TIP-100: The Future of Threshold, Continued

Proposals
22

With Schnorr we are rolling out our own implementation and need to update way more code than just the cryptography library - this has its own risks. I am also not sure about the ~90% cost reduction. It is true that tECDSA is computationally heavy but most of the infrastructure costs are about running Bitcoin, Electrum, and Ethereum nodes assuming the operator is truly decentralized.

Anyway, my intention wasn’t to slide off the conversation to implementation details but to raise a flag that Schnorr migration is more complicated than it might seem at first. If we wanted to end the beta staker program, this would probably be the way to go. But if we want to continue it until BitVM upgrade, I would consider going straight to BitVM. But that’s something at tLabs’ discretion.

I have one more question regarding tokenomics. Based on Etherscan, there are 11,155,000,000 T in existence now. The current profit from redemption fees is $2.7M. Let’s assume the TVL goes 30x, and the same will happen to the redemption fees. This gives $81M in redemption fees, so $0.01 per T token. What am I missing?

3 Likes
23

Here are my thoughts as growth lead and a member of the thUSD steering committee; there are many problems with thUSD at this point in time, without easy solutions, the main being:

Problem: Poor BOB uptake
Solution: Discontinue Support for thUSD on BOB, no incentives or spice allocation

Problem: Users fears about being redeemed by others
Short Term Solution: The DAO maintaining a low CR vault
Long Term Solution: Liquidity V2 Fork

Problem: Peg Stability
Solution: A DAO owned arbitrage bot and pairing with a yield bearing stable

Problem: Limited use case for thUSD
Solution: Getting an oracle, to create the ability to use thUSD in lending and dperp markets (although there is no guarantee there will be demand)

Problem: Depth of Liquidity for tBTC/ thUSD
Solution: No easy solution here, need to find a way to incentivise large volume of smaller users to swap between tBTC and thUSD or artificially boost depth through incentives

My recommendation is that the DAO makes the decision to either of the following:

Option 1

Cease funding for the thUSD steering committee

Hire one person for 20 hours per week to run thUSD in a product/ growth focussed role (20x85x4.3= $7,310).

Hire one person for 20 hours per week in a dev role (20x85x4.3= $7,310).

Eliminate support for BOB and concentrate support for thUSD on mainnet, reducing the total budget to 20k a month in incentives(this should include any discretionary new market launches).

& secure a chainlink oracle to allow for single sided yield opportunities (5k a month).

This is the minimum in my opinion for thUSD to function and grow, this should be reviewed on a 3 monthly basis to make the decision to wind down, maintain or expand thUSD.

This comes at a monthly cost of ~40k, not including any additional miscellaneous costs.

Option 2

Wind down and discontinue support for thUSD with scope to add it to Threshold’s product offering with a Liquidity v2 fork, allowing for deployment via Threshold’s appchain.

My Two Sats

Liquity V1 took 8.4m in funding, whilst a majority of this was used to build LUSD from the ground up, I imagine they spent a considerable amount of this on incentives and had more than just a team of two part time employees, all for it to reach 380m TVL pre liquity v2 launch.

The main problem is that thUSD is constrained by tBTC’s growth, while it’s not constrained by ETH so much, there are other solutions on the market that are multiple development cycles ahead of thUSD.

From 2023 to 2024, Liquity v1 grew from 411m to 720m in TVL, this netted about 3.6m in fees. From 2024 to 2025, LUSD shrank from 720m to 413m TVL, which netted 1.4 million in fees.

I think people should avoid thinking in sunk cost terms and focus on opportunity cost. There are significantly more CDPs in the space than a year ago, we’re also directly competing with major lending venues for a BTC → USD route, inadvertently competing against ourselves. I do believe that almost half a million a year in thUSD costs would be better served growing tBTC.

Once the appchain is built and tBTC isn’t so much a limiting factor, we should pick up the development of thUSD again.

7 Likes
24

Given the imminent movement of TIP-92 to Snapshot, it’s important to clarify that that I view TIP-100 as the critical package for success, not an a la carte menu of options to selectively approve or reject (i.e. TIP-92 is a requirement for TIP-100).

Please keep in mind that context while evaluating your decision.

9 Likes
25

It turns out that $81M in fees to the DAO is pretty dang strong. Compare to other projects — that’s higher that MetaMask makes on swap fees annually, for example.

I still think there’s room for further business model innovation over just chain fees, of course.

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26

It seems to me that there should be shared ownership of TaCo revenue… and perhaps some sort of token that represents that? Maybe we call it “TACO” XD

Seriously though, how is Threshold going to maintain upside in TaCo going forward? I agree that focusing on one thing is good, but also think Threshold should maintain an interest in an independent TaCo network.

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27

Is there any reason to believe either of these options will lead to a quickly growing thUSD?

If it won’t grow quickly, and if it won’t throw off significant revenue with its current fee regime… it feels like a major distraction.

Note, I’m bullish on a Bitcoin-backed stablecoin, and plan to launch one at Mezo mainnet shortly. I love the category. But thUSD isn’t that — it’s an ETH + BTC-backed stablecoin on a network that largely isn’t used by Bitcoiners, and appears to be better served by other stablecoins.

