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Interlay proposes a new protocol for Bitcoin and DeFi’s reciprocal interaction

Interlay’s Bitcoin one-to-one backed asset interBTC is backed by XCC, a protocol that functions as the fundamental layer for Interlay’s Bitcoin one-to-one backed asset interBTC.

Interlay, a decentralised finance (DeFi) interoperability network, has published a 21-page technical whitepaper titled XCC: Theft-Resilient and Collateral-Optimized Cryptocurrency-Backed Assets, advocating for the development of cross-blockchain interoperability solutions to unlock a plethora of potential within the DeFi ecosystem.

Interlay, as a Polkadot parachain, is concentrating its efforts on establishing communication and interaction routes between Bitcoin’s currency-native ecology and the broader functions of the DeFi space with networks like Ethereum and Polkadot. The newly published XCC protocol offers more asset sovereignty during cross-chain actions like wrapping, as well as combining Bitcoin multisigs with mechanisms generally specific to the Ethereum network, such as commit chains.

The XCC asset will only be available within selected DeFi applications to maintain the supposed benefits of risk aversion and capital efficiency; however, users will have the option to switch to the interBTC product if they desire more flexibility. Both services will operate in tandem, extending the capabilities of Bitcoin’s DeFi market to a broader client base.

According to their analysis, XCC enables “any Bitcoin that is staked long-term and not intended to be moved to essentially’release’ its collateral,” which can then be “reused to secure other, ‘liquid’ BTC being bridged… allowing vaults to serve more users with the same collateral.”

Alexei Zamyatin, co-founder and CEO of Interlay, revealed his view for the future of XCC in terms of both decentralised adoption and security enhancement, saying:

“InterBTC, which aspires to be the Bitcoin counterpart of DAI, has already decentralised Bitcoin custody.” The goal was always to achieve non-custodial BTC DeFi, which is a difficult challenge to tackle. In this way, XCC marks a watershed moment, ultimately enabling theft-resistant and simple-to-use Bitcoin DeFi.”

Interlay, a past Web3 Foundation grant recipient, revealed advancements to their wrapped Bitcoin (wBTC) digital asset, kBTC, in mid-March, deploying the token on their canary parachain Kintsugi. Polkadot native parachain protocols Karura and Moonriver are already supported, and this move kicks off their preparations for Cosmos and Ethereum deployment later this year.


Disclaimer: These are the writer’s opinions and should not be considered investment advice. Readers should do their own research.

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