Highlights

• Keep is a “privacy layer for Ethereum” that addresses the difficult challenge of allowing secure and private data to be used on a public blockchain.
• The first application of Keep is TBTC which mints 1:1 Bitcoin-backed ERC-20 tokens, enabling holders of BTC to securely store their private keys off-chain while using the BTC on Ethereum in DeFi applications.
• Holders of ETH and KEEP can run nodes on the Keep protocol, which will distribute 20% of the total supply of KEEP as a subsidy to node operators over 24 months of Stake Drop.
• Stake Drop begins on June 8th for KEEP+ETH stakers with peak rewards distribution happening in months 2-6.
• Starting on July 8th, participants will only need to stake ETH and are not obligated to have KEEP. However, staking KEEP during this period substantially increases the probability of being selected to perform work and earn rewards. This period lasts 6 months. After 6 months, they will need to also stake the earned KEEP to continue participating.

Keep Guide by Bison Trails

1. Protocol Goal
2. Innovations
3. How Keep Works
4. TBTC
5. Stake Drop
6. Liquidity Reward
7. Keep Economics
8. Staking Keep
9. Why Run a Node?

The Goal of Keep

The public nature of a blockchain is by design; as a verifiable public ledger all transactions are published to the blockchain. By default every transaction can be seen by everyone, including “competing interests.” The Keep protocol was developed to bridge the worlds of secure private data and public blockchains.

Innovations on Keep

With Keep, small amounts of sensitive data, such as private keys, can be stored off-chain but used in smart contracts on-chain in a trustless manner. The trustless component is possible due to the development of Keep’s Random Beacon, a source of true randomness that makes collusion virtually impossible.

Keep’s other major innovation is its ability to allow private data, held off-chain but stored online in nodes, to be used extensively on a public blockchain. The containers holding this data (keeps) can be created for a variety of functions such as proxy re-encryption. Keep is well-positioned to address the privacy needs that would enable broader adoption of public blockchains with private data.

Keep is bridging the gap across blockchains by allowing tokens to be moved between protocols. For example, because the Bitcoin blockchain wants to remain simple and secure, it has been difficult for people to use Bitcoin for financial transactions such as collateral for a loan or to interact with DeFi like Ethereum. To address this, Keep has developed a way to securely use Bitcoin on other blockchains (starting with Ethereum) without losing the features of Bitcoin which make it desirable as cryptocurrency.

How Keep Works

Keep is a Layer 2 privacy layer for Ethereum. It takes pieces of information, breaks it up into chunks, stores these chunks with different node operators, and allows the data owner to put those chunks back together as needed.

For example, a private key can be broken up and stored in pieces, only to be put back together when the data owner needs it for an activity such as sending a transaction or signing a message. A random individual cannot access the data, unless they colluded with others to defraud the network. Even then, the network has established rules that penalize the defrauders, costing them more in ETH than they would gain in BTC.

These are the fundamental concepts to understand about the Keep network:

• keeps: “small off-chain data containers for private storage and computation that can be opened, closed, and managed by smart contracts autonomously.” There are many types of keeps, and each type is purpose-built. Keeps are maintained by node operators who receive fees in return. Every type of keep requires a different number of nodes to service the keep, all of which are chosen at random from the large pool of available nodes.
• KEEP token: the native work token required for an entity to become a member of the Keep network and be eligible to earn rewards for performing work on the platform. “Work” is defined as the computation and availability required of a node to select and pull keeps together and read the associated data.
• Distributed Key Generation (DKG): a cryptographic process in which multiple parties contribute to the calculation of a shared public and private key set. This process prevents single parties from having access to a private key.
• Random Beacon: the trusted source of randomness for the process of trustless group election on Keep. The Beacon selects providers for each new keep (data container).
• Signing Group: the group of Keep nodes essential to sign activities on-chain; nodes never sign alone. For example, the Random Beacon requires a group of 64 signers.

The First dApp on Keep: TBTC

TBTC is a 1:1 Bitcoin-backed ERC-20, the first token to be minted via a decentralized protocol; one TBTC can be redeemed for 1 BTC. Because it is Bitcoin on Ethereum, not the price of Bitcoin on Ethereum, this token allows Bitcoin to be used in Decentralized Finance (DeFi). TBTC is only possible because of the innovations within Keep that allow for private keys to remain secret while also participating on a public blockchain.

