Blockchain agnostic protocol and decentralized oracle providerÂ ChainlinkÂ will now be used by crypto custodian serviceÂ BitGoÂ to provide verifiable proof of the latterâ€™s $1 billion worth of Wrapped Bitcoin in storage, as per aÂ release.
The move is yet another high-profile partnership for Chainlink in the past week alone, after it announced developments with Theta Network andÂ BlockstackÂ earlier.
Chainlinkâ€™s $1 billion proof
In a blog post, BitGo said that overÂ $1 billion locked upÂ in the form of WBTC â€” an ERC20 token that represents underlying Bitcoin â€” showed that the demand for cross-chain crypto assets within DeFi was â€œvery real.â€
To further scale WBTCâ€™s reliability and support its growing demand, BitGo said it would work with the Chainlink team to â€œstreamline the auditability of WBTC reserves.â€ DeFi applications can now receive definitive onchain proof about the fully backed collateralization of WBTC, the firm noted.
â€œThis novel onchain proof of reserve is possible because of the openness of the Bitcoin network, the transparency provided by BitGo, and the highly secure decentralized oracle network that Chainlink powers,â€ explained BitGo.
â€œBitGo has adopted Chainlinkâ€™s Proof of Reserve mechanism. Now live on testnet (and soon mainnet), this Chainlink functionality enables decentralized applications on Ethereum.â€
The firm added the move helps to fully automate the burden of auditing the BTC value custodied by BitGo in a trustless and censorship-resistant manner, that â€œremoves the need to rely on manual off-chain processes like reading audit reports.â€
How the proof of reserves work
The proof-of-reserves work as follows: Chainlinkâ€™s oracles continually update and provide info on WBTCâ€™s reserves on-demand, which can be used by other DeFi applications on Ethereum.
Smart contract applications on Ethereum can then query the Proof of Reserve Contract to instantly verify that each WBTC coin is fully backed by an equal reserve balance of BTC in BitGoâ€™s custodian address on the Bitcoin blockchain, explained BitGoâ€™s head of product Kiarash Mosayeri in the post.
The WBTC Proof of Reserve reference contract uses a decentralized Chainlink oracle to check the balances of BitGoâ€™s WBTC custody wallets every ten minutes (the average time between Bitcoin blocks), he noted, adding:
â€œWhenever a deviation is spotted beyond a certain defined threshold (e.g. 1%), Chainlink oracles will push an on-chain update to the reference contracts with the new balance.â€
Such a mechanism allows BitGo to verifiably provide the provability of its massive reserves, which in turn helps attract newer capital, regulation, and much-needed capital governance to the burgeoning crypto space.