Contents
- Abstract
- Protocol Objectives
- Approach
- Market Outlook
- Team and Vision
- Roadmap
- Token Economics (NETA)
- Future
- Conclusion
1. Abstract
AnetaBTC is a fully on-chain, decentralized protocol that allows Bitcoin to be directly wrapped on the Ergo and Cardano blockchains. AnetaBTC enables Bitcoin holders to unlock the value of their assets in a secure and efficient environment to provide yield, without selling any Bitcoin and without any third-party custodian involvement, as in the case of wBTC which is on the Ethereum blockchain and is the largest wrapped Bitcoin protocol today with over $14 billion of locked Bitcoin value.
Wrapped Bitcoin has the potential to provide the Ergo and Cardano platforms essential liquidity required for most all DeFi applications by transferring the full value of Bitcoin on a 1:1 basis — the total current market capitalization of Bitcoin exceeds $1.1 trillion, while the total value of wrapped Bitcoin on the Ethereum blockchain nears $20 billion.
AnetaBTC is crucial infrastructure to progress blockchain technology and decentralization — true decentralization, without any third-party intermediaries. AnetaBTC will be entirely on-chain using Ergo smart contracts and fully compatible with cross-chain decentralized exchanges on Cardano and Ergo.
The blockchain industry has somewhat veered from the initial concepts and principles that were laid out by Satoshi Nakamoto. As blockchain adoption increases, a vast majority of platforms have forsaken decentralization in exchange for transaction throughput and convenient implementation of smart contracts at the expense of security and censorship resistance.
There are two blockchains in particular, however, that have been structured and implemented to be two of the most truly decentralized blockchain platforms in existence today: Ergo and Cardano.
With the introduction of Ethereum, decentralized finance has grown rapidly with the advent of smart contract capabilities. The total locked-value on blockchain DeFi platforms currently exceeds $100 billion from zero just a few short years ago.
Wrapped Bitcoin allows holders to utilize Bitcoin in a wide array of DeFi applications such as yield-earning products, derivatives such as futures and options, and one of the most important pillars of the entire blockchain DeFi ecosystem going forward — stablecoins.
In 2019, investors were introduced to the first wrapped Bitcoin product, WrappedBTC (wBTC). The creation of wBTC by BitGo, Kyber Network, and Ren, formerly known as Republic Protocol was revolutionary in its own right, but wBTC is entirely centralized due to BitGo being the sole custodian for wBTC and this entity, partly owned by Goldman Sachs, has full legal control of all locked Bitcoin wrapped in wBTC.
Unlike wBTC, anetaBTC is entirely non-custodial, and all Bitcoin backing anetaBTC on a 1:1 basis is locked by fully-audited and open-source smart contracts that allow Bitcoin holders to directly mint and redeem anetaBTC. AnetaBTC seeks to be a truly decentralized, wrapped Bitcoin product on a secure third-generation blockchain platform with low and predictable transaction fees.
Aside from being centralized, wBTC is built on Ethereum, meaning wBTC users are subjected to the arbitrary high fee structure of Ethereum. AnetaBTC is built on the Ergo platform with a predictably low deterministic fee structure and will also be fully compatible with the Cardano blockchain. With Ergo and Cardano both having a predictable, low-cost fee structure, we are confident DeFi applications utilizing anetaBTC will have tremendous utility compared to wBTC with transaction fees exceeding at times $500 per transaction on Ethereum compared to anetaBTC with expected transaction fees of less than $1 allowing for far greater DeFi activity, even high-frequency trading that has a potential capacity of well over 70 million transactions per second.
The current transaction fee for Ergo stands at 0.0011 ERG, which is approximately $0.01 per transaction. Additionally, Ergo has built-in security and privacy tools such as ErgoMixer, which allows users to freely trade their native Ergo assets privately, somewhat similar conceptually to Monero ring signatures. Interoperability is another significant consideration, and tools like ErgoDEX allow for users to swap anetaBTC with any native Ergo and Cardano asset.
With anetaBTC, users are empowered to unlock the value of their Bitcoin holdings in a decentralized, secure, and convenient manner thus allowing participation in the rapidly growing DeFi ecosystem, earning yield without selling any Bitcoin.
