TIP-086: Make tBTC Omnichain: Threshold DAO x LayerZero Labs

[LayerZeroLabs]

Summary

LayerZero Labs is excited to submit this proposal to help Threshold DAO create a secure and unified omnichain experience for tBTC. By adopting the Omnichain Fungible Token (OFT) Standard, powered by the LayerZero protocol, Threshold DAO can seamlessly expand to new chains while gaining greater control over tBTC’s security and finality.

Why should tBTC use the OFT Standard?

The OFT Standard is the most widely adopted fungible token standard outside of ERC-20, with over 120 implementations including BTC.b, USDe, sUSDe, weETH, rsETH, and CAKE. Since its launch in 2022, it has facilitated millions of messages without a single exploit and secures assets worth over $20 billion.

By adopting the OFT contract standard, Threshold DAO could expand tBTC quickly from 8 chains to any of the 80 networks supported by LayerZero including Bitcoin L2s like Merlin, BoB, and Mezo when it launches. As an OFT, tBTC would be also eligible for integration with Stargate, the most widely used bridge in crypto.

By adopting the OFT Standard, tBTC would inherit the following key characteristics:

Unified liquidity

tBTC liquidity will be unified across networks via burn and mint token accounting, eliminating the need for wrapped assets and the fragmented liquidity it results in. Moreover, when Threshold DAO expands tBTC to new chains, it will be deployed natively, enabling standardized integration for applications and smooth transfers for users across networks.

Modular security

The LayerZero protocol was deliberately designed to take an unbiased stance on how messages are verified. With the introduction of LayerZero V2, each application, such as tBTC, can configure a Security Stack composed of both required and optional Decentralized Verifier Networks (DVNs), allowing for flexibility and upgrades as new technologies emerge. Additionally, applications can define parameters such as finality, execution, rate limiting, and blacklist/whitelist settings when configuring their Security Stack.

Today, 34 DVNs are available to applications building on LayerZero, spanning various verification methods including zk-technology, middlechains, consortium signers, and third-party bridges. These DVNs are operated by trusted entities like Google, Lagrange, Polyhedra, Axelar, and others, with a complete overview of available DVNs listed here.

Therefore, when building on LayerZero’s messaging framework, Threshold DAO has the flexibility to configure its DVN setup for tBTC based on specific security preferences. As part of this proposal, LayerZero Labs also commits to providing support to Threshold DAO in setting up its own DVN for inclusion in tBTC’s Security Stack, if they so choose.

Contract Ownership

Inherently non-custodial, the OFT Standard allows Threshold DAO to own and control every part of their token contracts and functions, managing the token supply directly across each blockchain.
In other words, the LayerZero protocol has no control over any aspect of tBTC.

Threshold DAO retains full ownership of its token contracts, selects its verifiers and execution methods, chooses the chains for tBTC deployment, and manages other technical configurations as detailed in the LayerZero security stack documentation here.

OFT & Adapter Contracts

For tokens like tBTC that are already deployed on multiple networks, Adapters enable tBTC to move natively between chains using LayerZero messaging, without requiring the creation of a new tBTC token or an upgrade to the contract. The process works by allowing the Adapters to mint and burn tBTC on behalf of users who want to transfer tokens.

For example, when a user wishes to move tBTC from chain A to chain B, the tBTC is burned on chain A and the Adapter Contract sends a message via LayerZero to chain B. Then, the Adapter on chain B mints an equivalent amount of tBTC and delivers it to the user. This approach ensures a unified supply across all networks and prevents honeypots of liquidity.

For more details on implementing these contracts, refer to our docs.

Proposed Collaboration & Timeline

As part of this OFT adoption, LayerZero proposes to commit engineering resources to help build and deploy the OFT contracts for tBTC, along with a Threshold DAO DVN to include in tBTC’s Security Stack. Additionally, LayerZero Labs will advise Threshold DAO on essential security considerations, including external DVN selection and tBTC chain deployments.

To ensure a seamless bridging experience for users, LayerZero Labs also commits to building a custom tBTC bridging front-end, which will be owned and operated by Threshold DAO. Additionally, once deployed as an OFT, tBTC would be eligible for integration by Stargate Finance, in line with Stargate DAO’s mandate to support all such tokens.

From an ecosystem growth perspective, LayerZero Labs commits to supporting Threshold DAO through various strategic initiatives. First, LayerZero will integrate Mezo as a LayerZero endpoint alongside other BTC Layer 2s, making it easier for applications to bridge assets to the chain once it is launched. Additionally, LayerZero will collaborate with Threshold DAO on GTM and growth initiatives which can include events, hackathons, etc. aimed at driving TVL expansion for tBTC.

About LayerZero V2

LayerZero V2 implements a modular framework for omnichain communication, featuring customizable Security Stacks made up of DVNs and executors. As with V1, LayerZero V2 remains the only immutable, permissionless, and censorship resistant messaging protocol. More information can be found here: Medium Post, Whitepaper, Documentation, and Launch Video.

[Luna5]

Proposal code TIP-086

[mcitizen42]

I feel that this proposal represents a significant milestone for tBTC, even more so a – must do!
By integrating L0 and enabling omnichain functionality I envision tBTC becoming even more adaptable and influential across the DeFi landscape - the synergies are clear - I am excited and optimistic that this move is the right path for tBTC ensuring its growth and relevance as we continue to push boundaries across web3.
I hope all degens and thresholders share the same vision and support this crucial step forward. Lets get this approved frens

[Eastban]

Thank you so much for putting up this proposed collaboration in TIP-086. The potential to make tBTC omnichain through the partnership between Threshold DAO and LayerZero Labs is an exciting opportunity to enhance the utility and reach of tBTC across multiple blockchain ecosystems.

