What is Interlay?

Interlay is a revolutionary project aimed at unlocking the full potential of Bitcoin (BTC) by integrating it into the decentralized finance (DeFi) ecosystem. The core functionality of Interlay is to serve as a trustless, decentralized Bitcoin bridge, enabling seamless interaction between Bitcoin and other blockchain networks such as Polkadot, Ethereum, and Cosmos, while maintaining the core values of decentralization, security, and transparency of Bitcoin.

Bitcoin is often referred to as the "digital gold" due to its role as a store of value and its strong network security. However, the Bitcoin blockchain was not designed as a programmable platform, which limits its potential uses in modern financial applications. Interlay fills this gap by constructing an infrastructure that enables Bitcoin to participate in DeFi, providing holders with opportunities for borrowing, trading, and other decentralized financial services without relying on centralized intermediaries.

In simple terms, Interlay is the bridge connecting the world's most secure cryptocurrencies with the rapidly developing programmable blockchain ecosystem, paving the way for 'Bitcoin DeFi'.

How does Interlay work?

The core of Interlay is interBTC (iBTC), a tokenized version of Bitcoin that can run on multiple blockchain networks while maintaining a 1:1 peg to Bitcoin. The entire process is trustless and decentralized, ensuring system security through an overcollateralized vault network. The following is a step-by-step overview of how Interlay works:

Users deposit Bitcoin into a system managed by a decentralized vault. These vaults are managed by a permissionless network of operators and must lock collateral (usually other cryptocurrencies) to ensure system security.

Once Bitcoin is locked, users can mint an equal amount of interBTC. interBTC is a fully fungible and transferable representation of Bitcoin.

Users can use interBTC on various blockchain and DeFi platforms. They can use it for lending, borrowing, trading, or investing in decentralized applications (dApps) without relying on centralized custodians.

Users can redeem interBTC for an equivalent amount of Bitcoin at any time. The Bitcoin held in the vault ensures liquidity and simplifies the redemption process.

This system operates on the basis of strong cryptographic proof and economic incentive mechanisms, ensuring that user funds are always secure and accessible.

Trustless Bitcoin Bridge

Interlay's core innovation lies in its trustless Bitcoin bridge, which eliminates the need for centralized custodians or intermediaries. Unlike traditional solutions such as Wrapped Bitcoin (wBTC), which require users to trust a centralized entity to custody their Bitcoin, Interlay's bridge operates on a decentralized custodial network.

Key features of Bitcoin bridges without the need for trust:

1. DecentralizationThe vault is operated by a globally distributed network of participants, reducing the risk of single point of failure.

2. OvercollateralizationVault operators must lock up collateral worth more than the Bitcoin they hold to ensure that users can redeem their assets even in adverse situations.

3. Cryptography SecurityInterlay uses cryptographic proofs to validate transactions and ensure that Bitcoin is securely locked.

This architecture not only enhances the security of the system, but also is completely consistent with the decentralization of Bitcoin and the concept of user sovereignty.

Key Features

Trustless Bitcoin Bridge

The trustless Bitcoin bridge is the cornerstone of the Interlay ecosystem. It provides a secure and decentralized way to lock Bitcoin on its native blockchain and mint interBTC (iBTC) on other networks such as Polkadot, Ethereum, and Cosmos.

• DecentralizationUnlike traditional solutions relying on centralized custodians, Interlay's Bitcoin bridge utilizes a globally distributed network of independent participants. These vaults are managed by independent operators, ensuring that no single entity controls the entire system.

• Secured by collateralThe custodian must provide collateral worth more than the value of the bitcoin it manages. This excess collateral mechanism ensures that users can redeem their iBTC even in adverse situations such as custodian bankruptcy.

• Transparency and AuditabilityEvery transaction on the bridge is protected by cryptographic proof, making it fully auditable and trustless. Users can verify the status of their locked bitcoins at any time.

This feature aligns with the concepts of Bitcoin decentralization and user sovereignty, allowing holders to participate in DeFi without compromising security and trust.

interBTC (iBTC)

interBTC (iBTC) is the core of the Interlay ecosystem, representing Bitcoin's application in the multi-chain DeFi world. iBTC is minted in a 1:1 ratio, fully anchored to Bitcoin, while also possessing cross-chain programmability and transferability.

• 1:1 Bitcoin AnchoringEach iBTC is fully backed by Bitcoin locked in Interlay's vault. Users can redeem iBTC for Bitcoin at any time, ensuring the stability of the anchoring relationship.

• Cross-chain compatibilityiBTC can run on multiple networks, allowing users to leverage their Bitcoin in various DeFi protocols. From borrowing and lending to trading and staking, iBTC unlocks infinite possibilities for Bitcoin holders.

• ProgrammabilityUnlike Bitcoin, which lacks native smart contract support, iBTC is fully compatible with programmable blockchains. This enables developers to create innovative financial products with Bitcoin as the core asset.

By enabling Bitcoin to interact with DeFi applications, iBTC bridges the gap between the world's most secure cryptocurrency and the rapidly growing DeFi ecosystem.

Decentralized Treasury System
Interlay's decentralized vault system is an important part of its Bitcoin bridge, ensuring the security and functionality of the network. The vault plays a crucial role in locking Bitcoin and minting iBTC, serving as the backbone of the entire network.

• Permissionless participationAnyone can become a vault operator as long as they meet the collateral requirements. This open participation model ensures decentralization and system resilience.

• OvercollateralizationCustodians must lock collateral worth more than the Bitcoin they manage (usually other cryptocurrencies). This mechanism minimizes user risk and maintains system integrity.

• Incentive securityThe vault operator earns fees by providing services, thus obtaining economic incentives to ensure the security and efficiency of the system.

