TeleBTC: Trustless Wrapped Bitcoin

TL;DR

TeleBTC introduces a decentralized, trust-minimized protocol for wrapping Bitcoin on programmable blockchains, eliminating external validators and reducing costs through innovative light client bridge techniques.

Contribution

The paper presents a novel decentralized wrapping protocol for Bitcoin that leverages light client bridges and economic incentives, improving security and reducing complexity.

Findings

Achieves secure wrapping of BTC without external validators

Reduces operational costs of light client bridges significantly

Enables seamless transfer and unwrapping of BTC across blockchains

Abstract

This paper introduces TeleBTC, a fully decentralized protocol designed to wrap Bitcoin (BTC) on programmable blockchains. The creation of a decentralized wrapped BTC presents challenges due to the non-programmable nature of Bitcoin, making it difficult to custody BTCs in a decentralized way. Existing solutions have addressed this challenge by introducing an external layer of validators who take custody of users' BTCs. However, the security and decentralization of this layer are inferior to the underlying blockchains on which wrapped BTC is built. Moreover, the process of joining or leaving for a validator has become overly complex and expensive. To overcome these limitations, we propose a novel approach that eliminates the need for such an external layer by leveraging the light client bridge protocol. Additionally, we employ economic mechanisms such as incentivization and slashing, resulting in a secure and trust-minimized wrapped BTC solution. With TeleBTC, users can seamlessly transfer their BTC to other blockchains and utilize it within decentralized applications. Furthermore, they can unwrap their TeleBTC and reclaim the native BTC. To address the high costs associated with light client bridges, we present an optimistic approach that minimizes the cost. This approach significantly reduces the operational expenses of running the protocol.