The Threshold Network is a decentralized platform offering a suite of cryptographic services that enhance user privacy and security in Web 3.0 applications. By utilizing threshold cryptography, it distributes operations across independent nodes, reducing the need for trusted third parties. Powered by the T token, users can stake and run decentralized nodes, providing key services such as tBTC, a Bitcoin bridge, and TACo, an access control tool. These services enable decentralized, trust-minimized operations for critical functions like signing and access control, ensuring higher security and availability.

tBTC operates on a supply peg, not a price peg, meaning its value may slightly differ from BTC. There is no algorithmic mechanism to maintain exact price parity, so tBTC can trade at a premium or discount relative to BTC.

tBTC enables Bitcoin liquid staking by leveraging Threshold Network's decentralized nodes and advanced cryptography. The process involves four core components. These mechanisms provide a secure and decentralized way to bridge Bitcoin to other networks while maintaining liquidity and staking rewards.

Threshold Signatures: Allowing a group of signers to securely manage Bitcoin keys.

Wallet Generation and Signer Selection: Bitcoin wallets are created and managed by 100 randomly chosen signers with staked Threshold tokens.

Deposit Sweeping: Bitcoin deposits consolidation for efficient management.

Optimistic Minting: Mechanism that allows Bitcoin to be bridged into tBTC within 3-4 hours, with guardians overseeing and verifying transactions.

Liquid staking allows users to stake their assets while maintaining liquidity. Instead of locking your tokens in a staking contract, liquid staking provides a derivative version of the staked asset, which can be used across DeFi platforms to earn additional yields. This enables users to continue earning staking rewards without losing access to their staked tokens for trading, lending, or other DeFi activities.

A liquid staking token is a receipt issued by a protocol representing ownership of staked digital assets, which retains liquidity and can be traded, borrowed, lent, or staked again across DeFi platforms. LSTs allow stakers to utilize their capital in broader ecosystems, not limited to a single chain. They can be minted directly from liquid staking protocols or acquired via swaps on exchanges. There are different types of LSTs, including:

Rebase Tokens: These automatically adjust balances based on deposits and rewards without visible transactions, increasing your balance over time.

Reward-bearing Tokens: Their value increases through exchange rates between the derivative and the staked asset, while the balance remains constant.

Wrapped Tokens: Transition rebase tokens into reward-bearing tokens, stopping balance recalculations and favoring integration into DeFi.

Dual-token Model: One token maintains a 1:1 ratio with the staked asset, while the other represents rewards, providing a risk-mitigation design.

Bitcoin lending allows individuals to lend their Bitcoin or LSTs to borrowers in exchange for interest, providing a way for holders to generate passive income without selling their assets. This peer-to-peer system eliminates traditional intermediaries, relying on cryptocurrency collateral and smart contracts for security and efficiency. Interest rates are determined by market supply and demand, offering more competitive returns compared to traditional loans.

While Bitcoin Liquid Staking offers opportunities for rewards, it also comes with certain risks:

System Complexity: The system relies on multiple wallets and decentralized signers, adding layers of complexity that could lead to failure. If signers don't respond to redemption requests, they are slashed, and a portion of their staked tokens is burned.

SPV Assumptions: tBTC uses Simplified Payment Verification (SPV) proofs, which are less secure than running a full Bitcoin node.

Governance Control: Certain parameters, like fees, are controlled by Threshold DAO, which may introduce governance risks.

Code Vulnerabilities: As with any blockchain protocol, potential bugs or vulnerabilities in the code could pose risks.

Bitcoin Blockchain: The blockchain may experience increased traffic, raising transaction fees and causing delays in including submitted transactions into the mined block.

Cross-Chain Risk: Since liquid staking often involves using wrapped assets on other chains, there's an inherent risk associated with the cross-chain bridge or the wrapped asset itself.

Liquidity Risk: The ability to trade or redeem Bitcoin LSTs depends on the available market liquidity. If liquidity dries up, you may face difficulties selling or swapping your staked assets.