Chainlink’s “Proof of Reserves” contract will allow Ethereum apps to audit the bitcoin collateral of WBTC
BitGo, the leader in digital asset financial services, announced today that it is adopting the world’s largest decentralized oracle network, Chainlink, to provide on-demand, definitive truth around the collateralization of “Wrapped Bitcoin” (WBTC). Over the last year, BitGo has bridged close to $1 billion onto the Ethereum blockchain in the form of WBTC, an ERC-20 token backed one-to-one by bitcoin, and held at BitGo Trust. WBTC has allowed hundreds of thousands of Bitcoin users to interact with a variety of DeFi, or “Decentralized Finance,” applications on Ethereum.
To boost the transparency and auditability of WBTC, BitGo will become the first entity to adopt Chainlink’s new “Proof of Reserve” mechanism. Proof of Reserve enables DeFi applications using WBTC to fully automate the process of auditing BTC value held by BitGo’s multi-signature contract in a trustless and tamper proof manner. This approach drastically streamlines the process by removing the need for time-consuming off-chain audit processes.
“Chainlink’s Proof of Reserve feature enables developers to easily integrate WBTC’s verifiable reserves into their smart contracts to make the transparency of WBTC’s reserve system accessible to the end users,” said Mike Belshe, Co-Founder & CEO of BitGo. “Chainlink’s proven ability to secure value in the blockchain space gives us great confidence that our users can trust this new feature in production to provide them with the most up-to-date and accurate assessment of our WBTC reserves.”
To provide transparent and fully automated readings of WBTC’s reserves on demand, DeFi applications on Ethereum will be able to connect to a continually updated WBTC Proof of Reserve Reference Contract powered by a Chainlink decentralized oracle network. DeFi apps can then query the Proof of Reserve Contract to instantly verify that each WBTC is fully backed by an equal reserve balance of BTC in BitGo’s custodian address on the Bitcoin blockchain.
Chainlink oracles will check the balances of BitGo’s WBTC custody wallets every ten minutes. If a deviation is spotted beyond a defined threshold (e.g. 1%), the oracles will push an on-chain update to the WBTC reference contracts with the new balance. Though Chainlink nodes will constantly monitor the contract off-chain, they will only push on-chain transactions when WBTC is minted or burned, changing the reserve balance. If the collateralization reported by the Proof of Reserve contract deviates from the minted amount of WBTC, applications can employ customized logic to swiftly and safely protect user funds. For example, a money market protocol that allows WBTC as collateral can check its current collateralization before taking a borrowing/lending action, which either accepts or denies a transaction based on the oracle report. In addition to increasing protection against black swan events, this feature is especially beneficial for decentralized applications that utilize WBTC as collateral to secure other digital assets.
“We are excited to empower BitGo with the ability to offer additional security and transparency guarantees to users of its WBTC product by giving them access to a secure, transparent, and fully automated oracle solution that supplies consistently accurate updates on the current collateralization of WBTC,” said Sergey Nazarov, Co-founder of Chainlink. “This additional level of information allows BitGo to scale WBTC’s reliability to match its growing market demand, bringing more value to DeFi while continuing to improve its overall security.”
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BitGo is the leader in digital asset financial services, providing institutional investors with liquidity, custody, and security solutions. In 2020, BitGo launched Prime Trading and Lending, as well as BitGo Portfolio and Tax, providing clients with a full-stack solution for digital assets. In 2018, it launched BitGo Trust Company, the first qualified custodian purpose-built for storing digital assets. BitGo processes over 20% of all global Bitcoin transactions, and supports over 300 coins and tokens. BitGo’s customer base includes the world’s largest cryptocurrency exchanges and institutional investors and spans more than 50 countries. BitGo is backed by Goldman Sachs, Craft Ventures, Digital Currency Group, DRW, Galaxy Digital Ventures, Redpoint Ventures, and Valor Equity Partners.
Custody services are offered through BitGo Trust Company, a South Dakota chartered trust company. BitGo is not registered with the SEC, and does not offer legal, tax, investment, or other advice. Please consult your legal/tax/investment professional for questions about your specific circumstances.
If you’re a developer and want to connect your smart contract to off-chain data and systems, visit the developer documentation and join the technical discussion on Discord. If you want to schedule a call to discuss the integration more in-depth, reach out here.
Chainlink is an open-source blockchain abstraction layer for building and running decentralized oracle networks that give smart contracts on any blockchain access to secure and reliable data inputs and outputs. It provides oracles to leading DeFi applications like Synthetix, Aave, and yEarn; numerous blockchains such as Ethereum, Polkadot, and Tezos; as well as large enterprises including Google, Oracle, and SWIFT.
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