- Interlay’s proposed protocol, XCC, improves security and capital efficiency of Bitcoin DeFi. XCC is an extension of XCLAIM the peer-reviewed protocol underlying Interlay’s flagship product interBTC.
- The new XCC protocol allows users to retain shared custody of their BTC when moving it cross-chain (“wrapping”), combining Bitcoin multisigs with concepts seen in Ethereum L2s (commit chains). This way, the network of custodians (vaults) securing BTC can no longer commit theft, achieving levels of security previously unseen in wrapped assets.
- XCC will allow users to stake their BTC in a few, selected DeFi applications, benefiting from high security and capital efficiency. If dynamic liquidity is needed for composability across multiple DeFi apps, users will be able to easily switch to the more flexible interBTC model.
In its pursuit of self-custody BTC DeFi on all chains, after launching the Kintsugi Bitcoin bridge – the first trustless Bitcoin bridge on Kusama, the interoperability network Interlay releases a technical paper of a new protocol named XCLAIM Commit (XCC).
Interlay is a decentralized network dedicated to connecting crypto-currencies like Bitcoin with DeFi platforms like Polkadot and Ethereum. The Interlay network is hosted as a Polkadot parachain and will be connected to Cosmos, Ethereum and other major DeFi networks. interBTC (iBTC), Interlay’s flagship product, is Bitcoin on any blockchain. A 1:1 Bitcoin-backed asset, fully collateralized, interoperable, and censorship-resistant. Kintsugi is Interlay’s canary network, an experiment with real economic value deployed on Kusama.
The interoperability project is backed by IOSG ventures, KR1, LAUNCHUB Ventures, CMS Holdings, Hypersphere Ventures, Blockchain.com Ventures, Zee Prime Capital, Digital Financial Group (DFG), DI Ventures, NEXO, and Signum Capital.
According to AlexaBlockchain database, Interlay has raised a total of $9.5 million in funding over 3 rounds. The London-based developer house received an undisclosed-sum as an initial funding from Web3 Foundation, the non-profit entity behind Polkadot, in March 2020. Following this, the project secured two round of financing in 2021 – a Seed Funding of $3 million in July 2021 and a Venture – Series Unknown round of $6.5 million in December 2021.
XCC Protocol Advantage
According to Interlay, the new protocol increases the security of users’ funds and improves the capital efficiency of vaults. XCC extends XCLAIM (published in 2018) – the technology underpinning Interlay’s flagship interBTC and kBTC products.
XCC vaults will need less collateral than XCLAIM to achieve the same economic security guarantees, resulting in:
- lower network fees for users
- higher returns for vault operators
- more liquidity available on the bridge – due to the vastly increased capital efficiency of collateral
To capitalize on XCC’s benefits, users can bridge BTC to “HODL & Earn”. When BTC is staked directly into DeFi protocols, the funds are locked and generally don’t need to be used for a long time. With XCC any Bitcoin that is staked long-term and is not intended to be moved can essentially ‘release’ its collateral. The released collateral can then be reused to secure other, “liquid” BTC being bridged. This allows vaults to serve more users with the same collateral. Synchronization of locking mechanisms between Bitcoin and the DeFi chain is achieved by utilizing a checkpoint technique often seen in Ethereum L2s – applied to Bitcoin.
The resulting “on-demand collateralization” is an innovative new concept in cross-chain communication and has the potential to be a game-changer in building truly decentralized bridges. It allows for more flexibility and drcrnto networks of bridge operators can tailor their collateral deposits to the usage patterns of BTC and their users’ investing styles.
A more secure Bitcoin DeFi
Alexei Zamyatin, Interlay Co-founder & CEO, said:
“interBTC, aiming to become the equivalent of DAI for BTC, already decentralized Bitcoin custody. However, the goal always was to achieve non-custodial BTC DeFi – a very hard problem to solve. XCC sets a milestone in this regard, finally enabling theft resilient and easy to use Bitcoin DeFi.”
Once live, XCC will allow users to stake their BTC in a few, selected DeFi applications, benefiting from high security and capital efficiency. The new product will exist in synergy with interBTC (iBTC): XCC BTC will be used for long-term staking in selected applications (“hold & earn”), while interBTC caters to DeFi use cases requiring dynamic liquidity and composability across protocols.