PolkaDOTs for BTC defi abstraction?

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One of the newest plans to collateralize Bitcoin on a proprietary network has an interesting name, and an interesting operational model, too.


Tech media today includes reporting on the Polka DOT system, where the company is reportedly using a W3C grant to pioneer a system to give Bitcoin holders access to more diverse decentralized financing opportunities.


You could call Polkadot’s PolkaBTC setup a kind of “stableswap” system – like conventuional stablecoins, which are pegged to fiat currencies, Polkadot’s PolkaBTC asset is directly pegged to underlying Bitcoin assets held in an electronic wallet.


“A smart contract on Polkadot controls a key to a wallet on the Bitcoin blockchain and verifies its contents using simplified payment verification (SPV),” writes Brady Dale at Coindesk. “That wallet is collateralized with Polkadot’s native token, DOT, which the initial design sets at 200%, though this could change. Once it verifies that the BTC is present in the wallet it controls, it issues PolkaBTC equivalent to the amount deposited.”


Company spokespersons explained that with their Bitcoin converted into PolkaBTC, asset holders can perform different kinds of network transactions getting them closer to some of the attractive elements of defi systems, for example, more interest return on their capital.


Other benefits can apply, too.

“In a decentralized finance world, you don’t have to accept the forms of capital that centralized authorities like your government push down your throat,” writes Daniel Won at Exodus blog. “For example, Argentina, a country that has struggled for decades with runaway inflation and depreciation of their currency, again imposed capital controls on its citizens to protect the Argentine peso from further drops in value.”

Here’s how Conensys, a major party in the evolution of ETH, describes defi utility on an Ethereum blockchain: 

“Decentralized finance leverages three key principles of the Ethereum blockchain to unlock liquidity and growth opportunities, increase financial security and transparency, and support an integrated and standardized economic system.” 

Although your portfolio may be wearing polkadots, that doesn’t mean that it’s a clown. Check out these and other similar systems in today’s defi age as fintech sophistication evolves quite rapidly.