"Storing private data securely to be used in smart contracts is a noteworthy innovation from the Keep team. TBTC as a trustless decentralized asset, has tremendous potential to finally unlock DeFi applications for BTC by moving it onto Ethereum. We're thrilled to support Keep on our infrastructure platform and look forward to a lot of participation in Keep's Stake Drop." —Aaron Henshaw, CTO and Cofounder of Bison Trails

How TBTC works

To mint a TBTC token with BTC, the network must complete a multi-step process.

First the Keep network creates an address for the depositor to put her BTC:

• The random beacon selects selects 64 nodes running the Random Beacon keep type to provide a random number.
• This random number is then used to select 3 Keep nodes running both the Random Beacon keep type and the TBTC keep type (called BondedECDSAKeep). These 3 nodes are selected based on how many Keep tokens are staked to them. The percentage of total staked KEEP tokens one has on one’s node is roughly the percentage of time the node should be selected to work. (i.e. If you have 1% of total KEEP staked to your node, you will do about 1% of the work on the network.)
• In addition to KEEP, the nodes must also have bonded ETH on them in order to create TBTC. Currently, the node must have at least 50% of the value of the Bitcoin in ETH, creating a total collateralization of 150% for the three nodes. This overcollateralization is used to prevent collusion between nodes to steal the Bitcoin as they would lose more than the Bitcoin they were hoping to steal.
• Once the three nodes are selected, they work together to perform a DKG ceremony to create a Bitcoin public and private key pair. This process is done in a way that each node only ever sees their own piece of the private key, while still creating a single, shareable public key.
• Each node takes their fragment of the Bitcoin private key and puts it into their TBTC keep.

Next the depositor adds her BTC:

• The Bitcoin address is provided to the user wanting to deposit the Bitcoin.
• Once the deposit is made, the nodes (signers) involved in creating the keys take a small signer’s fee as escrowed revenue for services rendered.
• The user is provided with a Simple Payment Verification (SVP) Proof, which comes from the BTC chain, is used as proof on the Ethereum chain, and which serves as a receipt that the deposit was correct.
• She uses this receipt in the dApp to prove she is entitled to her TBTC which she can now receive and use on the Ethereum blockchain in DeFi protocols.

To get her BTC back:

• The user burns her TBTC via a smart contract that notifies the signers holding the private key for her deposit that the key needs to be put back together and sends the deposit to the address she specified.
• The user redeeming the deposit pays the signer fee, while the signer fee that was originally escrowed is returned to the original depositor. Any user can close any TBTC deposit at any time, including those they did not open, without impacting the original depositor.
• The signer group generates and publishes a signature for the Bitcoin transaction on the Bitcoin blockchain and then generates a SPV proof of the transaction and publishes it to the Ethereum blockchain.
• At that point, the signers receive their ETH bond back along with signer fees. They can now use the ETH to continue creating TBTC or withdraw it completely.

For the first 4 months (starting in June 2020), there will be a supply cap on tBTC (Month 1 = 100 tBTC, Month 2 = 250 tBTC, Month 3 = 750 tBTC, Month 4 = 1000 tBTC). In month 5 there is no cap.

Stake Drop

TBTC functions in a two-sided marketplace. As with most financial products, TBTC needs usage and liquidity to be useful. First and foremost, there have to be BTC deposits and ETH stakers.

To facilitate reaching critical mass, the Keep team plans to heavily incentivize participation in the first 12-18 months. Stake Drop is a mechanism by which users with ETH, but no KEEP, can stake and participate in the Keep network, and be rewarded with KEEP and signer fees.

The first two months of the Stake Drop represent the peak distribution of rewards, favoring active participants who are ready to earn rewards on May 13.

For the first 6 months, participants only need to stake ETH and are not obligated to have KEEP, although staking KEEP during this period substantially increases the probability of being selected to perform work and earn rewards. After 6 months, they will also need to stake KEEP to continue participating but will likely have earned enough from rewards to do so. (If you are interested in participating in Stake Drop and want to talk this through with our protocol experts, please feel free to contact us.)

Liquidity Reward

The Keep team is allocating 5% of KEEP tokens (50m KEEP // $6m USD) as a liquidity reward to incentivize tBTC owners to add tBTC to DeFi trading and liquidity protocols (e.g., Uniswap). This reward furthers tBTC adoption and makes it easier for liquidators to service deposit liquidations. Further details will be released by the Keep team soon!