2. Protocol Objectives
Our protocol objectives are:
- increase capital efficiency of Bitcoin value on Ergo and Cardano blockchains
- provide fundamental infrastructure to allow users to effectively leverage decentralized privacy applications
- increase ecosystem interoperability
3. Approach and Use Cases
AnetaBTC is a research-driven protocol. The birth of AnetaBTC is the combination of concepts from research papers including but not limited to Bitcoin, wBTC, REN, Ergo, and Interlay. The key part of our approach is writing smart contracts that send Bitcoin to a vault if a user wants to mint anetaBTC. Upon minting, users will be able to freely use anetaBTC as a Bitcoin-backed asset on the Ergo and Cardano blockchains.
Approach
Below is the current wBTC implementation controlled by custodian BitGo. These diagrams are referenced from the original wBTC whitepaper.
For the wBTC protocol, either minting BTC or confirming the burn of tokens is at the full control of the custodian, which in this case, is BitGo. They are solely responsible for oversight of the locked Bitcoin.
As noted in the top-left diagram, the merchant must send their Bitcoin directly to the custodian. The custodian then mints the wBTC after receiving the user’s Bitcoin and the corresponding wBTC will be sent to the user.
For burning tokens, the custodian sends the original Bitcoin back to the user and the contract performs the burn of wBTC, and is confirmed and finalized by the custodian.
As you can see, the custodian is in full control of the user’s Bitcoin.
In the case of anetaBTC, Bitcoin is sent to a non-custodial vault that securely stores the Bitcoin through smart contracts.
Below is the anetaBTC implementation that is facilitated by non-interactive smart contracts.
In the case of anetaBTC, instead of users sending Bitcoin to a custodian, it is sent to a vault that is a smart contract that stores the Bitcoin, mints anetaBTC, and then sends the anetaBTC to the connected wallet.
For redeeming BTC, users simply initiate the redeem and send their anetaBTC back to the vault and the smart contract will release the Bitcoin back to the user when it successfully confirms receiving anetaBTC.
The below diagram visually describes our technical approach in more detail.
The user will request to issue or redeem anetaBTC and the anetaBTC database will relay which function the user is trying to perform and send that request to the anetaBTC bridge. From there, the anetaBTC bridge will send that information to anetaBTC-stats where the events will be written to the official anetaBTC events database and read the information back to anetaBTC-stats.
The diagram also shows that when the user makes the initial request, data is also sent from the dashboard to anetaBTC-stats, and then later confirmed with events information.
Additionally, there is a relay chain that is connected to the Bitcoin blockchain that communicates with the anetaBTC bridge. The relay chain sends the user's Bitcoin to the anetaBTC bridge which has an incorporated Bitcoin wallet where the user’s assets are held.
The anetaBTC bridge also communicates with the Ergo node and relays information directly to the Ergo blockchain. During this, the anetaBTC bridge will execute the issue or redeem the desired asset and send the token to the user directly from the vault.
To issue BTC, the user will be required to pay a security deposit in ERG, hence why the vault sends locked ERG collateral to the anetaBTC bridge. This is a security measure to incentivize genuine activity and prevent griefing of vaults. The ERG security deposit will be released backed to the user for completed transactions.
If the Bitcoin holder does not successfully send the BTC to the vault in time, the vault can cancel the issue request and receive the ERG collateral from the user.
Use Cases
Bitcoin for Everyday Transactions
Bob wants to send Bitcoin to Alice on 10 different occasions throughout each month. Bob could send his Bitcoin on its native protocol and could expect to pay about $2.50 per transaction, about $25 per month, assuming the transaction fee remains at that price. Bob could also hypothetically transact with Alice using wBTC on the Ethereum network, but the current cost to complete an Ethereum transaction is $40.11, which would amount to over $400 per month to send all of his transactions. Another option Bob has is anetaBTC, where he can send Alice ten transactions a month of his Bitcoin and would pay the transaction fee on Ergo, which at the time of this writing, is 0.001 ERG. At the time of this writing, this would mean the average transaction would be just below $0.01. If Bob were to send Alice anetaBTC on ten different occasions throughout the month, Bob would pay about $0.10 in total transaction fees on Ergo.
Privacy Tools and Taproot
Bob wants to securely store his Bitcoin on a protocol that is decentralized, is equipped with security features, and has flexible privacy tools readily available. Bitcoin’s native protocol may serve Bob well in terms of decentralization and security, however, Bob may not have access to many privacy tools and yield-producing DeFi products.
Bob may feel optimistic about his ability to safely and reliably access privacy tools through Bitcoin’s recent soft fork upgrade, Taproot. It should be noted, however, that the Taproot Upgrade does not increase privacy for the average user, but rather, degrades privacy significantly.
