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Featured Use Case: Chaotic BTC DeFi with Kintsugi & Karura

Published date: September 10 2021

Welcome Reader, to the first post of Kintsugi’s “Featured Use Case” Series. Over the next weeks we will be sharing deep dives into Kintsugi kBTC use cases on Kusama — explaining in which DApps you can use your BTC to earn some of that juicy Kusama DeFi yield.

Disclaimer: As always, none of this is investment advice! Don’t try to buy tokens just because some dude on the internet wrote a blog with a few dank memes. DYOR! DeFi is fun — but you gotta stay frosty to avoid being rugged.

First things first: Kintsugi, interBTC’s canary network on Kusama, is participating in the current Kusama parachain auctions and hoping to win a slot. If Kintsugi wins a slot, it will bring trustless Bitcoin to Karura, Shiden, Moonriver, Basilisk and all other parachains. You can check progress and support with your vote here:

Quick Intro: Kintsugi and Karura

What is Kintsugi?

Kintsugi is interBTC’s canary network (an early and highly experimental version of interBTC where new features and risk-friendly parameterizations will be released first and tested). Kintsugi brings radically open Bitcoin to Kusama via kBTC — the first fully decentralized and economically trustless 1:1 BTC-backed asset. Users can always redeem kBTC for BTC, or will be reimbursed in collaterals at a beneficial rate — as such, users only trust that Bitcoin and Kusama are secure. kBTC will help kickstart liquidity on parachains such as Karura, Moonriver, Shiden — and offer new BTC DeFi products.

What is Karura?

Karura is the decentralized financial hub of Kusama. The network is built as Acala’s sister network with nearly the same codebase, enabling a scalable, user-friendly, and fast cross-chain DeFi platform. Karura’s parachain is a fast-moving and powerful platform that enables efficient, inexpensive, and sophisticated financial applications, improving trading effectiveness and saving time. The platform offers a suite of financial primitives: a multi-collateralized stablecoin backed by cross-chain assets like Kusama and Bitcoin, a trustless staking derivative, and a decentralized exchange to unleash liquidity and power financial innovations.

Kintsugi + Karura = Chaotic Bitcoin DeFi

There are numerous use cases and strategies for using trustless kBTC with Karura’s DeFi products — and we can’t wait to see what users will come up with.

In the meantime, here are some of the top low-hanging fruits for kBTC <> Karura synergies:

1) kBTC as kUSD Collateral

Once live on Kusama, Kintsugi will submit a Karura governance proposal to list kBTC as a collateral for Karura’s kUSD stablecoin. You will then be able to mint kUSD using KBTC, making kUSD the first stablecoin backed by truly trustless and decentralized BTC!

Why is kBTC perfect as kUSD collateral?
kBTC is not only 1:1 backed by physical BTC locked on Bitcoin, but also overcollateralized in KSM, DOT, and other assets on Kintsugi. This means: even if BTC is lost or stolen, kBTC is still backed by value — enough to secure kUSD and prevent liquidations!
For comparison: If the BTC backing wBTC or renBTC is stolen or lost… well, that’s it: mass liquidations rippling across the DeFi ecosystem and causing another price crash!

2) Incentivized kBTC Pools on Karura’s AMM

Trade kBTC against any other asset listed on Karura AMM DEX and gain exposure to BTC in a completely trustless and decentralized manner! At the same time, Karura benefits from the incoming BTC liquidity. If you act as kBTC LP, you can earn rewards in KAR… and, KINT! Yes, Kintsugi governance will propose to incentivize kBTC liquidity pools on Karura and across the entire Kusama DeFi ecosystem.

3) Arbitrate kBTC vs renBTC on Karura’s DEX

Karura is also going to integrate renBTC — a centralized version of wrapped Bitcoin. While centralization is not a great thing, you can still use renBTC for quick price exposure to BTC. Both kBTC and renBTC are pegged to Bitcoin. However, since kBTC and renBTC have different security properties and varying demands, their price will sometimes slightly differ. This is when the arbitrage traders out there can play their game: buy & sell kBTC against renBTC and — if you’re smart enough — you’ll reap yield from varying prices.

4) LKSM as kBTC Vault Collateral

Kintsugi Vaults lock up collateral to secure BTC deposits — as insurance against misbehavior. kBTC thereby features a MakerDAO-like multi-collateral system: governance can whitelist assets that are used as collateral. Together with Karura, we will propose to list LKSM as collateral. Why? Increased APY for Vaults, of course! Vaults who mint/hold LKSM earn staking rewards (reminder: LKSM is a liquid staking asset = “staked” KSM, which earns staking rewards) — and can now do so while also earning Kintsugi rewards in KINT and BTC.

5) HODL BTC with Interest

HODL BTC and earn yield on it? Trustless and decentralized?

Yes! That’s what you can do with kBTC on Karura.

1) Mint kBTC by locking BTC on the Kintsugi bridge.

2) Transfer kBTC to Karura (via XCM). Open a kUSD loan on karura with kBTC.

3) Put kUSD into another yield generating DeFi protocol (Sushi LP pool on moonriver, basilisk LPs, …).

4) Enjoy yield and price exposure to BTC.

6) Power Yield BTC, KINT, KSM, KAR and other LP Tokens

We’ll just put this image here:

That’s great! How do we get this?

To enable these use cases, Kintsugi must go live on Kusama — that is, win a parachain auction slot.

Kintsugi is currently participating in the auctions and has a crowdloan open.

Support Kintsugi BTC in the auctions → get BTC to Karura → turbo-charge Kusama DeFi!

Got Questions?

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Check out the list resources/docs/social media channels on Linktree

Featured Use Case: Chaotic BTC DeFi with Kintsugi & Karura was originally published in Interlay on Medium, where people are continuing the conversation by highlighting and responding to this story.