Bitcoin is the largest cryptoasset by marketcap and Ethereum is the birthplace and home of DeFi. Yet there is still no reliable permissionless method for bringing BTC into DeFi. At Zero we are working on changing that.
About Us
Initially started as a side project over 3 years ago with the goal of building tooling on top of the ren bridge. Got more serious in 2021 and then 2022 in shipped some nice features. When the ren Bridge was decommissioned in the fall of 2022 we pivoted towards building our own bridge, having some experience on the team working towards an XMR bridge.
About the Protocol
We have implemented a FROST signing scheme for stakers to participate as signers and advance the network. ZERO stakers act as validators and block producers on the network and process ZERO transactions. Transactions on the ZERO network are used to synchronize state across all remote networks supported for bridging, including any notifications of new BTC that enters custody of the L0, as well as any transactions targeting ZERO smart contracts hosted on supported EVM networks. The effects of confirming a ZERO transaction are restricted in scope, and generally result in a new message added to the next ZERO block header containing the raw data that must be signed before the next block can be produced. FROST signers are only permissioned to sign the messages contained in ZERO blocks. The signatures produced can either be used to spend custodied BTC (or other non-EVM assets supporting Schnorr) or they can be used to mint a representative asset on a smart contract enabled blockchain.
Where does EigenLayer fit?
One of the major issues with Ren was that it was never able to attract enough value staked to match the value secured, leaving it open to a coordinated theft by node runners. A contributing factor the REN token being used as the sole staking asset. In the Zero Network stakers will stake ETH to secure the network. With pure ETH staking there should be a lower cost of security vs using a native asset. We dont want to fight the opportunity cost of native ETH staking so having the ETH securing the Zero Network re-staked is of utmost importance. A liquid staked flavor (r/st ETH) could be used but that opens up a point of centralization, needingh to manage the approved assets and also builds in native reliance on another protocol which would be ideal to avoid.
What Now?
There are a few topics we would love to get some thoughts on from the EigenLayer team and community. I have seen them discussed in one way or the other so Im sure some brain power has been spent on them and it would be great to hear some thoughts.
We want the staked ETH to truly back zBTC, so not just as a disincentive for stakers but to be liquidated to backstop zBTC if needed. We have some ideas on how this could be done but would love to hear any thoughts on handling the liquidation scenario. Initial options from our end are are setting a fixed zBTC/ETH redemption ratio or to initiate auctions for the ETH, burning the resulting zBTC.
The Zero Network will have a native token ZERO. Validators will need to hold ZERO/ETH lp, but beyond that we dont have the incentive structure set in stone yet. We have a few models in mind but we’re interested in how others have been thinking about incorporating native assets from the middleware protocols.
Obviously are happy to address any questions or concerns from EigenLayer team or community. Look forward to digging in further!
Very cool – so it can pick up assets that are in remote networks – does ZERO itself have EVM functionality? Another way to ask this question – is it hypothetically possible that you could use ZERO to bridge BTC into it’s own EVM domain where you could build a standalone DeFi ecosystem?
Yup this makes complete sense.
Does the ETH really need to back zBTC though? Might it even be better if the ETH exclusively secures the network that is escrowing the BTC? Then you wouldn’t need to worry about complex things like liquidations, DEX liquidity, etc.
Because if you force zBTC to not exclusively be secured by restaked ETH and instead “collateralized by restaked ETH” then you’re going to enter a world where you need to make sure there are financial primitives available to ensure that liquidations can happen seamlessly to prevent undercollateralization.
Interesting – so will they be restaking ETH or will they be staking ZERO/ETH LP tokens? This mechanism reminds me a lot of berachain.
Over all very cool and happy to see somebody thinking about this! It is clear that DeFi needs a better “wrapped” BTC and I think this is a huge opportunity for whoever achieves this, and I’ve thought a lot about how EigenLayer might be the key to making that happen. I am less familiar with building on BTC though so one question I am very curious to hear your response on is: how many validators could secure this escrow? Are there limits to the amount of participating “restaking validators” that could escrow the BTC?
We want the staked ETH to truly back zBTC, so not just as a disincentive for stakers but to be liquidated to backstop zBTC if needed. We have some ideas on how this could be done but would love to hear any thoughts on handling the liquidation scenario. Initial options from our end are are setting a fixed zBTC/ETH redemption ratio or to initiate auctions for the ETH, burning the resulting zBTC.
This use case is super interesting. As follow up, EigenLayer is focused on and built around slashing only for objective, attributable events. It seems that you are suggesting slashing-like mechanisms (liquidation or forced redemptions) that would be a response to price fluctuations rather than a single node or group of nodes mis-serving your AVS. Perhaps there are other ways in which you can use EigenLayer, like as a price oracle source.
Not looking to slash based on any price movement, only if the stakers misbehave and abscond with the underlying BTC. I was just saying that when the ETH is slashed it should be used to make zBTC holders as whole as possible. Hope that clears it up.
Sure, I dont see why not. We are trying to build the structure out to be modular, so if there were to be a BTC focused EVM layer 2 (if this is what youre getting at) then that chains native asset (or still ETH if thats preferable) could be used as the staking asset and allow for bridging BTC.
I think I may not have worded this the best way. The network will not enforce that staked ETH > BTC in custody. That is an ideal state to disincentivize signers from colluding to steal the BTC they control. Network liquidation ONLY happens when signers act maliciously.
Signers and stakers will stake ETH and validators/governance participants will stake ZERO/ETH lp. Were working on more detailed posts describing the network configuration that will be coming out soon.
Thanks! and to the Q, with FROST signing there is a limit of 256 signers. We are not setting a fixed amount of ETH per validator though and will rely on how we are handling fee revenue distribution to incentivize an appropriate distribution
Ok cool this makes more sense to me and I think is a simpler, more stable design.
Please follow up on this thread when you put out new posts about this, this is an interesting design that I think could help inform other builders build more secure middleware systems.
This is huge – even if you could get ~100 signers it is my impression that is enough to set an entirely new precedent in the industry for a bridged BTC product.