems like all of this requires a hard dependency on a centralized entity, i.e. the Luna Foundation Guard. To be fair, creating a stablecoin in a 100% decentralized way might be theoretically impossible, so this might be the best option…

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As I understand our planned integration with ethereum means two way traffic between the L1 chains. If that’s so, with another integration, Terra could also call IC functionality to get the benefits of our ecosystem.

Until now, the only way is using wrapped bitcoin, which is why that’s their plan. But it’s obviously not ideal.

It seems in the grand scheme of things, the best and perhaps the only place to build a decentralized bitcoin “bank” is on the IC. Can we work out a solution where we all win?

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So many controversial with terra. If any how ICP need stablecoin, should choose safer asset such as USDC, instead of algorithm stablecoin UST. https://cryptobriefing.com/terras-do-kwon-planning-dump-bitcoin-zero-sources/

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Aren’t there controversial topics about any cryprocurrency, including ICP? Plenty. Need to dig deeper and go beyond the mainstream narratives. Under the surface, there are usually solid ideas, execution and visionary characters.

USDC is a central stablecoin. So is Tether. And so is Dai, because it is mostly collateralized with usdc. UST is the most decentralized stablecoin there is. It is pegged to the stableness of Luna community (which have concrete target markets and certainly promising) and now increasingly more backed by the digital gold. It is as decentralized as a stablecoin can be, and only getting better. It is leading the game and not slowing down. Decentralization is achieved through time (likewise with ICP). It does seem, that UST is just getting started. And we could perhaps be a critical part of the #1 decentralized stablecoin in crypto. Or not.

I feel we should look for ways to collaborate with the leading projects, not try to solve everything by ourselves.

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Strongly agree with this.

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Snap. Too late. Terra partners with Avalanche. They believe in AVAX horizontal scaling and bitcoin integration.

Re-evaluating this, we should still go afrer the stablevoins. We could make cycles the most stable and distributed decentralized stablecoin. Do we need Bitcoin reserves to stabilize the ICP community?

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My understanding is that exchanging UST for AVAX and vice versa will rely on the LFG’s bridge. And it comes with all the risks of a bridge.

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Eventhough this seems like a great idea, it is still based on fiat, and not decentralized, even with their “decentralized gold standard”.
IMO, to truly have a decentralized stablecoin, you need to have it backed by “energy”, so a “Decentralized Energy Standard” . This energy needs to be generated by decentralized power generators.
You might think what are those decentralized power generators. With new quantum energy generators, a totally new economy can be build 100% backed by clean, carbon free and cheap energy.
This we want to build on the IC, to power the future of mankind and an economy backed by Universal Energy.

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Decentralized Energy is Bitcoin. To me at least. No need to reinvent the wheel. But there is a need for a “stable” value in the short-term.

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All is Energy! But what makes Bitcoin different is PoW! For PoW to function you need “work”, so energy, or do it all by hand. So IMO Bitcoin has nothing to do with Decentralized Energy, but Decentralized Energy can be used to run Bitcoin. Fiat or the petrodollar needs to be retired and replaced. Bitcoin is fundamental to that but cannot do it alone.

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There’s probably no “cheap energy” though. You are inevitably transforming physical resources to digital value, and that’s what Bitcoin network can do. Bitcoin is the bank to capture energy. IF we can use quantum energy generators, then they will be used. The cleanest most sustainable energy producer wins. But the protocol can be Bitcoin. It is made for exactly this thing.

It’s just that the road towards stable Bitcoin is very long. Many years, probably decades. In this transitory period, we need to bring the people over. But this takes time and requires to exist in the old and the new in parallel.

So yes, fiat stablecoins are not the ultimate solution but a necessary evil in the short to mid term. It eases some tension from the overall transition.

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Very informative . Thanks for sharing .