Strudel Finance: Bringing DeFi Cross-Chain Interoperability

DeFi has seen explosive growth in recent years, as users seek a more transparent and decentralized financial system. However, one of the biggest challenges facing DeFi is interoperability, with many platforms siloed on their own blockchain. Systemic risk exists in the Ethereum ecosystem as a result of centralized Bitcoin bridges. Projects like REN and WBTC lock BTC into risky multisig setups and raise worries about the potential collapse of the entire market. In a tweet wayback 2020, ETH Founder Vitalik Buterin shared his sentiments about the matter:

Strudel Finance: The Overview

This is where Strudel Finance comes in. It is a leading cross-chain DeFi platform that provides users with access to a range of financial services across multiple blockchains. The first one-way, trustless bridge connecting Bitcoin and Ethereum is called Strudel. The new asset, vBTC, adds greater variety to the tokenized-BTC market by trading off counterparty risk for market risk. Strudel's long-term goal is to challenge blockchain's current state of affairs and liberate Bitcoin from Wall Street's control. It does this by utilizing the forces of crypto-economics.

The Strudel Finance platform is built on the Ethereum blockchain and utilizes a proprietary token wrapping mechanism to allow users to move assets between different blockchains seamlessly. This means that users can wrap their assets on one blockchain, such as Bitcoin or Binance Smart Chain, and then unwrap them on another blockchain, such as Ethereum, without having to worry about complex cross-chain swaps or exchanges.

One of the unique features of Strudel Finance is its focus on cross-chain interoperability. By allowing users to leverage the benefits of different blockchains, Strudel Finance provides access to a wider range of financial services than would be possible on a single blockchain. The platform's suite of DeFi products includes automated market making, yield farming, liquidity pools, and more.

Trustless Bridge And Its Importance

As of today, there are more than $1.1 billion worth of tokenized Bitcoin on Ethereum that are relayed over controlled, reliable bridges. Although the demand for Bitcoin in DeFi is anticipated to increase, a better bridging solution without counterparty risk is required. The technological elements of the one-way, trustless bridge that Strudel operates will be covered in this section.

Strudel Bridge's Model

The recipient Ethereum wallet address and the requested amount of BTC are included in the transaction output when using the Strudel Dapp to request a transfer of BTC. With the QR code, this output is delivered to the user's Bitcoin wallet. The transaction that results from a user signing a transfer may resemble this.

After that, the relayer contract on Ethereum must register the header of the Bitcoin block containing the transaction so that its proof-of-work may be verified and the canonical chain extended. Bitcoin light clients and wallets use the simple payment verification (SPV) protocol to stop invalid blocks from reaching the relayer.

An inclusion proof is transmitted onto Ethereum once the transaction containing the burn has been buried under sufficient proof of work (6 blocks). The Strudel contract, which mints vBTC at a 1:1 ratio and sends it to the specified Ethereum address, verifies the proof. The system rigorously mints 1 vBTC for every 1 burned BTC and does not charge any fees for crossing bridges.

What's A Relayer Contract?

The core of the bridge architecture is the relayer contract. It can build a canonical chain and verify new block headers on the Bitcoin blockchain. It performs the function of a Bitcoin lite client on the blockchain.

The function and information that the contract offers are essential to the operation of Strudel's bridge. It intends to use relayer incentives to fund the contract's execution. The vBTC contract currently serves as a proxy for three different contract functions that reward valid header relays.

Bitcoin And DeFi Intergration

The only method for current Bitcoin owners to make the money in their wallets work for them is to hodl. Bitcoin becomes more adaptable and becomes vBTC by getting an ERC20 interface and smart-contract compatibility. As its supply can be locked into protocols for lending, options, and other DeFi use-cases, lowering its volatility and potentially raising market value, Bitcoin has a bright future in the DeFi field.

Flash loans are an improvement provided by vBTC to BTC that will help it maintain its position in Blockchain financing. Instantaneous, uncollateralized loans for a single transaction only are referred to as flash loans. Every vBTC holder has the option to borrow up to 21,000,000 vBTC at any moment; this functionality is also employed in our pegging mechanism. Other tokens must first be pooled before they may be flash-loaned.

vBTC's Worth And Relevance

Arbitrage between reputable bridges is used to maintain the price pegs of tokenized Bitcoin.

The Strudel Protocol and vBTC are about believing in decentralized cryptoeconomic incentives. The next natural step in building a trustless connection between Bitcoin and Ethereum is this.

vBTC's Usage

Tokenized BTC solutions, both centralized and decentralized, are only entry points for users to the Ethereum ecosystem at the moment. They rely on third-party protocols to utilise their resources.

Strudel provides a short cut. Once the Bitcoin bridge has been crossed, vBTC and the gained $TRDL tokens are immediately usable. Using market incentives, the Strudel Dapp enables immediate yield farming and rewards claiming. vBTC is Bitcoin with an ERC20 interface, enabling lending, options, and other DeFi use-cases as well as compatibility across smart contracts. Any of these could lower its volatility and raise market value. Its flash lending capacity makes it even more appealing and enables it to serve as a key component of the pegging process.

Converting Bitcoin (BTC) To Strudle Bitcoin (vBTC)

Bitcoins are burned and identified with the Strudel protocol identification using the Strudel Dapp. The burn transaction is subsequently transmitted to Ethereum, which then distributes vBTC in a precise 1:1 ratio.

