The Bitcoin ecosystem welcomes new opportunities as Flare launches innovative cross-chain solutions.

With the growing expectations for the approval of Bitcoin spot ETFs and the rising prices of BRC-20 assets, the overall development of the Bitcoin ecosystem is迎来新的机遇. This not only includes Bitcoin itself but also covers innovative applications like cross-chain Bitcoin.

Flare, as a unique Layer 1 solution, provides an official cross-chain bridge and oracle services, fundamentally enhancing the security of these key infrastructures. This means that Flare not only supports the Ethereum Virtual Machine (EVM) but also offers solutions for secure communication between blockchains.

On November 30, 2023, a key feature of Flare, FAssets, began testing. The core value of this feature lies in its ability to utilize non-smart contract assets like BTC and DOGE on the Flare platform. Furthermore, with the help of cross-chain bridges, these assets can also be transferred to other blockchains. In a market where centralized handling of Bitcoin cross-chain assets dominates, this decentralized solution offered by Flare may bring new applications.

FAssets: Trustless cross-chain bridge solution

In the blockchain ecosystem, security is paramount. Generally, the market value of a public chain's native token is higher than that of the dApps on the chain, because dApps rely on the security of the public chain. Only when the value of the public chain's native token is higher can its security provide better protection for dApps. However, most assets, including stablecoins, are currently concentrated on Ethereum, while other public chains need to rely on cross-chain bridges to bring in these assets. This means that the security of assets on the public chain is again built upon the cross-chain bridge.

Many public chains attempt to develop cross-chain bridges on their own, and these bridges usually rely solely on multi-signature systems to ensure security, which is somewhat centralized. In fact, some public chains have suffered attacks because of this. Public chains that choose to cooperate with third-party cross-chain bridges have their asset security completely dependent on these external bridges. As a result, some public chain ecosystems have been devastated.

FAssets is a cross-chain solution developed by Flare Labs specifically for Flare. It allows tokens on non-smart contract chains (such as BTC, DOGE, XRP) to be securely used in smart contracts on Flare without relying on trust. The minting process of FAssets involves a strict collateral mechanism: not only do minters need a 1:1 collateral, but the agents responsible for minting also need to over-collateralize. This practice is similar to the mechanisms of some early protocols, but FAssets allows agents to use a basket of mixed assets as collateral, such as stablecoins, BTC, ETH, and Flare's native token FLR. If the value of the collateral is insufficient, the agents will face liquidation risk.

Flare's innovation relies on two core components within its network: the State Connector and the Flare Time Series Oracle (FTSO). The State Connector allows information from other blockchains to be used in Flare smart contracts trustlessly, ensuring that the underlying assets of issuers are securely delivered to specific addresses. The FTSO provides real-time price feeds to Flare, ensuring that the collateral value within FAssets is sufficient, thereby avoiding the risk of untimely liquidations.

Minting Process and Participants

The minting process of FAssets involves transferring assets from non-smart contract chains to the Flare network for use in various applications. The basic steps of the minting process are as follows:

1. The user first selects a proxy and pays a certain fee.

2. The user sends the underlying assets (such as Bitcoin, XRP, etc.) to the agent.

3. Agents use Flare's state connector to verify that the underlying assets have been deposited into a specific address.

4. Once the transaction is verified, FAssets will be minted on Flare. FAssets are ERC-20 tokens that can be used in Flare's DeFi applications or bridged to other EVM chains via cross-chain.

The minting process can come to a close here, but the entire FAssets system is far from simple. As mentioned earlier, agents need to be over-collateralized, and if the collateral is insufficient, liquidation will occur. Additionally, a role is required to monitor that the agents' collateral is correctly stored on the chain. The entire process will involve four types of roles: minter/redeemer, agent, liquidator, and challenger.

Minting agents and redeeming agents, as the names suggest, are the clients who initiate the minting or redemption process, and they may be users of the Flare network. Agents are responsible for the minting and redemption of FAssets, but they first need to lock up collateral themselves, which also ensures that the minting process and the assets issued as FAssets are trustless. Liquidators are responsible for liquidation, and when the value of an agent's collateral is too low, the liquidator will exchange the agent's collateral for FAssets. Challengers use state connectors to detect whether the agent's funds are held in a specific contract, and if not, the agent will be prohibited from minting, and any minted assets will also be liquidated.