We agree with Nikita Zhavoronkov, CEO and lead developer at Blockchair, a leading search and analytics engine platform for many leading blockchain protocols, including Bitcoin and Cardano, who published a critique on Taproot, titled “Negative Impact of Taproot on Bitcoin’s Privacy” in November 2020.
Miners are the only ones who decided to implement the Taproot Upgrade for everyone. Miners of Bitcoin will make decisions that are in their best interest, and not the average user of Bitcoin. It is fairly common knowledge that all ASIC mining equipment required to mine Bitcoin today is almost entirely produced in the People’s Republic of China.
For the most part, all NASDAQ-listed Bitcoin mining companies, such as Marathon Digital Holdings ($MARA), Riot Blockchain ($RIOT), and Canaan ($CAN) procure all their mining equipment from China. Together, these NASDAQ listed companies in addition to the China-based ASIC manufacturers such as Bitmain that operate some of the largest Bitcoin mining pools in existence compose a majority of mining voting power to decide on upgrades to Bitcoin’s protocol.
Using anetaBTC, however, would allow Bob to seamlessly access Ergo’s community-built privacy tools such as ErgoMixer. ErgoMixer is the first non-interactive, non-custodial mixer in existence. ErgoScript, the smart contract language of Ergo, supports non-interactive zero-knowledge proofs called Σ-protocols (Sigma Protocols) with flexibility allowing for ring-signatures, multi signatures, multiple currencies, atomic swaps, self-replicating scripts, and long-term computation.
Bob now has the ability to securely and reliably protect his anetaBTC privately and has a sound reason to store the value of his Bitcoin on the Ergo platform utilizing anetaBTC.
Bitcoin DeFi with Ergo and Cardano
Bob holds anetaBTC and wants to trade it for ERG. AnetaBTC is an Ergo native asset meaning Bob can seamlessly trade his anetaBTC for ERG and all other assets that are traded on decentralized exchanges that are interoperable with Ergo and Cardano assets.
Bob has multiple other options in terms of how he can use his Bitcoin on Ergo and Cardano. Say Bob is holding anetaBTC and decides he wants to earn interest on his anetaBTC, he can participate in various liquidity-providing protocols such as Ergo’s novel oracle pools. Bob will potentially have the opportunity to provide liquidity in different pools such as anetaBTC/ERG, anetaBTC/ADA, anetaBTC/SigUSD, and anetaBTC/ETH.
There are currently two active oracle pools, ERG/SigUSD and ETH/SigUSD, which are run collectively by the Ergo community. Instead of participating in the community-run oracle pools, Bob decides he wants to take out a loan and use his anetaBTC as collateral.
When lending infrastructure is built on Ergo, Bob can take a loan against his anetaBTC. For example, he has 1 anetaBTC and is offered an LTV of 25%, which at current prices would be 14,250 SigUSD at a 1% interest rate. Bob will have the ability to use his anetaBTC for many DeFi applications built on Ergo and Cardano.
4. Market Outlook
The potential user base for anetaBTC is all holders of Bitcoin who collectively own an asset that is currently valued at over $1.1 trillion.
Bitcoin is by far the most valuable cryptocurrency asset. Building seamless and secure wrapping infrastructure that allows Bitcoin users to directly unlock their Bitcoin value utilizing smart contracts on Ergo and Cardano should attract current Bitcoin holders hesitant to wrap their Bitcoin on second-generation blockchains such as Ethereum that are prone to frequent hacks and unpredictability high transaction fees.
The transfer of Bitcoin value into the Ergo and Cardano ecosystem will drastically increase the capital efficiency and liquidity of these third-generation blockchains.
The current value of wBTC, which is highly centralized, is over $14 billion. wBTC was created by BitGo, Kyber Network, and Ren (formerly Republic Protocol).
Ren created another version of wrapped Bitcoin, renBTC, which is a less centralized version of wrapped Bitcoin compared to wBTC. Ren functions by operating a network of decentralized nodes known as Darknodes. It leverages novel concepts in cryptography such as Shamir’s Secret Sharing and Secure Multiparty Computation.
There is currently over 17,000 renBTC in existence, the second most for Bitcoin wrapped products. wBTC currently dominates the wrapped Bitcoin market with over 230,000 Bitcoin in BitGo’s custody.
Two other competitors to wBTC are tBTC, made by Keep Network, and sBTC, made by Synthetix. tBTC has 1,900 Bitcoin locked in the protocol. sBTC has around 1,700 Bitcoin locked as of December 2020.
