The Disadvantages of Synthetic Assets (renBTC, tBTC, sBTC, wBTC)

Intro to Synthetics

The synthetic ‘wBTC’ is economically unlimited because it requires no Collateralization (bonding) and so its price peg relies on Centralized Keys and trusted third parties. If these keys are lost or stolen, expect that all holders of wBTC get rugpulled.

Keeping the Signers Honest

RenBTC, tBTC, and sBTC signers are kept honest because they must stake ‘collateral’ in the form of REN, SNX, or ETH. If their collateralization ratio falls too low, the signers are punished or removed from the system and incentives are in place to lessen the supply of the Synthetic Asset.

For Example

For example, over a span of time, if there are fewer users who are bridging and paying those bridge fees, the signers will earn fewer fees. This incentivises the signers to discontinue signing and to take their capital elsewhere, to stop staking. This reduces the amount of collateralization for the synthetic asset as a whole and reduces the acceptable amount of bridged currency.

A Different Approach

The only way escape the continuous pyramid-scheme of a fee-generating bridge protecting the assets in your wallet is to

  1. Trust centralized Third Parties like BitGo’s wBTC (high risk)
  2. Forego price pegs in Ethereum for Native Assets

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