Compilation of the original text: Hu Tao, Chain Catcher
Original title: Crossing the Threshold of Decentralized M&A》
Compilation of the original text: Hu Tao, Chain Catcher
As the product of the first decentralized application merger, Threshold (Keep Network / NuCypher) hopes to create the de facto encrypted network for blockchain and cryptocurrency, with a highly scalable decentralized solution (tBTC v2secondary title
background
Keep Network
Keep Network was founded in 2017 by Matt Luongo and Corbin Pon as a privacy layer for public blockchains. KEEP utilizes off-chain data containers capable of interacting with smart contracts. These off-chain data containers, called Keeps, are managed by a distributed network of Keep operators called Signers, which are randomly assigned portions of user data, further protecting information from unwanted access.
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NuCypher
Founded in 2015 by Michael Egorov and MacLane Wilkison, NuCypher aims to provide data protection and encryption while still allowing users to move information and computation securely to the cloud. NuCyphers core technology is called Proxy Re-Encryption (PRE), which allows for end-to-end data encryption, where a proxy entity converts encrypted data from key to key (re-encryption) without decrypting the source data. PRE ensures that data owners can grant and revoke access to private data.
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merge
MA pattern:
In traditional finance, mergers and acquisitions make up the competitiveness of some of the biggest banks and financial institutions and have been the catalyst for lucrative bonus schemes pursued by Wall Street investment bankers. According to Reuters, 2021 was a record year for mergers and acquisitions, with 62,193 deals with a cumulative deal value of more than $5.8 trillion, up 64% from 2020 and surpassing the previous record of $4.55 trillion set in 2007.
The profitability of MA deals, combined with the increasing number of blockchain-based projects today, is expected to play a major role in crypto, not surprisingly, as winners gain share and find resources to be more effective together than competitors. But what is the outlook for MA in the crypto space with an unconventional ownership model driven by the community rather than the board?
As with most cryptocurrencies, the definition of a merger varies from announcement to announcement and generally looks different than Google buying a private startup for technology or Sprint merging with t-Mobile, which wants to take stakes from ATt and Verizon.
Crypto MA can come in many different forms, and in 2021, the field took its first steps into the world of MA. Alameda Researchs acquisition of RenVMs technical team was essentially a team-wide hiring spree, bringing the Ren team into the Alameda team and prioritizing the teams focus on Solana ecosystem interoperability. Yearn.finance has announced multiple “mergers” that are better described as platform integrations rather than outright mergers or mutual purchases. On the acquisition front, Polygon has been aggressive in acquiring Hermez Network and Mir for $250 million and $400 million, respectively.
When it comes to truly decentralized MA, the scope becomes even smaller. Recently, Fei Protocol and Rari Capital agreed to integrate their platforms in an effort to occupy the liquidity supply space. Raris RGT tokens will be exchanged with TRIBE at a ratio of 10:267, and Fei Protocol assumes all of Raris responsibilities related to the $10 million theft from the platform in May 2021.
From a governance standpoint, TRIBE and RGT holders appear to be largely in the position that the proposal received 90% of the votes from the Fei Protocol community and 93% from Rari members. Now, as the Rari and Fei communities move forward with their merger from a product and governance standpoint, lets dive into one of the earliest mergers in this space consisting of NuCypher and KEEP - into Threshold.
Threshold：
Originally announced in March 2021 under the codename KEANU (Keep And Nu Cypher), the merger of the two crypto platforms marks the first merger of two decentralized protocols. The Threshold merger happened at the code level of the respective protocols, known as a hard merge, where Keep and NuCypher ceased to exist as separate protocols, and the successor protocol, Threshold, continues to provide all the services that Keep/NuCypher previously provided, and hopes to expand its services to become any A platform for Form Threshold Cryptography.
Combining code is one thing, but combining two stakeholder groups is quite another. While the original merge proposal was published in March 2021, both the Keep and NuCypher communities voted in favor until June 11 (78% KEEP / 100% NU) on the RC0 token proposal. While the adopted protocol was neatly named RC0, the proposal actually went through 6 different iterations, with members from both communities back and forth discussing everything from the name, the exchange rate of the former token, and the governance structure.
