[BIP-50] Launch of BaoBTC

Summary

This proposal outlines the creation and launch of baoBTC, a decentralized BTC-pegged token on the Ethereum blockchain. BaoBTC will provide the Bao community with a decentralized alternative to existing BTC-pegged tokens like wBTC, addressing concerns over centralized custody and enhancing the ecosystem’s overall security and decentralization.

Background

Bitcoin is a key asset in the cryptocurrency ecosystem, and there is significant demand for BTC-pegged tokens on Ethereum to leverage Bitcoin’s liquidity and stability within decentralized finance (DeFi) applications. However, the most widely used BTC-pegged token on Ethereum, wBTC, relies on centralized custody for its BTC collateral. These concerns have been further exacerbated by their recent changes of custodian. This centralized approach raises concerns about security, transparency, and censorship resistance.

To address these concerns and offer a truly decentralized alternative, we propose the creation of baoBTC. BaoBTC will be a BTC-pegged token that prioritizes decentralization in both its issuance and collateral. By launching baoBTC, we aim to provide the Bao community with a secure and decentralized BTC token that can be used in a wide range of DeFi applications on Ethereum.

Proposed Solution

The solution involves launching baoBTC with the following key components:

• baoBTC Vault: Instead of relying on a centralized custodian, baoBTC will be backed by ETH and other ETH backed tokens such as wstETH and rETH as well as BTC backed tokens starting with tBTC via a new Bao Borrow Vault.

• Integration with Bao Ecosystem: baoBTC will be integrated into the Bao ecosystem from day one, allowing it to be used within Bao’s lending markets, synthetic assets, and other DeFi products. This integration will drive adoption and liquidity for baoBTC.

• New Balancer gauge proposals for baoBTC/tBTC: tBTC is a BTC-backed token with decentralized custodymeeting Bao's high decentralization standards.

• Liquidity Balancer for baoBTC/tBTC.

Risks

Adoption Risk: If the decentralized model is perceived as less convenient or less liquid than centralized alternatives like wBTC, baoBTC may struggle to gain adoption.

Milestones

• Milestone 1: deploy baoBTC vault and integrate to front end • Milestone 2: apply for balancer gauges • Milestone 3: Incentivize liquidity and deploy eBTC/baoBTC liquidity balancer • Milestone 4: Integrate baoBTC into Bao’s existing DeFi products and promote its adoption within the wider DeFi ecosystem. (Ongoing after launch)