However, I believe there are two important aspects that should be integrated into this proposal to ensure mutual benefit and long-term success.

Specifically, I would like to suggest that LayerZero commits to a contribution to tBTC’s Total Value Locked (TVL) as part of this collaboration. This commitment would not only demonstrate LayerZero’s confidence in the tBTC ecosystem but also help to solidify tBTC’s position as a leading decentralized Bitcoin asset across chains.

The possibility of quickly expanding tBTC to 80 networks, as outlined in the proposal, is particularly exciting. This kind of rapid growth could significantly enhance tBTC’s presence and utility across various ecosystems. However, to fully realize the potential of any expansion Threshold is always working on carefully designed liquidity incentives plans, with DAO-owned resources which are really scarce. In that regard it would make more sense to support this proposal if LayerZero could also help by providing co-incentives for bolstering liquidity on new networks. These co-incentives would be crucial in ensuring that tBTC gains traction and maintains strong liquidity as it expands to new platforms, making the asset more robust and attractive to users.

Thank you for considering these suggestions. I look forward to seeing how this proposal evolves.

[mhluongo]

Thanks for the proposal!

@LayerZeroLabs

By adopting the OFT contract standard, Threshold DAO could expand tBTC quickly from 8 chains to any of the 80 networks

The biggest limiter today for chains we support hasn’t been the bridging tech — it’s been the overhead of advertising and growing liquidity on each chain, working with partner dApps, etc. Do you guys have any ideas there?

On the OFT side, any thoughts on how it compares to our existing cross-chain mechanism? It sounds very similar.

@LayerZeroLabs

BoB, and Mezo when it launches

Note that we already have tBTC on both projects — Dune dashboard.

[LayerZeroLabs]

Hey @Eastban,

Thank you for the comment.

LayerZero is dedicated to supporting tBTC’s growth and adoption within DeFi. We are prepared to assist through spotlights, marketing efforts, and co-promotion. Additionally, we are ready to collaborate on go-to-market strategies for any new chain expansions as they arise.

LayerZero and its partners are also exploring ways to contribute to the growth of tBTC’s TVL by providing capital to the protocol. While we are still finalizing the specifics of this support, we are aligned in our vision to help tBTC achieve its full potential with LayerZero.

[LayerZeroLabs]

Hey @mhluongo,

Thank you for the comment. Please find answers to your questions below.

“The biggest limiter today for chains we support hasn’t been the bridging tech — it’s been the overhead of advertising and growing liquidity on each chain, working with partner dApps, etc. Do you guys have any ideas there?”

LayerZero Labs is committed to connecting Threshold DAO representatives with our ecosystem and advancing tBTC adoption across high-opportunity chains and applications. With more than 80 chain endpoints, LayerZero is the most widely deployed interoperability protocol in the space.

Furthermore, LayerZero is already embedded into many of the largest liquidity hubs in DeFi. Notably, applications such as Stargate, Camelot, GMX, TraderJoe, PancakeSwap, and Maverick have integrated LayerZero messaging and contracts into their applications. Additionally, applications that do not natively deploy on LayerZero, like Aerodrome, have experience working with OFTs, as seen in their support for WIF’s transition from Solana to Base.

“On the OFT side, any thoughts on how it compares to our existing cross-chain mechanism 3? It sounds very similar.”

By adopting the OFT standard, Threshold can rely on the leading solution for omnichain tokens and the most battle-tested fungible token standard after ERC-20. Since its launch, the OFT standard has seen over 130 implementations, including BTC.b, USDe, sUSDe, weETH, and rsETH.

In terms of architecture, the OFT Standard relies on LayerZero as a flexible messaging framework that enables the transfer of arbitrary data between chains. An omnichain token is one form of data that can be transferred using this framework.

Within the framework, OFT transfers are managed through accounting mechanisms — such as locks, burns, and mints — which act as digital equivalents of debits and credits. These mechanisms are tracked across chains to prevent double-spending and ensure a stable global supply. Essentially, what is transferred between chains is not the token itself, but a message that informs the token issuer of the shift in supply from one chain to another.

By design, LayerZero enables applications to configure their own security stack for verification, offering greater adaptability, client diversity, and liveness. In this case, the verification and execution of tBTC transfers, along with the smart contracts and finality parameters, would be managed, configured, and owned by Threshold.

Regarding production-ready architecture, Threshold can customize its verifiers and executors from a broad range of entities to meet specific security needs. By selecting from over 30 diverse client DVNs, Threshold can configure both required and optional DVNs on a per-pathway and per-transaction basis, if desired.

In comparison, Threshold’s current multi-chain provider relies on a 13/19 guardian set to verify transfers of tBTC between chains, with no mention of client diversity amongst the guardians. Threshold is also constrained to the 28 chains that their current provider exists on. By integrating LayerZero and adopting the OFT Standard, these limitations are removed.

[engin]

Doubling down on the points both @Eastban and @mhluongo raised. The expansion infrastructure sounds like an exciting plan and probably worth pursuing. What we observed so far is expansion without a tactical and smart (or brute force) liquidity plan leads to fragmentation and does not magically result in distribution. To be fair, LayerZero is an infra provider and may not be on the line to solve this problem, however, the challenge of liquidity fragmentation is very tightly linked to expansion.