As Bitcoin once again is outperforming some major altcoins yet again, Bitcoin holders are arguably not convinced to sell their Bitcoin to benefit from DeFi products that enable users to earn passive income on their portfolio. Similarly, traders holding Monero or Litecoin out of conviction might find Compound an interesting proposition but can’t access it without owning ERC-20 assets.
And while Bitcoin DeFi (yes, it’s a thing now)is slowly picking up, it is still far from offering the variety of services and platforms that have grown on Ethereum. As a result, the only way for holders of non-ERC 20 assets to benefit from things such as decentralized lending or borrowing is by turning their non-ERC 20 assets into ERC-20 assets. The main way to do that without having to sell is by wrapping tokens.
Current options to wrap tokens include using centralized custodians such as Bitgo or exchanges like Binance, who are behind the BEP-2 Bitcoin. Traders use these centralized venues as they trust the institutions behind them and their technology.
Another approach is the one offered by DeFi protocols like Maker that let traders wrap tokens in a more decentralized way. What ultimately secures the value of the assets, though, isn’t necessarily the custody solution but the fact that assets are overcollateralized.
Boring DAO combines both approaches to offer a gateway between blockchains to offer crypto holders access to the DeFi ecosystem. While current solutions as wrapped Bitcoin rely heavily on distributors and support only a few assets, Boring DAO proposes a community-led DAO to convert any asset into ERC20 tokens in a secure manner.
The process itself for holders is fairly straightforward.
As a first step, holders bind their ETH and BTC addresses with a smart contract. Then, they transfer BTC to the boring DAO BTC tunnel, also called the bBTC tunnel, and finally, they receive the same amount of bBTC (boring BTC, ERC20) for use in DeFi. To redeem their BTC, they’d simply reverse the process and burn the bBTC.
The process of creating ERC20 tokens out of non-ERC 20 assets is also called minting in the Boring DAO ecosystem. One crucial part of this whole process is the Custodian.
Custody
Like solutions proposed by Binance and the likes for wrapping tokens, BoringDAO stores the assets converted through a tunnel in a multi-sig wallet that 3 private key holders initially control. These 3 private key holders are all well-known, reputable blockchain institutions. In the future, the team plans to increase the number of key holders for the multi-sig wallet to 5, 7, 21, and more to make the system more trustworthy.
Pledging
Additionally, BoringDAO draws inspiration from the over-collateralization that happens on platforms like Maker. Whenever users put their assets into a tunnel to convert them, community members will pledge BOR (the governance token) to the tunnel in a ratio that ensures that 75% — 100% the equivalent of the asset in the tunnel are pledged.
For example, if Danish (our CEO) decided to use the BoringDao token to turn some 1 BTC into an ERC20 asset when BTC is at $50,000, the amount of BOR pledged to the tunnel would equal $37,500 — $50,000.
If the total pledged to a tunnel is worth $100,000,000 at a ratio of 75%, this tunnel can support the conversion of assets worth $75,000,000.
Community members pledge their BOR to the tunnel because it makes them a partial owner of the tunnel. As 70% of minting and 50% of burning fees are distributed in BOR to all tunnel owners, it’s an attractive incentive for BOR holders to increase their returns while providing vital infrastructure. While currently, BOR is the only assets that members can pledge, BoringDAO plans to increase the scope of eligible ERC-20 assets in the future.
Tunnel Creation
Tunnels, which are the bridge to convert assets, can be created by anyone in the ecosystem who pledges a sufficient BOR amount. However, each blockchain asset can only have one tunnel, so no one else can create a new BTC tunnel if a BTC tunnel already exists.
To create a tunnel, a community member needs to stake at least 500 BOR. This isn’t all of it; to activate the tunnel, a further 3000 BOR must be pledged to it within days. This is done to avoid many meaningless tunnel creations and give the tunnel a capacity to convert from the very start.
BOR token
In addition to being used as a sort of collateral to ensure that assets in the tunnel are always backed, the BOR token will play a more crucial role as the BoringDAO continues growing and giving more and more control to the community.
BOR token holders will be able to vote on community proposals, including opening a new tunnel, revising the proportions of reward distributions, adjusting the output ratio, revising the pledge ratio, and planning the use of the insurance money (50% of redemption commissions are allocated to an insurance pool governed by the community).
The maximum supply of BOR is 200,000 out of which 80% are allocated to go to the community.
With crypto adoption growing, more and more holders might look for interesting ways to make their non-ERC 20 assets work for them. That’s where BoringDAo can provide value by giving traders a secure, yet decentralized way to convert their holdings. Initially focused on the Ethereum ecosystem, there is no reason why BoringDAO could not expand to include conversions to other blockchain assets.
BOR will be trading on Bitcoin.com Exchange with USDT and BTC pairs starting June 15th at 10:00 UTC.