To ensure that there is no centralized third-party involvement in the entire process, the FAssets solution is more complex compared to other cross-chain bridges, requiring the cooperation of these four types of roles. This system not only involves the minting and redemption processes but also includes multi-layered operations to ensure the security of collateral, timely liquidation, and monitoring of agency behavior.

Cross-chain BTC Solution Comparison

BTC is the most important crypto asset. As of December 6, according to data from the data platform, BTC accounts for 51.9% of the market value of crypto assets. How to bring BTC into other chains has always been a question. In addition to the FAssets solution, several representative solutions include wBTC, tBTC, RenBTC, etc.

Currently, the most widely used is still wBTC, and some cross-chain bridges even use wBTC directly as the underlying asset. Although it has the best liquidity and can be easily purchased through exchanges, making it more convenient to use, it also adds risks. wBTC is centrally issued, and the minting and redemption process requires KYC, with the underlying BTC assets being custodied by centralized institutions.

tBTC is currently one of the more widely used cross-chain assets in DeFi applications, supported by certain projects, and can be used as collateral for minting stablecoins. In risk assessment, tBTC is considered to perform well in volatility and decentralization, while showing average performance in liquidity, smart contracts, and dependency, as well as legal aspects. tBTC has also faced scrutiny over issues of transaction censorship, as during a specific event, an attacker used tBTC for redemption, leading to other users' redemptions being denied by node operators. After an update, the redemptions of other users returned to normal, while the attacker's redemption continued to be denied.

RenBTC was also a major decentralized cross-chain BTC, but for certain reasons, the Ren team's development funding has run short, and Ren 1.0 has suspended minting, with 2.0 development delayed.

The FAssets scheme is more complex, with the official stating that the collateral in the agency and community pool is more than 200% of the issued FAssets, and the collateral is provided by the agency and community pool. Theoretically, FAssets offers a trustless way to mint cross-chain BTC, but this system is more complicated, involving various assets for the collateral and minted FAssets, and requires cooperation among different roles. Due to considerations of security and decentralization, it may take more time before launching on the mainnet.

Follow-up Development of FAssets and Recent Updates on Flare

FAssets is currently running on its testnet and will launch on Flare's canary network after multiple rounds of testing, eventually integrating into the Flare mainnet. In the initial phase of testing, Flare Labs and initial partners will take on all necessary roles within the system and provide the required infrastructure. As the testing work for minting, redemption, and liquidation is completed, external participants will be able to join.

The testing on the testnet is divided into 7 phases. Currently, the testing of FAssets is in the second phase, where Flare Labs plays various roles in the process. In the future, developers will be invited to test, perform updates and validations, conduct public testing, and then the canary network and Flare mainnet will be launched. This means that it may take some time before FAssets is officially launched on the Flare mainnet. The official statement indicates that after the official launch, rewards will be distributed to FAssets cross-chain users through a cross-chain incentive pool, encouraging users and dApps to earn FLR tokens by providing sustainable value, further enhancing Flare's decentralized financial ecosystem.

Since September, Flare has made progress in project development, establishing partnerships with several other projects, and organizing multiple events. In terms of project progress, the testing of FAssets was launched in recent months, the second phase of Flare staking was initiated, 2.1 billion FLR tokens were burned, an FTSO developer tutorial was prepared, and the second version of the API Portal was developed. In terms of partnerships, collaborations were established with multiple projects, and a hackathon was organized in cooperation with other institutions.

Summary

Flare's FAssets have begun operating on the testnet, providing a trustless solution for transferring assets from non-smart contract chains like BTC, DOGE, and XRP to be used on Flare, utilizing a cross-chain bridge, and can also be cross-chained to other chains.

Essentially, FAssets are a type of synthetic asset. Unlike other cross-chain solutions, not only do minters need to provide a 1:1 collateral, but the agents responsible for minting and redeeming also need to over-collateralize to complete the minting process. Agents will face liquidation when collateral is insufficient. The entire mechanism is theoretically trustless and decentralized, but it is relatively complex and requires cooperation among various roles to ensure its reliability.