BitGo, the institutional digital asset and custodial platform, has adopted oracle network Chainlink (LINK) for cross-chain auditing of wrapped Bitcoin (WBTC). Over the last year, BitGo has bridged over $1 billion on Ethereum in form of WBTC indicating a clear surge in demand for cross-chain crypto assets within the DeFi space.
For enhanced auditability and transparency of WBTC tokens, BitGo will leverage Chainlink’s Proof-of-Reserve (PoR) mechanism. The PoR allows DeFi applications using WBTC to fully automate the auditing of all Bitcoin reserves, held in BitGo’s multi-signature contracts, in a transparent, trustless, and tamper-proof manner. Thus, users can get real-time proof of the collateralization of WBTC.
By eliminating the lengthy off-chain auditing of reserves, BitGo has completely automated the process. Thanks to the openness of the Bitcoin that allows for on-chain Proof-of-Reserve auditing process. Mike Belshe, Co-Founder & CEO of BitGo said:
“Chainlink’s Proof of Reserve feature enables developers to easily integrate WBTC’s verifiable reserves into their smart contracts to make the transparency of WBTC’s reserve system accessible to the end users. Chainlink’s proven ability to secure value in the blockchain space gives us great confidence that our users can trust this new feature in production to provide them with the most up-to-date and accurate assessment of our WBTC reserves.”
Working of Chainlink’s Proof of Reserve for WBTC
Ethereum-based DeFi applications can now fetch transparent and automated readings of WBTC’s reserves-on-demand. To do this, DeFi applications need to connect with a PoR reference contract that’s continuously updated using Chainlink-powered decentralized oracle systems.
To ensure that each WBTC is fully-backed by equal Bitcoin’s on BitGo’s custodian address, the smart contract applications just need to raise a query to the PoR contracts. Using the Chainlink’s oracle, the reference contract checks BitGo’s WBTC custody wallets every ten minutes i.e. the average time between Bitcoin blocks.
In case of any deviation above 1%, the Chainlink oracle soon makes an on-chain update to the PoR reference contracts with the new details. The Chainlink Nodes constantly monitors off-chain contracts. Only in case of minting or burning of WBTC tokens, they push on-chain transactions.
In case the PoR reference contract shows deviation from the minted WBTC, the DeFi applications can apply customized logic to quickly protect and save user funds. This is an extremely crucial feature for DApss using WBTC as collateral to secure other assets. Speaking about all the developments, Sergey Nazarov, Co-founder of Chainlink said:
“We are excited to empower BitGo with the ability to offer additional security and transparency guarantees to users of its WBTC product by giving them access to a secure, transparent, and fully automated oracle solution that supplies consistently accurate updates on the current collateralization of WBTC. This additional level of information allows BitGo to scale WBTC’s reliability to match its growing market demand, bringing more value to DeFi while continuing to improve its overall security.”
This development is certainly going to attract more smart contracts developers to WBTC. Chainlink (LINK) is the most valued DeFi token in the market as on date. As press time, each LINK token is trading at a price of $10.27 with valuations at $3.9 billion.