Threshold: First Look

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Keep and NuCypher are joining forces in what may be the first hard merge between two blockchain PoS networks. The Threshold Network results from at least a year of collaboration between the two teams. We’re approaching a mainnet launch of a more robust tBTC supported by a large set of nodes. 

The combined network called “Threshold” will continue to provide privacy services to the Web 3 ecosystem. Specifically, the network will maintain threshold crypto primitives, such as proxy re-encryption, threshold signatures, and distributed key generation. The network will likely  launch in early December, adding staking rewards near the end of the year, and launching tBTC v2 in Q1 2022.  

Why Threshold?

From a traditional lens, Keep and NuCypher could be seen as competitors. They are both operating in the same market, offering similar services. Despite this, in true Web 3 fashion, collaboration on mutual goals of building new technology and growing the community, both networks are coming together. The merger will lead to the best outcome for the Web 3 ecosystem by pooling their talent, communities, and resources.

Keep's main product is tBTC, a bridge that brings BTC into the Ethereum ecosystem. However, this requires at least 1,000 nodes in order to function well. NuCypher specializes in threshold cryptography and has robust node participation. Combining resources will create a stronger network and larger market share.

A more specific benefit is related to the network of stakers. Right now, there are two separate groups of stakers helping to secure each network. Once combined, the joined staking pool will grow. This has numerous benefits, one of which is a reduction in the inflationary pressure of the network token. Another advantage relates to increasing the scalability of tBTC v2 (see ‘tBTC v2’ section). 

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The $T token

The T token (T) will be used for staking, governance, and work on the network. It will perform a similar function in terms of the work performed; holders will stake their tokens and help secure the network and receive rewards. 

With the launch of T, likely toward the end of the year, both NuCypher and Keep communities will turn off their respective token’s inflation. Meaning NU and KEEP will not be used for rewarding stakers on the network. NU and KEEP holders will be able to use a smart contract ("the vending machine") to effectively convert their NU and KEEP to T. Token holders that still have NU vesting will be able to use an adapter instead of the vending machine.

Token holders custodying their tokens on an exchange (such as Kraken or Coinbase) be warned: there is no guarantee that holders will be able to swap their tokens on a centralized exchange. NuCypher and Keep will not list T through any particular exchange. Find instructions on how token holders can custody their own assets here.

As with the Keep and NuCypher tokens, T is a work token – it will be distributed per the number of services that a node operator will run. Stakers will be rewarded with both fees earned and newly minted T; so there is an inflationary aspect to the token.

Via governance vote, the community decided on the economics of T, which sets a stable yield rate, aiming for a 10% minimum APY. The issuance of the token would fluctuate between 5% and 10%. The more services that node operators run or "opt-in" to will garner more rewards. 

Governance on Threshold

Currently, the Threshold DAO will consist of three bodies –Token Holder DAO, Staker DAO and the Multisig Council. They are basing their DAO on Compound's GovernorBravo. 

The Token Holder DAO is made up of T holders and those who deposit into coverage pools. They will have the ability to:

  • Add proposals on-chain
  • Delegate votes 
  • Execute proposals
  • Manage the treasury
  • Mint additional T 

The Staker DAO are the stakers. The Staker DAO voting power will be proportional to stake weight on the network. They will have the ability to: 

  • Add proposals on-chain
  • Delegate votes 
  • Execute proposals and consists of those staking T. 

The Multisig Council has nine seats that have one-year terms. Members can be voted out if they fail to fulfill their duties, act in a way that harms the network, or is inconsistent with the wishes of the community. They have the ability to:

  • Manage staking rewards
  • Veto proposals

tBTC v2

One of Keep's ongoing and high-priority projects, and now Threshold’s, is tBTC v2 (v2). The goal of tBTC v1 was to allow Bitcoin holders to participate on the Ethereum network by providing Bitcoin holders a way to earn a yield on DeFi dapps built on Ethereum. tBTC converts Bitcoin to an ERC-20 token pegged to the price of Bitcoin. tBTC, unlike wBTC, is permissionless and decentralized.

Threshold is launching v2 to improve the scaling issues of v1. Threshold will increase the signer set for v2, remove the requirement to collateralize with ETH and reduce mining costs. The increased pool of stakers from the merge assists with the former.

Currently, Bitcoin has the largest market cap of any cryptocurrency, currently valued at 1.2T USD. But because there are not smart contracts on the network, Bitcoin serves more as a store of value than a medium of exchange. Meaning that any on-ramp to bring Bitcoin to any ecosystem will be immensely valuable. v2 provides that on-ramp into Ethereum and opens all kinds of new investment/participation opportunities to Bitcoin holders. At the same time, the Ethereum ecosystem receives a large influx of capital that can be used for work, liquidity provision, or loans to accelerate value added to the space. 

Next Steps for Threshold Network

These dates are subject to change and are based on a more detailed article with the community directly from the NuCypher team. 

November 12th - December 7th: Flurry of governance activity in finalizing the rewards mechanism, shutting off inflation for NU and KEEP, and holding multi-sig council elections.

December 10th: The launch of the “vending machine,” where token holders will be able to swap their NU and KEEP for the T token.

December 12th: Launch of the staking contract, without rewards or slashing. 

December 17th: The first batch of T will be minted.

December 28th or later: Staking rewards will be activated.

Q1 2022: Launch of tBTC and slashing on the network.

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