The Keep Network, a privacy layer for Ethereum, has closed a private $7.7M token sale led by Paradigm, Fenbushi Capital, ParaFI Capital, A.Capital, and Collaborative Fund. The Keep Network is an open-source contributor to the tBTC project, which enables Bitcoin-based assets to be deployed on the Ethereum blockchain.
“Decentralized financial applications on Ethereum have seen clear demand,” Paradigm co-founder Fred Ehrsam, who also co-founded Bitcoin exchange Coinbase, said in an e-mailed statement. “Bitcoin is the world’s largest cryptocurrency. Building a bridge that allows Bitcoin to interact with DeFi makes a lot of sense, and tBTC is a credible attempt to do exactly that.”
The inspiration for tBTC dates back to when Matt Luongo, the founder of Keep Network parent Thesis.co, and his wife found a house they wanted to buy.
“It’s time to sell your Bitcoin,” she said.
“The hell it is,” Luongo replied. “I don’t want to sell.”
“What have we been saving for, if not a house?” she asked.
“Well…” he replied.
He at once started looking for somewhere he could get a Bitcoin collateralized loan so he could buy the house. He found a lender he had been told was crypto friendly. The lender loved crypto. “Sell me your Bitcoin, come back in 30 days, and we’ll pretend we never had this conversation,” said the lender.
But, Luongo wasn’t concerned with privacy or secrecy or whatever the lender was implying. He simply didn’t want to sell his Bitcoin. He’d rather hold and use them as collateral.
Since then, the space has matured, Luongo said, highlighting the novel rate lending products mostly targeting high net worth individuals. The experience of trying to use Bitcoin as collateral to buy a house got him thinking about tBTC, a decentralized redeemable BTC-backed ERC-20 Token. It’s an attempt to bring Bitcoin to Ethereum, enabling the creation of a tBTC asset within the Ethereum ecosystem.
“The goal is to give Bitcoin the superpowers that smart contracts have on Ethereum, and, also, to bring Bitcoin as collateral to decentralized finance,” he explains. tBTC is backed 1:1 by Bitcoin.
“It’s trustless and permissionless to mint and redeem; there aren’t any intermediaries, and it’s simple and secure,” said Luongo. “It maintains the hard money properties of Bitcoin on Ethereum.” tBTC provides a private place to store Bitcoin keys.
Luongo was out drinking with crypto friends in 2015, discussing the “New World Order” they all wanted to build on Bitcoin, when he had a realization. “If we’re doing this all on Bitcoin as it stands today, as cash is slowly pushed out, we’re actually building our own prisons,” he said. “We’re going to do everything on a public chain, and anyone will be able to see the details of our life that we’ve kept private. Where I bought my coffee this morning will suddenly be public.”
Luongo became keenly interested in on-chain privacy and confidentiality. “If we’re going to rebuild the financial system, if we’re going to rebuild institutions, we need to do it right this time,” he said. “That means we need to be thinking about privacy a lot earlier in the process.
Luongo says Ethereum has a stronger privacy story than Bitcoin, which is known for a transparent public ledger. He notes Ethereum-based projects, such as Tornado.cash. “My hope is that by allowing Bitcoin the asset to be separate from Bitcoin the network, we will open up some serious financial privacy superpowers, as well.”
If decentralized finance is collateralized, he reasoned, Bitcoin, while not great for privacy, still makes great collateral. “It’s like hard money,” he said. “You can’t take it from me.”
Luongo and the Thesis.co team is implementing tBTC on the Keep Network, which has a native work token, KEEP, that is staked by participants on the network.
“Keep stakers are randomly selected to back tBTC deposits,” said Luongo. “So, we get some assurances that these people have skin in the game, but that they’re also randomly selected and less likely to collude. Keep Network stakers get revenue from that backing tBTC asset.”
The Keep Network—which in 2018 sold $12 million worth of tokens to Andreessen Horowitz, Polychain Capital, Draper Associates and others—will work to ensure people can easily interact with tBTC and integrate it into their dApps. That decentralization is paramount to the application.
“If we just wanted to build a Bitcoin bank that printed money on other chains that was supposed to represent Bitcoin, that’s easy,” said Luongo. But, that’s not satisfying to him.
“It doesn’t follow the principles of the space,” he said. “As someone who will use the system, I don’t want to give out my personal data to multiple custodians to move bitcoins between the Bitcoin and Ethereum chains.” That’s unacceptable, he says.
“We should be moving toward greater fungibility, not less,” he said. “And, if you have a central counter-party in the middle, you lose most of the things that we love about Bitcoin. You don’t have censorship resistance anymore, you don’t have inflation resistance anymore. And we don’t want to rebuild the same financial system over again.”