Strudel Finance is the first one way trustless bridge linking Bitcoin to Ethereum. The project aims to remove the risk taken by centralized Bitcoin bridges such as renBTC or WBTC. Today the most popular wrapped BTC bridges hold vast amounts of Bitcoin in insecure multisig setups. Meaning one hack and the total value of these projects could collapse completely.
What is Strudel Finance?
Strudel enables Bitcoin holders to tokenize their BTC onto Ethereum, allowing it to be used in the growing DeFi sector. When using the trustless Strudel bridge, users will burn their Bitcoin and mint vBTC. The idea is that this type of cross chain bridge does not lock up BTC in what Strudel calls the Void, which is usually controlled by large wall street like institutions.
Strudel Pegging Algorithm
Strudel pegs BTC and vBTC on a 1:1 ratio, this is achieved through use of Balancer smart pool, a Uniswap pool, and securing liquidity for market making with DeFi farming incentives. Essentially, there are two pools that the Peg Manager contract can use to execute ring trades to keep the price pegged.
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This works because vBTC has an in-built flash loan mechanism which the automated peg manager can call, so it can borrow vBTC.
Furthermore, the Peg Manager can adjust the Balancer’s pool weights to facilitate bringing the price back to peg. As a result, the Peg Manager is continuously moving ETH by buying or selling between the two pools by flash-loaning.
vBTC price stability… Strudel protocol takes a unique market approach to keeping vBTC price in sync with BTC. Of course the big question is will it work? A tracker for the amount of BTC burned via the protocol would be nice, an easy way to follow if adoption is growing.
- The team claims the pegging algorithm can guarantee the peg up to a price disparity of 300%. Anything over this threshold means vBTC would float free.
Why take the market risk… Users can earn TRDL, the protocol’s governance token, as rewards for using the bridge and supplying liquidity for maintaining the price peg. Up until December 11th there will be a 4x TRDL bonus for early adopters. Remember this tech is very experimental and no security audit as of yet!