Interlay - a possible solution to an unflexible token

Introduction

Interoperability is a growing topic these days in the Cryptosphere. Younger projects are building their blockchains and token with this feature in mind. The problem, however, is that some legacy coins aren’t as flexible as new projects. This creates a task for developers to tackle this problem by creating solutions to lock legacy coins by issuing a new token which is up to par with existing projects. Whether or not this is a viable long term solution for this current challenge remains to be seen, but as long as Bitcoin is the number one coin, workarounds are needed.

What is Interlay?

Interlay is a solution to the problem of a very unflexible Bitcoin. It is not possible to properly use Bitcoin in many of the emerging DeFi protocols that keep emerging and continue to grow in the Cryptoverse. With Interlay, though, you can put your Bitcoin to work in a decentralized network that is dedicated to connecting different mainnets, including Polkadot, Ethereum, Cosmos and other major DeFi networks. After securing its Kusama Parachain slot, Interlay is now aiming to secure the 10th Polkadot slot and get onboarded in March.

Interlay has Kintsugi, its canary network that has already been onboarded to the Kusama relay chain. It is here that the team is experimenting with real economic values. Kintsugi and Interlay share the same code base — with the difference that Kintsugi focuses strictly on innovation and will always be ahead in terms of features. In my view, this is the standard arrangement many DotSama projects are following.

Interlay’s flagship product is interBTC, which is a form of Bitcoin that can be utilized on any blockchain. In essence, it is a 1:1 Bitcoin-backed asset that is fully collateralized, interoperable, and censorship-resistant. This is done via Vaults. They are the core of the interBTC and Kintsugi bridge. They purpose is to maintain the peg between BTC and interBTC, this is done via locking BTC into the vault, while interBTC exists on the Cross-chain network.

For further informations and explanations about what Interlay and Kintsugi are doing click here and here.

Investors

There are really solid heavyweight investors backing Interlay, including IOSG and KR1. I especially like the backing from KR1, as they seem to have a reputation for backing solid investments in the past.

W3F Grants

Interlay has two W3F Grants: One for the Polkadot/BTC Bridge specification, and a trustless BTC-Polkadot bridge.

Tokenomics

Interlay is offering 100.000.000 INTR for crowdloan participants. With an estimate of 5M DOT needed to secure the Parachain Slot, this would mean a return of at least 20 INTR per DOT. Because we are early in the emergence of Polkadot, there are only two projects to which we can draw a comparison. If Interlay will perform like the average of Astar and Moonbeam, you can expect a return on your DOT of $43. This is pretty solid in my view, especially because we are in the midst of a two month long market downtrend. The price will most certainly rise quite substantially when the whole cryptoverse enters an uptrend. You can get an extra 5% of rewards if you use this referral code.

Interlay’s Tokenomics look really solid from my point of view. It scores a great 72,5 for the opportunity score (average 57,63), while having a lower risk profile compared to its competitors, which scores 38 on the Risk rating (average 50,98). The two ratings combined give the Tokenomics of Interlay a great score of 90,20. This is heavily outperforming other projects which have an average score of 17,39 points.

One thing to put emphasis on is the rather large allocation to Vault and staking rewards, which allows you to let your Tokens work for you instead of them just idling and waiting for price swings. This is the highest held category in my rating system and Interlay scores a lot of points with its 35% allocation here.

Summary

Sometimes projects are solutions to insignificant problems that do not need to be addressed. Therefore, the important question you need to ask yourself is whether or not Interlay is a solution to an existing problem that carries enough significance to qualify being resolved. With Bitcoin being the oldest—yet still the biggest project by far in the Cryptoverse — I think this is a problem which needs to be solved and Interlay has produced a sound solution to this economic challenge. If you combine this with the solid rewards and great tokenomics, you have a project where it's definitely not the wrong decision if you decide to support it in the crowdloans and stake some Polkadot in its favor.

Interview

• Can you please introduce yourself and say what you are doing at Interlay?

I am Alexei, a Co-founder and CEO of Interlay, the team building Interlay & Kintsugi networks. I come from a Research & Engineering background, a Software Developer by trade. I have been focusing on Bitcoin security research since 2015 and it ended up doing a PhD, focusing on crosschain communication. 2 years ago we decided to spin out Interlay and to actually build the research that we had been producing. And here we are now.

• What sets Interlay apart from its competitors?

Here we can highlight: Why are we doing interBTC? I’d like to use a comparison first. We like to insure things. We like to be one the safe side, generally. We insure cars, we insure our phones, our houses. We even have insurance for the USD that we have in the bank other than from the government or from banks themselves. Then, with Bitcoin for some reason we don’t have that if we use it in DeFI. If you want to use Bitcoin in DeFi today, you have to go through a centralized provider or a centralized exchange. And let’s take the two-three biggest wrapped Bitcoin providers. You have wBTC, you have renBTC, you have hBTC. All of them are centralized today. In the end you have to trust these intermediaries. I am not saying that they will steal your Bitcoins, I really doubt that. These are great teams that have achieved a lot in the ecosystem. But it goes against the vision. You always have the risk that there is a hack, that there are regulator events or that you have to prove where the BTC came from. And you didn’t even, well, you weren’t prepared for that.

