Jun 5 2020 By Bison Trails
The tBTC dApp is the first application on Keep. With it, an individual can deposit Bitcoin in exchange for 1 TBTC, a 1:1 Bitcoin-backed ERC-20. Because it is Bitcoin on Ethereum, not the price of Bitcoin on Ethereum, this token allows Bitcoin to be used in Decentralized Finance (DeFi). Keep uses bonded ETH on the network validators as collateral to secure the deposited BTC. When the price of ETH and/or BTC fluctuates, the collateralization level does as well. If and when the BTC deposit is under-collateralized, a liquidation process begins for the ETH.
If you choose to bond ETH on Keep, it is critical to understand how collateralization and liquidation work, and what to do if a deposit you are securing becomes undercollateralized. The following is a short guide to the process and some actions you can take to monitor your ETH.
Collateralization and Liquidation
All prices in the diagrams below are examples. The ETH/BTC ratio is shifting because the price of BTC remains the same while the price of ETH drops.
The ETH falling-price auction seeks to sell part or all of the ETH bond in exchange for the exact amount of TBTC the bond originally collateralized. The original depositor is not involved in the auction and the results have no impact on her TBTC. An increasing amount of ETH is offered and the auction remains open indefinitely until someone purchases the bond.
Actions and Monitoring
Monitor Your ETH Collateral
- Set up an automated/bot to close the deposit as soon as it's about to enter liquidation. If this is not possible, monitor the ETH/BTC ratio manually for significant fluctuations (e.g. 5% ETH/BTC ratio drop). Use existing DeFi data products to monitor ETH/BTC such as Tradingview and Blockfolio.
- Monitor the price of ETH to BTC ratio everyday: If you’re already monitoring prices of ETH/BTC, we recommend setting up monitoring and alerting of ETH to BTC prices with the 150% and 125% collateralization ratios in mind.
- Monitor pre-liquidation courtesy calls via the tBTC dApp (pending release)
- When you receive the courtesy call, close the deposit if someone else has not already (see “Withdraw ETH Bonds as Desired” below for how to do this). If no signer redeems the deposit and 6 hours pass, your ETH will be liquidated.
Withdraw ETH Bonds as Desired
Any ETH not collateralizing a TBTC deposit can be withdrawn at any time via the Token Dashboard. Any bonded ETH currently serving as collateral for TBTC can be withdrawn after you redeem the deposit.
Redeem the deposit:
- Using one Ethereum account, log into the tBTC dApp
- Verify the amount of BTC you are securing (e.g. 1 BTC) and retrieve your TDT ID
- Acquire the 1 TBTC being secured by your ETH collateral through the open market (e.g., Uniswap)
- Connect the same wallet to the tBTC dApp and enter the TDT ID. Enter your preferred BTC address to send the 1 BTC. Click "Redeem." The TBTC will then be burned.
- Once the deposit is closed, all bonded ETH will go back to the available pool on your node to secure more deposits or to withdraw via the Token Dashboard
- In the event your ETH is liquidated, your signing group(s) should coordinate with one another to recover the BTC being secured
- Currently, this process, “offline coordination,” is done via the Keep discord. Upon finding the other signers to piece back together the BTC key and dividing it up, then you will get your portion of your BTC
- Bison Trails will assist you with this coordination
- The Keep team plans to have an auto-recovery in the client in the medium future (~4 weeks). You will need a BTC address available for the auto-recovery
Rewards Management (KEEP, ETH, tBTC)
All rewards for KEEP, ETH, and TBTC will be managed through the Token Dashboard.
To withdraw your rewards:
- Go to the Keep Token Dashboard
- Connect your wallet (e.g. MetaMask, Coinbase, Ledger, Trezor) to the dashboard
- Select the correct beneficiary address you entered during onboarding from your wallet
- Click on “Rewards” on the left-hand navigation bar
- Go to the “Withdraw” section*
- Select the group key and click “Withdraw” (Note: Rewards that are withdrawable will be enabled in the “Withdraw” section versus signing fees/rewards that are still in the active status and ineligible in the “Totals” section)
This document is for informational purposes only. You should not construe any such information or other material contained in this document as legal, tax, investment, financial, or other advice.
Bison Trails: Pioneering Blockchain Infrastructure™
Bison Trails is an Infrastructure-as-a-Service company, based in New York City, specifically focused on blockchain participation. We’ve built a platform for anyone who wants to participate in new chains effortlessly (e.g. by running Cosmos Validators, Tezos Bakers, and Libra Validators, etc.)—without having to invest time and resources into developing any of the engineering, protocol, dev ops, or security competencies in-house. Our goal is for the entire blockchain ecosystem to flourish by providing robust infrastructure for the pioneers of tomorrow.
Contact us with questions about the Keep protocol or to get started running a Keep node.