DeFi platform Sushi has partnered with interoperability platform ZetaChain to explore the possibility of native Bitcoin (BTC) swaps for its users across 30 different blockchain networks.
Sushi’s deployment of its decentralized exchange (DEX) on ZetaChain is touted to enable BTC trading without traversing across multiple blockchains, in what the team describes as a “native, decentralized, and permissionless manner.”
The integration is expected to include Sushi’s automated market makers v2 and v3 as well as Sushi’s cross-chain swap SushiXSwap.
ZetaChain lead employee Ankur Nandwani told Cointelegraph that the partnership can bring Bitcoin’s large user base natively to the decentralized finance (DeFi) sector. He also refuted arguments suggesting that bridging BTC is not possible without tying the assets to another chain.
“There have already been early examples like THORChain that natively trade Bitcoin with other chain assets.” Other approaches, like Bitcoin sidechains, also offer a flavor,” Nandwani said.
He added that ZetaChain’s approach effectively allows anyone to build Bitcoin-interoperable decentralized applications (DApps) that can settle contracts and transactions natively.
“Of course there are trust assumptions, namely trust in the decentralization of the network that carries out this cross-chain transaction.”
ZetaChain has reportedly proven the technology at the testnet level and will look to prove the utility when it launches its mainnet through partnerships with SushiSwap and other DeFi protocols.
Sushi chef Jared Gray hailed the integration as a significant step forward for DeFi, describing the ability to exchange Bitcoin natively as a “game-changer” for the industry.
“It’s not just about Bitcoin’s increased liquidity; It’s about starting a new chapter in DeFi where we see more practical use cases for interoperability and improved connectivity.”
The integration of Sushi with ZetaChain will take place in two phases. As a first step, Sushi will launch a DEX on ZetaChain’s testnet to support basic asset swaps and liquidity provision. This phase should also include beta testing and application testing incentives.
Sushi will become one of ZetaChain’s launch partners when the company deploys its mainnet. The launch is expected to be followed by full functionality for Bitcoin interoperability. Nandwani explained the technical details behind the functionality that enables native BTC cross-chain swaps.
A cross-chain swap contract is deployed on ZetaChain’s Ethereum Virtual Machine. The contract is Omnichain, meaning that while it is deployed on ZetaChain, it can be accessed and value can be passed to it from any connected chain, including Bitcoin.
When invoking a cross-chain swap contract, a user sends a regular native token transfer transaction on Bitcoin to a TSS address with a special memo. The memo contains the Omnichain contract address on ZetaChain and a value passed to the contract. In a cross-chain swap, the value would be the target token, for example Ether (ETH) or USD Coin (USDC) on Ethereum, as well as the recipient address on the target chain.
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The TSS address belongs to ZetaChain signer validators. BTC transferred to the TSS address is locked, and validators observe this transfer and vote on this event on ZetaChain. If enough votes are cast, the event is considered observed and an incoming cross-chain transaction (CCTX, from Bitcoin to ZetaChain) is created.
Once a CCTX is processed, a ZetaChain Omnichain contract is invoked and the BTC amount transferred to the TSS address is minted as ZRC-20 BTC. When executing the cross-chain swap contract, one ZRC-20 BTC is exchanged for the ZRC-20 of another token, for example ZRC-20 ETH.
ZRC-20 ETH will then be finally withdrawn to the target chain. During the withdrawal process, ZRC-20 ETH is burned and an outgoing CCTX is created from ZetaChain to Ethereum. Observer validators vote on this CCTX on ZetaChain. Once the outgoing CCTX is processed, the native ETH is transferred from the TSS address on Ethereum to the recipient on Ethereum.
Nandwani provided this example to outline how native BTC is exchanged for native ETH in a decentralized manner, facilitated by ZetaChain’s network validators across connected chains.
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