Flare's FAssets Test Launch: Bringing New Opportunities to the Bitcoin Ecosystem

Recently, the Bitcoin ecosystem has ushered in new development opportunities, which not only include Bitcoin itself but also cover innovative applications like cross-chain Bitcoin. In this context, Flare has attracted industry attention as a unique Layer 1 solution.

The uniqueness of Flare lies in providing official cross-chain bridges and oracle services, fundamentally enhancing the security of these critical 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 FAssets lies in enabling non-smart contract assets (such as Bitcoin and DOGE) to be utilized on the Flare platform. Furthermore, these assets can also be transferred to other blockchains through certain cross-chain bridges. In the current market, this decentralized solution offered by Flare may bring new application prospects.

FAssets: Trustless Cross-Chain Bridge Solution

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

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 entirely dependent on these external bridges. In certain incidents, some public chain ecosystems have been devastatingly affected.

FAssets is a cross-chain solution specifically designed 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 does the minting party need a 1:1 collateral, but the agent responsible for minting also needs 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 agent will face liquidation risk.

Flare's innovation relies on two core components in 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 in a trustless manner, ensuring that the underlying assets of the minter have been securely delivered to a specific address. The FTSO provides Flare with real-time price feeds, ensuring that the collateral value in FAssets is sufficient, thus avoiding the risk of delayed liquidation.

Coin 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. Users send underlying assets (such as Bitcoin, XRP, etc.) to the agent.

3. The agent uses 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.

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

Minting and redeeming agents, as the name suggests, are the clients who initiate the minting or redeeming process, and they may be users of the Flare network. Agents are responsible for the minting and redeeming of FAssets, but they must first lock collateral themselves, which also ensures that the minting process and the assets issued by FAssets are trustless. Liquidators are responsible for liquidation, and when the value of the 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 stored in a specific contract; if not, the agent will be prohibited from minting, and already minted assets will also be liquidated.

In order to ensure that the entire process does not involve centralized third-party participation, 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 process but also includes multi-layer operations to ensure the safety of the collateral, timely liquidation, and monitoring of agent behaviors.

Comparison of Cross-Chain BTC Solutions

BTC is the most important crypto asset. As of December 6th, according to data from a certain platform, BTC accounts for 51.9% of the market value of crypto assets. How to bring BTC into use on other chains has always been a question. Besides FAssets' solution, some representative solutions include wBTC, tBTC, RenBTC from certain platforms.

Currently, the most widely used is wBTC, and some cross-chain bridges even directly use wBTC as the underlying asset. Although it has the best liquidity and can be conveniently purchased through centralized exchanges (CEX) and decentralized exchanges (DEX), it also adds risks. wBTC is issued centrally, and the minting and redemption process requires KYC, with the underlying BTC assets being custodied by a certain institution.

tBTC is currently a widely used cross-chain asset in DeFi applications, supported by certain platforms, and can be used as collateral for minting some stablecoins. In an assessment by a certain risk evaluation agency, tBTC was found to perform well in terms of volatility and decentralization, while showing average performance in liquidity, smart contracts, dependency, and legal aspects. tBTC has also faced scrutiny over potential transaction censorship issues, as an attacker from a certain exchange used tBTC for redemption, causing other users' redemptions to be 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 once a major decentralized cross-chain BTC, but due to certain reasons, the Ren team is short on development funds, and Ren 1.0 has suspended minting, while 2.0 development has been delayed.

The FAssets scheme is more complex, with the official claim that the collateral in the agency and community pool is over 200% of the issued FAssets, with collateral provided by the agency and community pool. Theoretically, FAssets offers a trustless way to mint cross-chain BTC, but this system is more intricate, involving multiple assets for both the collateral and the minted FAssets, requiring the cooperation of various roles. Due to considerations of security and decentralization, it may take more time before it can go live on the mainnet.

Follow-up Development of FAssets and Recent Updates from Flare

FAssets is currently operating on its Coston testnet and will launch on the Flare canary network Songbird after several rounds of testing, eventually integrating into the Flare mainnet. In the initial stage of testing, Flare Labs and initial partners will take on all necessary roles within the system and provide the required infrastructure. As testing activities such as minting, redemption, and liquidation are completed, external participants will be able to join.

The testing on Coston is divided into 7 phases, and the testing of FAssets is currently in the second phase, where Flare Labs plays various roles in the process. Developers will be invited for testing, updates, and validation, followed by public testing, before the launch of the testnet Songbird and the Flare mainnet. This means that the final launch of FAssets on the Flare mainnet may still take some time. The official announcement stated 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 hosting 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, FTSO developer tutorials were prepared, and the second version of the API Portal was developed. In terms of partnerships, collaborations have been established with several projects, and a hackathon was organized in cooperation with a certain organization.

Summary

Flare's FAssets have begun running 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, and can also be cross-chained to other chains using certain cross-chain bridges.

Essentially, FAssets are a type of synthetic asset. Unlike other cross-chain solutions, not only do the issuers need to provide a 1:1 collateral, but the agents responsible for minting and redeeming also need to provide over-collateralization to complete the minting process. Agents will face liquidation if the 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.