RSK project mentioned a possible interoperability protocol within the limits of Ethereum and Bitcoin– pegged sidechain, on Feb. 6. The probable implementation of the bridge can induce a rapid increase in the decentralized finance ecosystem (DeFi). Using a Bitcoin-based cryptocurrency (rBTC) that can coincide with Ethereum makes an indispensable solution to cross digital assets under different protocols.
As one of the smart contract platforms with collaboration to the Bitcoin Blockchain, RSK has enabled users to acquire token through a two-way peg system. The Token Bridge acts as the primary catalyst for the interoperability of BTC and RSK. The users can purchase tokens through depositing BTC into the bridge wallet, which works as a two-way peg. With the same principle, the RSK project has opened a similar token bridge to be used under the Ethereum Blockchain ecosystem.
The integration of the two-way transaction makes it possible for any users with RSK tokens to be transferred and managed in the Ethereum system. However, as a two-way transfer, Ethereum users are also affected in such a way that each transaction exposes them to the Bitcoin system.
The bridge enables standard tokens from different Blockchain ecosystems to be ported. As the original tokens undergo transactions, they end up locked until a representative image is redeemed. This system makes the supply steady from the operation. It also enables users to have stable information on the totality of their supply.
Probable Ethereum-based Token Transfer
Similar to the Bitcoin-based RSK Token Bridge, the components can come from either Blockchain. When users deposit tokens from one Blockchain to an address provided by RSK, an appropriate Side Token is replicated in the corresponding chain of the same value. Crypto exchange requires Side Tokens to be written under the ERC-777 specification, a new token standard that allows a backward-compatible function to ERC-20 protocol.
Adrian Eidelman, an RSK Strategist at IOVLabs, explained a more significant differentiation of the token bridge. Although he revealed that the bridge does work, the current functionalities of the system have not reached full decentralization. However, Eidelman stated that the system would reach a fully decentralized state by the end of the third quarter of 2020.
Eidelman also mentions the process of RRC20 token creation using Ethereum as the sample. According to Eidelman, the system works by locking the original tokens on the Ethereum chain system. Upon lock-up, an event is created in which the federation initiates the bridge, which sends information through the RSK chain. Once the federates votes have gone past 50% for the same transaction, the RSK chain then created RRC20 token replicates with the equivalent amount on the Ethereum Chain’s end.
Possible emergence of Bitcoin DeFi
Decentralized finance solely relies upon and limits itself to Ethereum’s ecosystem. With over $1 billion in locked assets, ETH has been the most used collateral in generating DAI stablecoins. In an interview conducted by the Spartan Group, the founder of MakerDAO, Rune Christensen, said that ETH is the king when you consider or talk about solid decentralized collateral. And notably, the only system close to ETH is Bitcoin, in terms of importance.
However, Bitcoin still lacks and fall short with smart contract functionality. Moreover, Christensen stated that porting Bitcoin into the Ethereum ecosystem would allow Bitcoin to be used as collateral, which comes with similar solutions like Wrapped BTC. However, he stressed that the functionality is far from perfect, let alone usable. Christensen also stated that building a more decentralized cross-chain system is impossible.
MakerDAO’s founder also mentioned about creating a substantial solution for the success of the bridge. According to him, one viable step is to have several providers of Bitcoin on Ethereum. Instead of having Wrapped Bitcoin as the only source of Bitcoin on the Ethereum ecosystem, Christensen said that having different versions of wrapped Bitcoin could make a big difference.
Through the use of RSK’s Ethereum Bridge, the possibilities of a Bitcoin-collateralized DAI asset can be fully utilized on Ethereum. As one of the biggest decentralized stable coin provider, Maker is pinned in using the Ethereum Token Bridge to utilize the network’s entire ecosystem. Also, other projects like Money on Chain have built its system on RSK’s platform and uses rBTC for collateral.
Eidelman has declared that there are difficulties in the Ethereum market. Although RSK sees a potential use case for Ethereum DeFi to shift to its systems, higher fees and lower capacity makes the transfer encumbered. However, he argued that Bitcoin is still the most active system being utilized in the Blockchain network.