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28

hey Matt,
I’ve been putting a lot of thought into thUSD and wrote a bond proposal I’d like you to check out. There are some other ideas regarding both tbtc and thusd (and making incentives + marketing more efficient) that I’ve discussed in the discord and with Ethan, Sap, and Maclane recently, but if I could get your feedback on this it would be much appreciated.

I’ll post it here first and then make a forum topic with an example scenario to answer questions and expand the discussion.

2 Likes
29

I am excited by tLabs and what they may contribute.

What if they only have middling success? I recognize that the DAO serves as principle and may choose not to retain tLabs for poor performance but what remains of the DAO at that point, say 12-18 months in? We find that tBTC only commands ~8% (admittedly a 2x but overall not a dominant position) market share of tokenized bitcoin across chains. TACo has separated to another network and there are no community stakers beyond the beta staker set that are being contracted. What is our community at that point?

We may choose then to end our relationship with tLabs related to poor performance but we have been so totally restructured by the initial engagement that our Threshold community has little to return to - no network, an awesome app (tBTC) -that will have been shown to be very challenging to grow. We have all been here, holding out through significant headwinds because we believe in Threshold as a network that builds and runs critical pieces of DeFi and Web3 infrastructure (tBTC and TACo respectively). I dont think that hope for the future would exist if tLabs does not perform.

I say all of this so that we are clear eyed about the notion that the DAO can just not retain tLabs for poor performance and return to where we are now. The DAO will not have a network to return to after TIP 92 and TIP 100 (beyond the contracted beta staker set). We will have a governance structure for an awesome piece of tech, tBTC, run by a hired group, that will then have been demonstrated to be very challenging to capture any additional market share. This challenges my hope for a future in which community nodes support the new tech of DeFi and Web3. This alone is not a reason to not support this move but I want be explicit about what I have felt is the center of this community and recognize the pressure that we are putting on the folks at tLabs.

Their success is our success. But the impacts of their lack of performance may be a disappointment for them and perhaps something larger for our community.

I thank Maclane and the group because I don’t think we have been successful in scaling tBTC with our current approaches; I greatly hope for your success. If tBTC becomes profitable, I would greatly appreciate the opportunity to open a discussion about re-engaging our staker community, even if it increases costs, to again realize one of the central aspects of our Threshold community.

7 Likes
30

If both these TIP’s pass, and Taco starts to “roll-off” the Threshold network…I would agree that Threshold should somehow maintain an interest in the Taco network. Seems like many/most community members support both applications. So, I’m assuming both parties (Threshold and Taco) would benefit from some sort of revenue-share…whatever that may look like. Looks like they would have a roughly 6-month window to figure something out (likely less).

1 Like
31

Hi.
Regarding @eh_ethan comments about thUSD I am pretty much aligned with.

I never understood its existance on BOB and why any effort that was put that, wasn’t put on getting it on any L2 instead.

Getting thUSD on any well established L2 can bring retail and general user usage, specially DeFi savvy users. These are the ones that will bring TVL initially.

Ethereum mainnet has been mainly for institutional and corporate usages and higher volumes, and I don’t think big players will get much interested in thUSD at this stage.
The smaller ones that are much more likely I don’t think they will accept to pay the higher gas fees on Ethereum mainnet, so having on L2 is the natural way to do spread its usage to a bigger user base. Either Arbitrum or Base would be a natural choice to start with.

We are still in times people are leveraging a lot and seeking for low cost USD borrow which thUSD has a unique advantage on it. As it seems still not possible to get thUSD on bluechip lending platforms can perhaps try to get on smaller ones until there is enough volume that can be accepted by the larger ones.

I also agree the two main focus of resources spending for thUSD should be Growth and Dev so I align with Option 1. The only point I differ is concentrating all incentives to Ethereum mainnet. I really don’t see thUSD succeeding without being present in at least one L2.

32

Discontinuing thUSD the DAO will send a bad message to the market, plus the costs for Liquity V2 seems quiet significant for the moment.
Thanks for bringing these numbers about Liquity Ethan. Helps clarify things much better.

There is significant growing demand for USD stablecoins, leveraging and opportunities for thUSD. In 2024 stablecoins transaction value overcame Visa + Mastercard hitting $ 15.6 trillion according to Ark Invest.

From what I could see so far thUSD hasn’t received proper attention and efficient resources and wasn’t able to prove itself minimally, so an extra reason it should be given a proper chance now and with the proposed reduced/adjusted resource spending perhaps it can have a better chance.

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33

How are we planning to validate this network without block rewards / future emissions?

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34

Initially, I expect the permissioned beta staker set would likely operate the chain since they are already being trusted to custody BTC.

If it proves necessary to subsidize the chain when it becomes permissionless, emissions could be reintroduced when required, but not before.

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35

TIP-100 is live on Snapshot: https://snapshot.box/#/s:threshold.eth/proposal/0x37e4917f506d716e00f74d7aa2252fbe0a028c3c3df9432bbc57c5c3a90f3c91

2 Likes