Kintsugi is an interBTC canary network (an early and highly experimental version of interBTC in which new tools and risk-resistant parameter calibration will be released and tested first). Kintsugi gives the radically open Bitcoin network Kusama through kBTC, the first fully decentralized and untrusted, 1:1 bitcoin-backed asset. Users can exchange kBTC for BTC at any time, or get reimbursed as collateral at a favorable rate — so the user only has to be assured of the security of Bitcoin and Kusama themselves. kBTC will help launch liquidity in parachains like Karura, Moonriver, Shiden and offer new BTC DeFi products.
What is Karura?
Karura is Kusama’s decentralized financial center. This network is a sister network to Acala with almost identical code. It provides a scalable, user-friendly, and fast DeFi cross-platform. Karura’s Parachain is a dynamic and powerful platform that enables efficient, inexpensive, and sophisticated financial applications, improving trading efficiency and saving time. The platform offers a financial backbone: a multicollateralized stackablecoin, supported by cross-chain assets such as Kusama and Bitcoin, a trust-free staking derivative, and a decentralized exchange to unlock liquidity and support financial innovation.
There are many ways and strategies to use a trusted kBTC with Karura’s DeFi products and we can’t wait to see what our users come up with.
In the meantime, here are some obvious fruits of the Kintsugi and Karura synergy:
1) kBTC as collateral for kUSD
When launching on Kusama, Kintsugi will offer Karura regulators to add kBTC as collateral for Karura’s stablecoin, kUSD. You will be able to mint kUSD using kBTC, thus making kUSD the first stablecoin secured by a reliable and decentralized bitcoin.
Why is kBTC ideal as collateral for kUSD?
Not only is kBTC physically backed by 1-to-1 bitcoins in the lot, but it is also overly backed by KSM coins, DOT, and other assets on Kintsugi. This means that even if BTC is lost or stolen, kBTC is still secured with value — enough to protect kUSD and prevent liquidations!
To compare: if bitcoin providing wBTC or renBTC is stolen or lost… well, let’s face it: mass liquidations will sweep through the whole DeFi ecosystem and cause another price collapse!
2) Stimulated kBTC pools on AMM (Automated Market Maker) Karura
Trade kBTC with any other asset placed on Karura AMM DEX (decentralized exchange) and get access to BTC reliably and decentralized! At the same time, Karura benefits from the liquidity you receive in BTC. If you act as a kBTC liquidity provider, you get rewards in KAR tokens… and, KINT! Yes, yes, Kintsugi regulators will offer incentivized kBTC pools on Karura and the entire Kusama DeFi ecosystem.
3) Arbitrage the price difference of kBTC and renBTC on Karura’s decentralized exchange
Karura is also integrating renBTC, a centralized version of wrapped Bitcoin. And even though centralization is not a good thing, you can use renBTC to quickly fix the price of Bitcoin. However, because kBTC and renBTC have different security features and different requirements, their prices will sometimes be slightly different. That’s where arbitrage trading comes in: buy and sell kBTC for renBTC, and — if you’re smart enough — profit from the price difference.
4) LKSM as collateral for kBTC Vaults
Kintsugi vaults block collateral for the safety of BTC deposits — as insurance against misbehavior. kBTC thus has a MakerDAO-like collateral system: management can approve assets deposited as collateral. In conjunction with Karura, we will propose adding LKSM as collateral. Why. A higher percentage (APY) for Vaults, of course! Vaults that mint/hold LKSM get staking rewards (recall: LKSM liquid staking instrument = “staked” KSM that gets staking rewards) — and can now do so while getting Kintsugi rewards in KINT and BTC.
5) Hold BTC with interest
Hold BTC and get interests for it? Reliable and decentralized?
To realize all these possibilities, Kintsugi has to run on Kusama, which means winning a slot in a parachain auction.