FAQs About Bitcoin Cross-Chain Swaps

With the Persistence One interoperability solution being developed and the testnet on its way, we wanted to answer your most frequently asked questions 🙋🏻‍♂️🙋🏽‍♀️🦾

Without further ado, here are the FAQs for Bitcoin Cross-Chain Swaps

1. What is BTCfi?

BTCfi is Decentralized Finance (DeFi) on ₿itcoin. The BTCfi world encompasses projects that build on the Bitcoin network to increase scalability and programmability, bringing DeFi to $BTC holders. 🔥

As a result, the BTCfi world is experiencing a surge DeFi applications such as

✅Yield farming
✅Yield aggregators
✅Lending
✅$BTC liquid staking
✅Liquidity farming
✅DEXes
✅DEX aggregators

Which all allow $BTC holders to hunt for yield and do so much more with their BTC.

The concept excites Bitcoin aficionados as it holds the potential to transform Bitcoin's value proposition from a simple store of value to a true yield-generating asset.

2. Why is interoperability important for BTCfi?

🤝With the number of $BTC variants and derivatives multiplying in BTCfi, there needs to be a way for the tokens to interact with each other to and reduce fragmentation. This is where interoperability can step in.

Interoperability helps onboard users and boosts DeFi activity on $BTC by providing an easier way to move Bitcoin around between chains as users hunt for the best returns on their $BTC variants.

3. What are L2s?

🎂Bitcoin Layer 2s are solutions built on top of the Bitcoin blockchain that seek to provide enhanced scalability or composability to the network on a separate layer.

L2s are independent blockchains that run a separate execution layer, allowing them to introduce new features, such as smart contracts and rollup technology, to the Bitcoin network through enhanced scalability and composability.

Typically, L2s compute transactions and then submit the details to the main layer for consensus. L2s can also use $BTC as the gas token and leverage the Bitcoin blockchain for settlement, inheriting the enormous security model from the Bitcoin blockchain.

4. What are the differences between Bitcoin L2s and Sidechains?

⛓️A Sidechain is a blockchain that runs parallel to the native Bitcoin blockchain but use their consensus mechanism for speed or scalability.

Sidechains will have a bridge to connect to the main blockchain, but they don’t usually support $BTC, the native asset, and utilize their token for gas transactions.

Like L2s, Sidechains can add features to enhance scalability and programmability. However, the main difference is that Sidechains do not inherit the Bitcoin security model or utilize the $BTC token for gas.

5. What are Cross-Chain Intents?

⛓️⛓A cross-chain intent is a mechanism that allows a user to specify the “what” of a particular swap without expressing the “how” it is achieved.

It allows users to simply broadcast the “intent” to make a cross-chain swap while letting experts (referred to as Solvers) use their deep liquidity sources to execute the swap. These Solvers are responsible for executing the swap in the most efficient and cost-effective way. 🧠

To illustrate this, imagine a user wants to swap mBTC for sBTC on-chain. Here is the traditional route to make this happen:

Unwind mBTC into $BTC→ Send $BTC to DEX/CEX → Swap $BTC for sBTC 🤔🤔🤔

In an intent-based swap, however, the user simply broadcasts their intent to swap mBTC for a minimum amount of sBTC. A third-party solver is responsible for figuring out the route, which may involve unwinding mBTC into $BTC and then swapping it for sBTC, all for a fee.

6. Traditional bridges vs. intent-based swaps?

🌉Essentially, traditional bridges allow two separate blockchains to interact by creating a bridge between the networks.

They traditionally require users to deposit the assets to be locked into a smart contract or centralized entity, with the representative assets being minted on the other side of the bridge.

Unfortunately, traditional bridges face the following problems:

❌Limited by TVL, presenting hurdles for scalability
❌Poor UX
❌High gas fees
❌Slow finality
❌Experience slippage and MEV
❌Major security risks from hacks.

On the other hand, intent-based swaps provide a similar route to interoperability without requiring the trust of a third-party centralized entity. They provide access to global liquidity, experience zero slippage, are extremely fast, and require zero TVL.

https://t.co/QTWPhATIW9

7. Liquidity pools vs Intent-Based Swaps?

🏊🏻Liquidity pools for AMMs form the basis of DeFi trading. They solved the problem of low liquidity by enabling users to deposit their assets to facilitate trades and earn fees.