It is clear there is a transformative market opportunity for wrapped Bitcoin products, especially truly decentralized, fully on-chain, trustless Bitcoin that can be seamlessly utilized on Ergo and Cardano to participate in the rapidly expanding blockchain DeFi industry that currently has a locked value exceeding $100 billion.
We expect both Cardano and Ergo to see tremendous growth in user base due to the superior design and decentralized distribution of these two leading blockchain platforms. As well, we believe Bitcoin will sustain its market dominance in terms of valuation for the foreseeable future.
We firmly believe that many long-term holders of Bitcoin will choose to wrap their Bitcoin to participate in DeFi using the most secure, efficient, low-cost, scalable, truly decentralized, and censorship-resistant blockchain platforms available, rather than inefficient and less secure blockchain platforms with high transaction fees.
5. Team and Vision
The Aneta team is an alliance of individuals brought together through a shared vision of a better world for all, made possible by Ergo and Cardano. Members of the Aneta team are former Wall Street senior bank executives, Google AI resident researchers, cyber security engineers at leading financial institutions in New England, and computer science Ph.D.’s and spacecraft engineers in Cambridge (Massachusetts), Helsinki, and Moscow.
Brought to Cambridge, Massachusetts at different times to pursue education, the original Aneta members were united through a shared vision of a better future which is possible through the scientific approach and beauty of Ergo and Cardano, and the Aneta team has continued to build a team consisting of those with a similar mindset — those who seek to empower individuals throughout the world by contributing to the innovation and true decentralization of blockchain technology.
6. Roadmap
Transparency and community involvement is a pillar of anetaBTC. Our weekly technical updates will inform community members on development progress. Below is a preliminary roadmap that is subject to change as we progress.
UPDATE: We released Roadmap 2.0, which can be found here.
7. Tokenomics (NETA)
AnetaBTC tokens live entirely on-chain. Bitcoin holders will be able to directly mint and burn, in live time, any amount of anetaBTC they choose.
The maximum anetaBTC that can ever hypothetically be minted is 21 million, in line with Bitcoin.
AnetaBTC is a 1:1 backed representation of Bitcoin on the Ergo and Cardano platforms. The value of anetaBTC should solely be determined by the market price of Bitcoin as any amount of anetaBTC can be converted at any time to Bitcoin on a 1:1 basis.
AnetaBTC, however, does not have any governing rights or profit-sharing from any fees generated by the anetaBTC protocol.
Instead, there is a platform token for anetaBTC called NETA. NETA is the governance token of anetaBTC. NETA holders can vote on protocol changes to continuously upgrade and evolve the protocol. NETA holders also receive all profits of anetaBTC, which comes in the form of transaction fees. Rewards are distributed proportionally to the amount of NETA each user holds.
For example, if Bob owns 1% of all NETA tokens, he will receive 1% of all anetaBTC profits. He will also have 1% of the governing power when it comes to important decisions in changing or improving the anetaBTC protocol.
Holding NETA will be the platform token for all future products made by the anetaBTC team, including wrapped Ethereum, Algorand, and specific project tokens that have interest from Ergo and Cardano community members.
The official NETA allocation will be released in the future.
Update: Here are our tokenomics to learn about NETA on Ergo and cNETA on Cardano.
8. Future
There are a number of tasks and additions to the protocol that are still being finalized, and this will be discussed in future whitepapers and technical updates. Future developments include but are not limited to:
- Implementation of zk-SNARKs integration and dark pools
- NETA token allocation
- Confirming the mechanism for governance token NETA for anetaBTC protocol
- Announcing strategic partnerships
- Announcing strategic advisors
- Releasing official Whitepaper V1.0
- Releasing research on anetaBTC-backed stablecoin and development roadmap
9. Conclusion
Ergo and Cardano blockchains are two of the most secure and censorship-resistant blockchains. The Ergo platform allows the robust use of smart contracts on both the Ergo and Cardano platforms. Many members of the team responsible for creating Ergo were also instrumental in the early development of Cardano.
AnetaBTC will utilize the full capabilities of these leading third-generation blockchains to allow Bitcoin holders to securely and confidently store their Bitcoin in fully-audited and 1:1 backed smart contracts on the most technologically advanced blockchains in existence — Ergo and Cardano.
As the Ergo Foundation recently stated:
“Ergo’s language, ErgoScript, already includes what is envisioned for Bitcoin — it employs a similar structure but with different techniques by implementing a more expressive smart contract language with UTXO and PoW elements, Ergo aims to be the platform for secure, complex, scalable and private decentralized finance applications. Bitcoin can leverage Ergo’s safety with its interoperable DeFi capabilities”
