Launching a native Bitcoin-backed NFT on Ethereum has traditionally been a complex, expensive, and risky process. The advent of Discreet Log Contracts (DLC) and the DLC.Link platform has made the process much simpler and accessible.
Our native Bitcoin NFT solution involves two main components: escrowed Bitcoin and its NFT representation. The DLC.Link platform enables the minting of these unique NFTs with the user finally being able to communicate with an Ethereum application and their Bitcoin wallet. A Bitcoin-backed NFT is a revolutionary way to access the collateral value of Bitcoin, as well as being able to move Bitcoin liquidity across DApps. This blog post will cover why we should put Bitcoin into an NFT, how to self-mint these NFTs, and the benefits of borrowing against collateralized Bitcoin NFTs.
DLC enables the creation of smart contracts on the Bitcoin network. These contracts allow parties to create and execute conditional agreements without revealing sensitive information to the blockchain. By utilizing DLC.Link’s smart contract infrastructure, it’s now possible to mint NFTs on Ethereum which contain Bitcoin. These NFTs provide users with a secure and transparent way to verify the value of their assets.
The value of placing Bitcoin within an NFT goes beyond being able to clearly and efficiently verify the amount of Bitcoin collateral. With Bitcoin represented via an NFT standard, it opens the doors for a user to perform programmatic tasks with their Bitcoin. For example, a user can freely deposit and withdraw this Bitcoin collateral on a lending platform such as Arcade.xyz or BenQi (provided the borrowed funds and interest are properly paid back) without the need to spend transaction fees on the Bitcoin blockchain. Now that we know the benefits of NFTs, let’s talk about how to self-mint an NFT containing Bitcoin.
To launch a Bitcoin-backed NFT on Ethereum using DLC.Link, you would first need to navigate to an on-chain application which supports our minting platform. These applications can be a simple user interface for locking and minting (such as the one featured here), or be embedded within a borrow protocol which could automatically send stablecoins to the user once they lock their Bitcoin collateral. In both cases, the Bitcoin would flow into the DLC vault in the same way.
After calling to DLC.Link’s smart contract to open the escrow, the user waits until the Bitcoin Attester receives its message. Once received, the user will see a Bitcoin signature request in the their Bitcoin wallet. The user signs this transaction, and the Bitcoin is now locked on-chain. After some block confirmations, the NFT is minted and appears in the user’s Ethereum wallet. Not only will it appear as a token on Etherscan, an AI-generated image of Bitcoin will be assigned to it. On marketplaces such as OpenSea, this appears like any other collectible on a user’s profile. When you have your Bitcoin represented by an NFT, you can now put your Bitcoin to work with borrowing.
To ultimately unlock the value of Bitcoin in its NFT format, the user can deposit it within a DeFi protocol. Once deposited, it becomes collateral that can be borrowed against. On places such as Arcade.xyz, a wide range of assets – including ETH, stablecoins like USDC and DAI, and other cryptocurrencies – are available to be borrowed. After selecting the amount to borrow, the depositor will see the interest rate and fees associated with the loan. Arcade.xyz uses a dynamic interest rate based on supply and demand for each asset. The depositor will need to pay back the borrowed assets plus any accrued interest and fees within the specified timeframe. After doing so, the depositor can withdraw their NFT back into their wallet. If the depositor fails to repay the loan, the NFT collateral will be liquidated to cover the outstanding amount plus fees.
In conclusion, launching a native Bitcoin-backed NFT on Ethereum using DLC.Link is a simple and innovative way to create new types of collateral for DeFi. This technology opens up new opportunities for Bitcoin miners, investors, or hedge funds who want to safely tokenize their Bitcoin and benefit from the robust financial opportunities on Ethereum.
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