What is eBTC?
eBTC is a decentralized finance (DeFi) protocol developed through a collaboration between BadgerDAO and Lido, designed to create a synthetic Bitcoin (BTC) token on the Ethereum blockchain. It enables users to borrow Bitcoin by using Lido's staked Ether (stETH) as collateral, without incurring any borrowing fees, making it one of the most capital-efficient ways to gain Bitcoin exposure in the DeFi space.
The protocol works by allowing users to deposit their Ether, which is then automatically staked as stETH via Lido. This stETH acts as collateral in a collateralized debt position (CDP) to mint eBTC, a synthetic Bitcoin token that can be used across Ethereum's DeFi ecosystem. Because the collateral is based on stETH, the protocol also benefits from the yield generated by staking, which helps to support the system's overall sustainability.
One of the key advantages of eBTC is its focus on transparency and decentralization. Unlike other synthetic assets that may rely on centralized custodians or cross-chain bridges, eBTC operates entirely on Ethereum, reducing counterparty risk and ensuring that users can always verify the solvency of their collateral. Additionally, the high correlation between Bitcoin and Ethereum prices helps to minimize liquidation risks, making eBTC a stable and secure option for those looking to borrow Bitcoin on Ethereum.
Overall, eBTC provides a novel way to access Bitcoin in the DeFi ecosystem, offering fee-less borrowing, high capital efficiency, and strong security measures, all while contributing to the Ethereum network's security through stETH staking.