While liquidity pools have caused immense growth in the DeFi space, they still limit have the following issues:

❌Swaps are limited to the liquidity in the pool
❌If there is a shortage of liquidity, slippage will occur
❌Require incentives to bootstrap liquidity.

Although liquidity pools have pushed the boundaries of what’s possible in DeFi, intent-based swaps are emerging as a better contender for closely related assets like $BTC derivatives.

8. What are the advantages of Intent-based swaps?

Intent-based swaps provide multiple advantages compared with other swapping options, including:

✅More user friendly
✅No slippage
✅Zero-TVL required
✅No need to incentivize liquidity
✅More opportunities
✅Interoperability

9. How Do Intent-Based Swaps Enhance Bitcoin Interoperability?

While AMMs have pushed the DeFi world to where it is today, they’re not well suited for closely related assets due to their lack of capital efficiency. As $BTC variants are derivatives that are closely related in price, using an AMM would not be the ideal option for the majority of users.

In addition, liquidity pools in AMMs require consistent incentives to maintain liquidity, which isn’t ideal.

10. What are SegWit and Taproot?

🧠SegWit and Taproot are two major Bitcoin protocol improvements that have been identified as the moving catalysts for the emerging BTCfi world.

👀SegWit (Segregated Witness) went live in October 2017 and was released by the Bitcoin Core development team. By alternating the way witness nodes sign transactions, the upgrade allowed the amount of data inside each Bitcoin block to increase to a limit of 4MB, creating the building blocks for the BTCfi world.

🚰Taproot was released in November 2021 and helped to streamline transaction processing, improving efficiency for speed and cost. Taproot batched signatures and transactions together, making it easier to verify transactions. The upgrade also made Bitcoin digital signatures more secure, efficient, and backward compatible while introducing Tapscript into the network.

11. Why is Persistence Building for Bitcoin?

With a strong ₿ullush belief in Bitcoin Persistence One is on a mission to unleash the full potential of the BTCfi world 🦾

By building a $BTC interoperability solution, we help the many variants of $BTC that have emerged from sidechains and L2s to interact with one another, reducing the friction to exploring the BTCfi world and embracing its opportunities.

Learn more about why we’re building for Persistence here:

https://t.co/mhweinYhw2

12. What are the current forms of $BTC?

The following list contains just a few of the many prominent Layer 2s or side chains on the market right now with their $BTC derivative:

@stacks - SBTC and xBTC (wrapped Bitcoin)
@rootstock_io - rBTC
@Liquid_BTC - L-BTC
@FBTC_official - FBTC
@Coredao_Org - coreBTC
@InterlayHQ - iBTC
@MerlinLayer2 - mBTC

There are other $BTC variants, such as wrapped $BTC and yield-generating BTC.

@WrappedBTC - WBTC
@SolvProtocol - solvBTC
@pSTAKEFinance - yBTC
@LorenzoProtocol - stBTC
@Coinbase - cbBTC

13. Who is the Persistence One Interoperability Solution Built For?

👷🏻‍♂️The $BTC interoperability solution is designed for both users and businesses. In the first phase, we'll focus on B2C, providing an intuitive UI that allows users to easily swap different forms of $BTC across networks and explore new opportunities.

In the second phase, we’ll shift toward B2B, simplifying the process further for businesses and dApps.

Any dApp that currently accepts one form of $BTC will be able to accept any form of $BTC, and eventually, any token, streamlining cross-chain asset inflows.🦾

14. How is Persistence One Using Babylon?

🔐Babylon is a security-sharing protocol that creates a marketplace for PoS chains to borrow security from Bitcoin. The protocol allows users to stake $BTC to add economic security to PoS chains and earn rewards for the security. If the validator to whom the user has staked to act maliciously, Babylon’s permissionless mechanism will slash $BTC from stakers to keep everybody honest.

Persistence One will increase its security by sharing some of the additional economic security offered by Babylon when it officially opens its doors. 🔒