dlcBTC is a decentralized wrapped Bitcoin developed by DLC.link, designed to integrate Bitcoin with decentralized finance (DeFi) on Ethereum. This innovative approach allows merchants to lock their BTC in a multisig known as a Discreet Log Contract (DLC).

The primary goal of dlcBTC is to enable Bitcoin holders to participate in DeFi activities while maintaining full control over their assets without relying on traditional custodians or centralized bridges. This ensures that the locked BTC can only be accessed by the original depositor, enhancing security and reducing risks associated with centralized control.

Merchants play a crucial role in the dlcBTC ecosystem by facilitating the conversion of Bitcoin into dlcBTC tokens and vice versa. The redemption process for dlcBTC merchants involves a few straightforward steps to ensure a secure and efficient transaction:

When merchants lock BTC in a DLC to create dlcBTC, they incur a carry cost. This cost represents the potential earnings they forgo by not using their BTC in other income-generating activities, such as trading, lending, or staking. Consequently, locking BTC without earning an equivalent or higher return can be seen as a financial burden.

Locked BTC has limited utility compared to unlocked BTC. Unlocked BTC can be freely traded, loaned, or used in various financial strategies, providing greater liquidity and earning potential. Therefore, to justify locking BTC, the benefits obtained from the dlcBTC system must outweigh the lost opportunities associated with keeping BTC unlocked.

If the locked BTC does not generate sufficient returns, it can lead to an opportunity cost where merchants miss out on other profitable ventures. This impact emphasizes the need for dlcBTC to offer attractive incentives and returns to make the locking process financially viable for merchants.

Merchants are motivated to lock BTC in a DLC only if it generates a profit. The primary driver for this decision is the need to ensure that the returns from dlcBTC activities exceed the potential earnings from alternative uses of their BTC. Merchants seek to maximize their financial returns, and locking BTC without sufficient incentives would not align with their profit-oriented goals.

Merchants can earn money from locked BTC through various mechanisms within the dlcBTC ecosystem, including:

These revenue streams ensure that merchants have multiple ways to earn from their locked BTC, making the process financially attractive.

Merchants charge a fee during the dlcBTC redemption process. By earning fees from each redemption transaction, merchants are financially motivated to participate actively in the dlcBTC ecosystem. These fees ensure that merchants are compensated for their efforts and risks, making the process sustainable and profitable.

The wBTC (Wrapped Bitcoin) system involves a centralized custodian that holds BTC and issues wBTC tokens on Ethereum. Users can convert their BTC into wBTC and vice versa through the custodian. The system allows BTC to be used in Ethereum’s DeFi ecosystem but relies on centralized control.

Both dlcBTC and wBTC systems incentivize the redemption process to ensure liquidity and user confidence. In both systems, merchants or custodians facilitate the conversion of tokens back to Bitcoin, earning fees for their services. These incentives ensure that the tokens maintain their peg to Bitcoin and that users can trust the redemption process.

dlcBTC offers a self-custodial way to integrate BTC with DeFi on Ethereum, providing various financial incentives for merchants to lock and redeem BTC. The system ensures that locked BTC generates returns through mechanisms like lending, staking, and trading. Competitive fees incentivize merchants to facilitate the redemption process, ensuring liquidity and user trust.

The dlcBTC redemption system is designed to be sustainable and profitable for merchants by offering multiple revenue streams and competitive fees. By addressing the carry cost of locked BTC and providing attractive financial incentives, dlcBTC ensures that merchants remain motivated to participate actively, contributing to the overall health and reliability of the ecosystem.