How does oToken Tunnel work?
There will be an exclusive minting tunnel for each blockchain asset, operating in the form of DAO and bridging between non-ERC20 assets and pegged tokens on any smart contract-enabled blockchains. It will serve as a Layer-2 solution for BTC and other non-smart contract blockchains, making assets like BTC and LTC programmable.
Any community users can open a new tunnel freely through pledging $BORING, but each tunnel can only support one blockchain asset. For example, Alice wants to wrap BTC into oBTC on Ethereum network, but the BoringDAO system has yet to create a channel for BTC. Then, Alice can stake a certain amount of $BORING and create a BTC-oBTC wrapping tunnel. However, the tunnel will only be activated until enough deposits has been pledged to meet the requirement for a tunnel activation. Once activated, Alice’s portion of the pledge will go directly to the pledge pool.
BoringDAO oToken Tunnel has three notable features (let’s take BTC as an example):
- 1.Triple Security Mechanism — BTC mortgages + contract layer mortgages + multiple insurance mechanisms.
- 2.Decentralized — With an advanced coin-minting mechanism, oBTC minting is much faster than other BTC pegged assets.
- 3.High Incentives — High APYs for BoringFarm pool and the Curve pool.
- Transfer BTC into the multi-signature wallet
- Get oBTC rewards
- Pledge $BORING token to increase Tunnel capacity
- Get your Pledge Provider token (PP token)
- Farm with "PP token", earn more $BORING reward
There are two important parameters in the creation of a Tunnel: pledging coefficient (k) and commission rate (m, n). In version 1, the pledge coefficient k of the tunnel is kept at 50-100%, while the commission rate for minting as well as redemption are both set at 0.2%, and the minting section requires extra network fees. In version 2, however, we aim to let tunnel operators decide on the pledging coefficient and commission rate. The pledge coefficient is abstract, and it is only used as a system parameter. Usually, BoringDAO tunnel uses Asset Ratio to describe oToken. For example, when pledge coefficient is 50%, it means that each oBTC is backed by 1 BTC + 0.5 BTC equivalent of ERC-20 assets, and the oBTC Asset Ratio should be 150% (100%+50%).
In both V1 and V2 stages, the corresponding minting tunnel will be frozen immediately for settlement if a loss occurs to a certain asset under custody. The asset custodian will confirm the remaining assets in the multi-signature wallet and match them with the assets issued on the blockchain to calculate the amount to be settled. Then, the tunnel pledge will be settled accordingly. After clearing, the multi-signature wallet will be replenished with assets, and then the minting will be available again. In the V3 stage, dynamic clearing will be implemented.
Users have to pledge at least 500 $BOR for the initial creation of oToken tunnel. Only if 3,000 $BOR is pledged within 48 hours after the initial creation, the tunnel will be activated.
The reason why $BORING pledging is required for proposals is to avoid a large number of meaningless proposals; Pre-pledged $BORING will be transferred to the actual pledge of the tunnel as soon as the proposal is passed, allowing the tunnel to have the initial pledge amount and minting capacity.
50% of the redemption commission in the tunnel will be saved into the insurance pool. The insurance pool is completely governed and controlled by the community. Only when the community proposal is passed, the insurance amount locked in the contract will be used for claim settlement, usually applied to Black Swan cases in the system.
- Asset layer (PS2H multi-signature + OP_Return)
- Contract layer (over 100% reserve)
- Application layer (decentralized insurance such as Nsure and Cover)
These security mechanisms allow digital assets to be transferred to other blockchains in a truly secure, decentralized, and trustless way. The first oToken, oBTC, has already been integrated into many mainstream Ethereum-based DeFi protocols such as Curve, SushiSwap, Alpha Finance, etc.
Meanwhile, Mint Mining and Boring Farms work as a double incentive mechanism to further reward users who participate in the ecosystem.
With the “Tunnel Mechanism” and “Triple Pledging” features, BoringDAO enables BTC, LTC and other blockchain assets to be utilized on Ethereum and other blockchain networks.
Other BTC-pegged coins usually use a centralised server, which generates a new BTC address for minters, then their system can detect transactions sender’ btc address, just like CEX. However, using centralised services is dangerous. There will be a single point of risk of being attacked by hackers or other third parties.
Instead of using a centralised server like some other BTC-pegged coins, BoringDAO uses OP-return (native function of Bitcoin) to bind minter's BTC address and ETH address. Minters just need fill in their ETH address on BTC's OP-Return zone, then BTC multi-signature nodes can determine which ETH address they will send oBTC to, making Bitcoin Network as our server. Hence it avoids the risk, exposed to the centralized solutions, of being hacked by malicious third parties. oTunnel will operate safely as long as Bitcoin & Ethereum networks are not down.