The risk here is you have I think today it’s $15 billion worth of BTC on Ethereum that is backed by trust. And this is $15 billion USD worth of BTC that can turn to zero from one day to another if there is a hack. This is not just isolated to the centralized Bitcoin wrap version itself. If you look at MakerDAO, MakerDAO uses wBTC as collateral and it’s pretty big on that. If wBTC fails, I don’t know what will happen to MakerDAO and to other projects that use it as collateral.

This is essentially the unique value proposition that you have in interBTC. You don’t need to trust any single person. You have a decentralized network of Vaults, where anyone can run Vaults and the only thing you need to do is that you provide collateral. You insure people who use your service against human behavior. It’s a model following the collateralization scheme of DeFi. This is exactly how interBTC works.

• If you steal as a Vault, you lose your collateral and this collateral will be used to reimburse the users.

• As a user, you always know: You get your Bitcoin back, or, in the worst case scenario, you will be reimbursed an insurance and you can use that to buy Bitcoin, and you can always lead the system and you always know you will not face financial damage due to someone stealing your BTC.

This is essentially a very clear and unique value proposition for anyone who plans to use Bitcoin in Defi, and not just for a few trades, but long term. Use it as collateral, for example, lock it up in DeFI protocols to earn yield. But in particular, for DeFi protocols, like stablecoin lending platforms and so on, which rely on interBTC as a liquidity collateral asset. Because for them there is no quick exit, they depend on the security of the protocol and the Bitcoin that they use.

If it is centralized, well I mean, you know what they say: The chain is only as strong as the weakest link. So, if the weakest link is your centralized Bitcoin bridge, then your DeFi is at risk. This is essentially what interBTC solves.

• Why should investors vote for Interlay during the parachain auctions and be bullish about it?

So, our guiding principle is to always favor decentralization, security for users, and censorship-resistance over shilling and quick profits. Kintsugi went live as a fully decentralized parachain on Kusama, winning the 12th slot and collecting 200,000 KSM from 8800 community members. Now, Interlay has also joined Batch two of the parachain auctions and is staying strong to secure slot 10.

Answering your question, let’s start with a brief explanation on why we decided to join Batch 2. We, as a team, don’t want crowdloan participants to just trust us and then deal with our own promises. The way we envision decentralization and open source is - don’t trust, verify. That being said, before we do anything on Polkadot, Kintsugi will go live with all features. We now prefer to dedicate 100% of our effort to Kintsugi and showcase the potential of kBTC on Kusama, integrating with all major parachains. Besides, Interlay’s flagship product, interBTC, lives from XCM. As long as other parachains and XCM is not 100% ready, interBTC cannot unfold it’s full potential. If we go live in batch 1, we would end up waiting before interBTC can unfold it’s potential. As our community believed in us and voted us onto Kusama, we must now prove our worth to them, so they are consciously and subconsciously not just trusting our promises when voting for Interlay during the Polkadot auctions, but making a deliberate decision they won’t regret about in the future.

• Do you think that there is an increased interest in the common Bitcoin holder to use their Bitcoins in DeFi products? What is the advantage to do this via Interlay and not just sell some BTC and do it via the native route?

And I’ll actually use this as a way to dive into the longer-term vision, because essentially exactly these crossparachain calls essentially, being able to call functions and dApp features across different parachains. You have the composability that you see in Ethereum, then you have the customization and capability of building a parachain that is really specific to use cases and is optimized for that. This unlocks so much potential that we will actually only see this in the next couple of years and understand what this actually means for the ecosystem.

From our side, what we really want to do and hope to achieve by this, is allowing users to seamlessly invest their cryptocurrency, specifically as the first step, Bitcoin, into any DeFi app with one click. Right now you have to go through the minting step on interBTC and you will always have to mint at some point, you always have to make this first Bitcoin fraction. You see this a lot in Ethereum tools where you have to move off the Ethereum Chain to some other network. This step you can optimize, but it will always be there. Once you’ve completed that, our vision is that with the one click you can say, well, you are going to provide liquidity into AMM, for example Solarbeam on Moonriver. Or you are going to mint a stablecoin. Or you are going to move it over to provide collateral in MakerDAO. And this MakerDAO is on Ethereum, but because there is a bridge in between, for example through Moonbeam and Moonriver, this could happen completely seamlessly.

The user just cares about the application. This is what Interlay has in mind to connect Bitcoin users and to enable BTC users to really gain access to decentralized financial applications. The way we do this is through insurance, of course.