Keep Economics

Because KEEP is a work token, and the entire token supply exists at launch, the network does not have an inflation rate. Keep plans to incentivize mass participation from the start, rather than over the first few years, by using Stake Drop to distribute KEEP.

Through Stake Drop, 20% of KEEP tokens (200m) will be distributed as a subsidy to participants running the TBTC keep as well as the Random Beacon keep. This will ensure enough ETH is staked on the network and will reward users for nodes running the TBTC keep more than those only running the Random Beacon keep. The full subsidy details are here, courtesy of the Keep team.

Stakedrop KEEP distribution

Staking Keep

Staking KEEP and ETH as a TBTC signer

• Node operators that run a TBTC keep must stake ETH along with KEEP to participate and receive rewards. During the Stake Drop, you only need to stake ETH. Rewards will come in the form of KEEP from Stake Drop and signing fees paid in TBTC.
• Staking ETH and KEEP would increase rewards by 11% over ETH-only staking during the Stake Drop. In addition, staking both would increase the node’s chance of being selected to create TBTC by 20-30%, which would increase participation sooner than ETH-only nodes.
• 18% of the total KEEP supply (180m) will be rewarded to TBTC signers through Stake Drop. The amount any individual node will receive depends upon the amount of ETH staked to the node. Because the amount of work (percentage of the total) any node is asked to do is equivalent to the percent of total ETH the node has staked, rewards will depend greatly on both an individual’s stake and the total stake.
• At launch, fee rates are 5bps (0.05%) per BTC in a deposit; this rate will increase as the TBTC network scales and is expected to total 2-4% per year of the TBTC market cap in the medium to long-term. The only fee charged by the TBTC system is the signer fee which is escrowed when a singer mints the TBTC and is paid out to the signers when the deposit is redeemed.

Staking KEEP as a Random Beacon Signer

• Of the 20% of tokens distributed through the Stake Drop, 2% percent will go to KEEP holders running nodes with the Random Beacon keep.
• At the end of the first year, this results in a reward rate of 4-5%.
• The nodes will also earn signer fees for their participation in the Random Beacon, but these will likely be minimal until usage of Keep hits critical mass.

Why Run a Node?

• If you are a current KEEP holder via a SAFT, you are contractually required to stake your KEEP for 6-24 months.
• Even without this requirement, Stake Drop provides an extremely attractive opportunity to participate in Keep, particularly if you are interested in staking ETH.
• Two hundred million KEEP (~$24m USD) are being distributed as rewards for those running nodes in the first 24 months.
• Keep does not currently support more than one user delegating to a single node, although stake pooling contracts may be introduced later. At launch, the only way to participate is by running a node.

Why Run Keep Nodes with Bison Trails?

Bison Trails was one of the first outside providers spinning up nodes on Keep; we started in June 2019. Since then we have provided feedback that resulted in protocol parameter changes for infrastructure uptime requirements and made the first feature addition not by the Keep team to improve how their infrastructure is configured. Our pull request was merged here.

“The Bison Trails team is phenomenal. They've been deeply committed to Keep, and have been a huge help moving our protocol design and development forward. The Keep network requires an abundance of reliable, distributed, and secure nodes, making Bison Trails a strong partner and a great choice for Keep token holders and anyone joining our Stake Drop on June 8th.” —Matt Luongo, CEO at Thesis / Keep Network’s Project Lead

Our platform is purpose-built to run multiple nodes securely and reliably —perfect for a work token network like Keep that needs node diversity and high availability. In addition, there are three roles, with a related address, used for the set up and management of a Keep node:

• The owner/authorizer non-custodially delegates KEEP or ETH to the node.
• The operator runs and maintains the node.
• The beneficiary receives the participatory rewards and signing fees.

This delineation allows using non-custodial infrastructure providers to run your node, such as Bison Trails, to be a simple and straightforward process. Contact us with questions about the Keep protocol or to get started running a Keep node.

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.

Related

1. May 12, 2020 — Keep announced the first 3 judges of "Playing for Keeps" (a chance to learn to stake and win KEEP tokens by contributing to the community): Zaki Manian of Cosmos, Spencer Noon of DTC Capital, and Viktor Bunin Protocol Specialist at Bison Trails

This document is for informational purposes only. Please do not construe any such information or other material contained in this document as legal, tax, investment, financial, or other advice.