In the end, the two communities came to an agreement on the T6 token proposal, with both receiving an equal share of the new Threshold network and establishing a separate Threshold DAO treasury. The biggest challenges for the T6 token proposal to accomplish are (1) leaving no tokens behind, (2) minimizing the risk of zombie KEEP/NU tokens, and (3) establishing strong risk management for a subsequent DAO system.
Governance:
Governance:
Inspired by the success of Compound Finance, the Threshold team decided to build a three-pronged system consisting of a bicameral DAO representing token holders (Token Holder DAO) and network pledgers (Staker DAO), and an elected multisig committee.
Most governance control is given to the Staker DAO, however, each fork operates within a set of checks and balances. Both Token Holder DAO and Staker DAO have the ability to propose on-chain voting, delegate voting and execute proposals. The Token Holder DAO consists of T token holders, stakers and those who deposit their tokens into the overlay pool (a component of tBTC).
The Staker DAO, on the other hand, consists of stakers whose voting power depends on their relative share of staked T tokens. As mentioned earlier, the majority of protocol governance is handled by the Staker DAO, which makes sense since that team is focused on supporting the protocol network and its various services. On the other hand, the token holder DAO is responsible for organizing more capital market needs,
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Merger benefits:
Threshold combines the strengths of Keep and NuCypher without their two biggest hurdles. For Keep, the merger increased the size of the off-chain data storage network by increasing the number of network nodes from about 200 to more than about 2,000. The addition of validators creates a more decentralized set of signers, reducing the risk of collusion.
On the other hand, NuCyphers PRE inherits existing keep-built applications whose use requires scalable security. Keeps primary use case is a Bitcoin-to-Ethereum asset bridge (tBTC), which utilizes their off-chain storage network to keep Bitcoin in a decentralized encrypted state, while the synthetic tBTC can be deployed on the Ethereum network.
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tBTC and Ethereum demand for Bitcoin:
Bitcoin was the original distributed ledger, the big bang of cryptocurrencies as we know them today. The problem with bitcoin (positively for some) is that its not particularly smart for a next-generation currency, but its very secure. While PoW has received mixed reviews, depending on who you ask, the amount and cost of work involved in Bitcoins consensus mechanism creates an extremely secure digital currency with minimal risk of corruption.
Bitcoin mining is a multi-billion dollar publicly traded industry, and BTC itself accounts for about 40% of the entire crypto market. While BTC is many peoples first investment in cryptocurrency, most end up going down the rabbit hole and transitioning to smart contracts where DeFi, NFTs, P2E, and all the rest of the Web 3.0 resides. Security is traded for innovation, but while the crypto ecosystem today has built decentralized bridges and sidechains for every layer1, there is still no true decentralized connection between Bitcoin and the rest of the crypto world.
ERC-20 Bitcoin does exist, and Wrapped BTC is one of the more popular implementations in DeFi, but wBTC, along with 9 of the other top 10 solutions, are either decentralized or operate via a hybrid model, which Essentially decentralization with a kill switch.
The table below highlights how centralized Bitcoin is on Ethereum, with wBTC almost 4x that of the next nine platforms combined. The top ten solutions hold less than 2% of the total BTC in circulation. This begs the question, do BTC holders distrust centralized systems, or do they simply want nothing to do with other cryptocurrencies? Threshold is betting on the former.
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Conclusion/Roadmap:
Looking ahead, the Threshold team remains focused on launchingtBTC v2And take a larger share of the bridging pie from Bitcoin to Ethereum assets, with the current goal of reaching a TVL of $7 billion by the end of 2022. While DeFi is built on the concept of an active asset, most Bitcoin holders seem to be happy with their current positions. Institutional investors who are increasingly interested in crypto are all starting with Bitcoin, so maybe this new group of investors is more inclined to deploy their Bitcoin on Ethereum or other blockchains, but they will want to Want to use a decentralized medium?
Threshold believes the need is imminent in the next crypto cycle, and the team envisions its bridge architecture as the preferred method of bringing BTC to Ethereum. Additionally, Threshold DAO is developing a stablecoin (thUSD) to complement tBTC with compatible risk-averse assets collateralized by tBTC.
The team believes that thUSD could eventually support decentralized lending and lending of real assets, such as mortgages or car loans. Overall, the two communities seem to have come together smoothly and are now focused on making sure all the work on the decentralized merger really pays off. While many in the cryptocurrency space may not have directly used either platform in the past, that could change as Threshold is expected to take its place in the new year.
