8 months ago
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eBTC allows fee-free Bitcoin loans using Ethereum as collateral
Bitcoin decentralized finance (DeFi) service provider BadgerDAO has launched eBTC, a synthetic Bitcoin-pegged stablecoin backed by Lido’s stETH liquid staking token (LST), with users being allowed to deposit stETH as collateral to borrow Bitcoin at a 0% interest rate with no fees.
According to the announcement, users earn with their collateral since their Ethereum holdings will be generating yield through Lido. Chris Spadafora, founder of BadgerDAO, explained to Crypto Briefing that Lido was chosen as a partner due to its track record in DeFi.
“From a pure security standpoint, you have to look at it and say, what can handle billions of dollars? Lido has been doing that for the longest period of time, and it is substantially larger than its second competitor and a variety of other competitors. So it also has a very robust infrastructure in terms of oracle pricing and things in deFi that are absolutely critical for designing a smart contract-based protocol like we’ve done with EBTC. So the less integrations it has and support it has for the asset, the less secure your protocol becomes.
Moreover, BadgerDAO points out that eBTC aims to improve upon wrapped Bitcoin instruments like WBTC by using stETH collateral instead of relying on asset custodians, eliminating the attack vector of a cross-chain bridge.
However, as a new synthetic asset in DeFi, support in different decentralized applications will be limited for eBTC. Spadafora addresses that, explaining that the ecosystem around eBTC will grow because BadgerDAO’s synthetic Bitcoin is the “most capital efficient way for anybody to borrow Bitcoin.”
“The over-collateralization ratio is only 110%, versus 150%, 160%, and 170% in DeFi protocols and exchanges; there are no fees on the system, versus a 1% to 10% interest rate in other places; and it pretty much has an unlimited borrowing facility, since it’s similar to DAI in the sense that it’s a CDP based protocol. […] And what is interesting about that is that you have ETH, you come to the protocol, the protocol stakes that ETH for you. So now you’re earning yield on collateral when you weren’t before. You can borrow rBTC at a lower collateralization ratio and then naturally you could loop that strategy like many do with other CDP or stablecoin-based protocols. And then you could sell that eBTC for more ETH redeposit. You’re now getting heightened staking yield. Do it again, do it again, do it again.”
The launch of eBTC follows extensive security reviews from RiskDAO, Spearbit, Cod4rena, and Immunefi, with all the procedures made transparent by BadgerDAO.
“The eBTC protocol introduces an exceptional new use case for Lido Staked ETH, leveraging the power of staking rewards to provide a more capital-efficient borrowing option for Bitcoin on Ethereum,” concludes DeFiYaco, Master of DeFi at Lido.
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