The whole thing is based on decentralization and it has to be, because otherwise it would not be Bitcoin anymore. If you need to trust the centralized custodian to use Bitcoin at the centralized finance, you are going against all principals of what Bitcoin set out to achieve. By having this fully decentralized bridge and then integrating with decentralized connectual protocol on parachains like Moonriver enable anyone, who has Bitcoin either as just from investment when as a liquid asset to make use of it in a really secure and simple fashion. And from there I am just going to bring one potential example that came to our minds just yesterday and we keep exploring and identifying new use cases for Bitcoin on Polkadot day by day, because there are so many of them. Because we use this multi collateral system to ensure Bitcoin against thefts, this turns interBTC into basically a decentralized custodian solution. If you are not very certain about having Bitcoin in your wallet, which is fair enough, not everybody is that technical and trusts the wallet and wants to really have a lot of BTC in their wallets.

What some people do is you put it on an exchange, put it on custodian and essentially trust them, and you do potentially have some legal recourse, but in the end history has shown that centralized providers just tend to fail. But alternatively you could mint interBTC and suddenly you have interBTC as a liquid asset you can use it in DeFi, but you could also just hold it if you want to and the question is “Why would you do that?”.

The answer is because it is insured. It turns out that interBTC is also a custodian solution where you can hold your Bitcoin for a long term and it’s insured by a multi collateral system. So, if your interBTC is somehow lost just like it could be lost by a centralized custodian you can get your money back. And this is essentially from there we take this step further towards a fully non-custodial system allowing you then to invest BTC into any DeFi application and earn yield in a very simple manner just by doing one click. This is how we envision the next years, integrations into the DeFi protocols and really focusing on usability. So, one click and you can invest into different pools, different investment products and earn yield on your Bitcoin.

• What do you think about the statement that DotSama season is imminent and what part will Interlay play in that?

My honest opinion is that yes, indeed we will see more action on Dotsama in 2022. With Polkadot parachains going live teams MUST deliver their products, there are now hard deadlines after 2 years of building and waiting. The community is hungry, institutions are getting ready as well. I think it is all set for a burst of liquidity, use cases and community growth.

Let us not forget that Polkadot is the only sharded blockchain network with shared security. It is the first of its kind, a pioneer in terms of design, decentralization and efficiency. I highly respect the determination of Parity to not take any shortcuts and deliver the full vision - even if this makes things more difficult, causes delays and makes some people angry. Rome was not built in one day - but it passed the test of time and still stands today.

As a final note, I want to highlight that one thing that the entire Dotsama ecosystem is lacking is usability. This is something that we all missed, both core developers, parachain teams and community. To make 2022 the year of Dotsama, we must all together increase our efforts to make using Dotsama and joining the ecosystem easier: wallets, explorers, documentation, getting started videos, developer toolkits. We, for our part, will allocate funding and as much team effort as we can without neglecting our own parachain, starting with ETHDenver where we will be doing a substrate working session. Everyone can and must help if we want to succeed. It’s as simple as that.

• Anything you would like to share?

I want to share some thoughts on the current state of Kusama.

Unfortunately, we did not see the level of activity on Kusama that we all hoped for. There are a few reasons for this.

• On one hand, the Kusama auctions were a bit early in terms of tech readiness: parachain teams spent a lot of time fixing bugs and updating substrate versions - many updates were added ahead of the Polkadot launch which, at least in our case, caused a lot of additional development work.

• The high pressure of the KSM and DOT auctions themselves also drew away some focus from the core dev work.

• And finally, Kusama is and will remain a test network for many parachain teams - it will see more action in the future as new features are developed, but after 2 years of waiting for Polkadot I can somewhat understand that teams want to launch there as soon as possible, considering the significantly higher liquidity and broader community. Think of it this way: R&D happens at the start of a project, and then again once the product has matured. Many teams did R&D for 2 years on their own testnets, so for them there is now high pressure to bring the product to as many users as possible.

Ultimately, Moonriver is currently the only parachain to deliver close to 100% of their product and we are in awe of what their team delivered, also behind the scenes. Karura is closely behind, but being an explicit testbed for Acala it is seeing a bit less attention as the team focuses their grand coup: the highly anticipated launch of Acala.

We must admit that Kintsugi has also been delayed on launching kBTC, but we are committed to finalize in February and have good liquidity and activity before Interlay goes live. What we pride ourselves with is that Kintsugi launched 100% decentralized from day 1: there is no admin access, no pre-selected council, no way for the team or investors to interfere. This decision brings additional complexity with it in the short term (it is much easier to skip all the governance UX) but allows us to stay true to our vision and will pay off soon, latest when Interlay is launched with all features ready.

I want to thank Alexei and ArtemCrypto for doing this interview on such short notice and giving me some great and insightful answers..

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Kusama: EzVt5Z3pddR55HnS637AEqTutcxPDMKux2JzjK7pDG85Nmz

Polkadot: 13RBN6UF43sxkxUrd2H4QSJccvLNGr6HY4v3mN2WtW59WaNk

Metamask: 0xD7Da6c065fB6Ada5a9F2e8B2F88e84F4A63D0d93