$TRDL And Its Significance

The Strudel Protocol's governance and incentive token is $TRDL. It is produced in 2 instances:

The first is a process by which users can move Bitcoin (BTC) onto the blockchain through a bridge. When a user moves BTC over the bridge, they receive vBTC, which is the Strudel version of BTC on the Terra blockchain. Along with vBTC, users also receive $TRDL tokens. The $TRDL tokens are used to incentivize users to provide liquidity for the vBTC-ETH pool.

Second instance is the distribution of $TRDL rewards to liquidity providers of various Terra-farming pools. These liquidity providers are users who provide both cryptocurrencies in a trading pair, such as vBTC and ETH, to a liquidity pool in exchange for fees and rewards. In this case, liquidity providers who contribute to the vBTC-ETH pool receive $TRDL rewards.

Utilizing $TRDL To Surf The Flippening

The Strudel Protocol is a gamble on market dominance as well as a trustless bridge that permanently migrates Bitcoin onto the Ethereum chain. In this essay, we'll go over the fundamental ideas that will help $TRDL succeed when Ethereum surpasses Bitcoin as the most popular cryptocurrency.

How To Get Complete Community Ownership

Strudel offers a higher degree of freedom and more sophisticated feature sets. Every DeFi protocol aspires to a fully decentralized and community-owned protocol, and this represents the first step in that direction.

Terra Farms

You may assist the project by supplying liquidity by putting your vBTC and $TRDL into DeFi right away. Strudel uses crypto-economic incentives to support the protocol and the trustless bridge. By putting liquidity pool tokens into the Terra-Farms Strudel, you can earn incentives by taking a short position on BTC dominance and a long position on Ethereum. This stabilizes the peg of BTC to vBTC.

🔸 Provide liquidity to the main vBTC-WETH or $TRDL-ETH pools. To stake liquidity, you will need both of the assets. You will require wrapped Ether and vBTC for vBTC-WETH. You need both $TRDL and ETH to make $TRDL-ETH.

🔸 You will receive LP tokens once you have staked the desired amount of vBitcoin and ether or $TRDL and ether (Liquidity Provider Tokens). The vBTC-WETH LP token is known as vBTC++.

🔸 Now that you have the appropriate LP token, you can stake it in the vBTC-WETH LP or $TRDL-ETH reward pools and farm $TRDL.

🔸 Get $TRDL rewards, reap the benefits, add more liquidity, and repeat.

Rate Of Reflexive Yield

Like in the example of SushiSwap, farming rewards with a high issuance of new coins and unchanging schedules has been shown to have a negative impact on protocols. Strong selling pressure on the token is frequently present in conjunction with a significant issuance of new coins. The token price decreases over time, and farmers may end up making a loss even if these gains are reinvested in the farms.
At strudel, we have only issued a little amount—1 $TRDL every block—to begin with.

Adaptive Request

The supply of a token must expand together with the ecosystem it is building. The supply of vBTC and the options it presents to its holders in the DeFi ecosystem are relevant to $TRDL in this scenario.

A governance parameter in the Strudel protocol called the Bonus multiplier is currently set at 4. The TorchShip, the contract in charge of overseeing the distribution of farming rewards, uses it. Although it can be altered with a 24-hour delay, it is not able to react to supply changes and market activity effectively.

As a result, it is suggested to automate the bonus multiplier and coupling it to the issuance of fresh vBTC over the previous seven days (window size). Strudel team has developed a modified variance metric () normalized over the supply of vBTC after simulating various coupling techniques. This is the exact formula:

x(n) = last observed total supply of vBTC
x(n-7) = the amount of vBTC in circulation as of seven days ago

A simulated increase in the total supply of vBTC in various levels to gives the tester a sense of the automated bonus multiplier.

The bonus multiplier increases from default 1 to 2.2 on day 3, when the supply grows by 1 vBTC, before falling over the following days as the supply remains constant.

When supply doubles, as it did on day 10, the bonus multiplier rises to 5.7. If no more mint occurs, it eventually drops to 1 over the course of 7 days (note the window size).

The bonus multiplier responds with a more muted response when the supply is continuously increasing, as it is between days 17 and 27.

The inflation of the $TRDL supply is anticipated to be slowed down by this algorithm, but farmers who stake liquidity on days when the protocol is expanding are likely to receive higher returns.

Burning Mechanisms To Be Implemented Soon

A clean way to burn bitcoin is with OP_RETURN, which removes outputs from Bitcoin nodes' memory and prevents state pollution. The payment protocol (BIP70), which is the sole mechanism to create transactions with OP_RETURN outputs, is sadly only supported by a small number of Bitcoin wallets.

Those who want to burn with a wallet that is incompatible with BIP70 will soon have a fallback option available. In place of a legitimate script, the Ethereum address will be inserted into a P2SH (pay to script-hash) output, resulting in a P2FSH (pay to false script-hash) output. P2FSH outputs are never spendable, but the Strudel protocol can use the information they contain to mint vBTC to specified addresses.

Burns produced by P2FSH outputs can only be detected by the output's encoding account. The account needs to be the relay transaction's message.sender as perceived by the vBTC contract.

Implication

Strudel provides the Ethereum community a tool to participate actively in the debate over market dominance. To improve Bitcoin, the team is starting a coordination experiment. The global financial system can be updated after Bitcoin has been upgraded.

Overall, Strudel Finance has established itself as a leading cross-chain DeFi platform that provides users with access to a wide range of financial services across multiple blockchains. With its focus on interoperability, strong community, and partnerships with leading DeFi protocols, Strudel Finance is well-positioned to continue driving the growth of the DeFi ecosystem.