The decentralized treasury system not only ensures network security, but also provides participants with the opportunity to earn rewards by contributing to the ecosystem.

Polkadot Integration and Shared Security
Interlay operates as a parachain on the Polkadot network, making full use of its advanced interoperability and shared security features.

• Shared security modelAs a Polkadot parachain, Interlay benefits from the network's robust security infrastructure. This ensures that the Bitcoin bridge and iBTC are protected from attacks without the need for independent consensus mechanisms.

• InteroperabilityPolkadot's cross-chain compatibility enables Interlay to interact with other parachains and external blockchains. This expands the application scope of iBTC and achieves seamless integration with various DeFi protocols.

Polkadot's architecture provides Interlay with a scalable and secure foundation, ensuring that the platform can grow without sacrificing performance or security.

Governance and INTR Token
Interlay's ecosystem is governed by its community through the INTR token, which serves multiple functions in the network.

• Decentralized GovernanceINTR holders can participate in the decision-making process, such as protocol upgrades and fee adjustments. This ensures that the network continues to evolve according to user demands and preferences.

• Staking & Rewards INTR tokens can be staked to earn rewards, incentivizing users to actively participate in the ecosystem. Staking also enhances the security and governance capabilities of the network by aligning incentives with user engagement.

• Fee mechanismINTR is used to pay for transaction fees within the Interlay ecosystem, creating token demand and supporting its value.

This governance model empowers users to shape the future of Interlay while providing economic incentives to promote long-term participation.

Cross-chain Interoperability

Interlay's design enables seamless operation across multiple blockchains, making it a true cross-chain interoperability platform. This feature ensures that Bitcoin can be integrated into various DeFi ecosystems without being limited by underlying blockchain technology.

• Integrations with Ethereum and Cosmos In addition to Polkadot, Interlay also supports Ethereum and Cosmos, enabling Bitcoin to participate in DeFi protocols on these networks.

• Multi-chain ApplicationDevelopers can use Interlay's tools and APIs to create iBTC-based applications that achieve cross-blockchain functionality. This opens up new possibilities for innovation in decentralized finance.

By connecting Bitcoin with multiple blockchain ecosystems, Interlay has enhanced the usability of Bitcoin and ensured its core position in the cryptocurrency field.

DeFi Tools and Applications

Interlay is not just a bridge connecting Bitcoin, but also provides a range of tools and applications to enhance its functionality in DeFi.

• LendingUsers can lend their iBTC to earn interest or borrow with iBTC as collateral to obtain liquidity.

• Staking and Yield FarmingiBTC can be used for staking or participating in yield farming protocols to generate passive income.

• Decentralized exchange (DEX)Interlay supports decentralized trading, enabling users to exchange iBTC with other assets in a trustless environment.

These tools make iBTC a versatile asset, giving users the ability to explore new financial opportunities without leaving the DeFi ecosystem.

INTR Token

INTR token is the core of the Interlay ecosystem, serving as both a utility token and a governance token, driving platform operations and ensuring decentralized governance. Unlike tokens in many cryptocurrencies, INTR plays multiple roles, from user participation in decision-making to incentivizing network security and rewarding active contributors. By introducing a comprehensive token economic model, Interlay designs INTR as a key tool that supports platform growth and empowers the community.

INTR is not only a means of facilitating transactions within the Interlay network, but also a tool for promoting participation, decentralization, and economic stability. By providing incentives, it coordinates the interests of participants, including users, developers, and vault operators, to promote the practicality and security of the network.

Governance and Decision Making
INTR is a governance token, and holders can vote on important proposals, including protocol upgrades, fee adjustments, and modifications to the token economic model. Through decentralized decision-making, Interlay ensures that the platform's development aligns with the community's overall vision. Governance participation is open to all INTR holders, nurturing a sense of belonging and responsibility for the network among users.

Economic incentives
INTR tokens incentivize network participants, especially treasury operators and stakers, through a reward mechanism:

• Vault OperatorEarn INTR rewards by ensuring system security.
• PledgerEarn rewards by locking tokens and supporting network stability.

This incentive mechanism ensures the efficient and secure operation of all key components of the ecosystem.

Payment of Fees
INTR is the payment medium for transaction fees within the Interlay network, including:

• Costs for minting and redeeming interBTC;
• Costs associated with using DeFi applications;
• The cost of conducting cross-chain transactions.

By integrating fee payment with the INTR token, Interlay has created a natural demand for the token, supporting its value and utility.

Pledge and Security
INTR holders can stake their tokens to participate in network security maintenance. Staking not only helps maintain the integrity of the network, but also provides participants with a passive income source, further incentivizing long-term token holding behavior.

INTR token economic model

The token economy design of INTR takes into account both early incentives and long-term sustainability, incentivizing early adopters and active participants through fair allocation and mechanism design, while ensuring the healthy development of the network. In the initial allocation plan, some tokens are used to reward treasury operators, staking participants, and liquidity providers, while another portion is reserved for development team and community incentives to support future development needs.

To prevent inflation from affecting the value of the token, INTR adopts a controlled issuance plan. The rewards for staking and treasury operations gradually decrease over time, incentivizing early users to participate in the network and providing continuous incentives for long-term contributors. This structured deflationary mechanism concentrates incentives in the early stages of network development while ensuring stable token distribution in subsequent phases.

In addition, Interlay also reduces the total supply of INTR through a deflation mechanism. For example, a portion of transaction fees is used to burn tokens, thereby creating upward pressure on the token value in the long term. This mechanism not only stabilizes the long-term value of the token, but also directly benefits long-term holders, providing support for the healthy operation of the entire network.

Interlay gradually reduces the total supply of INTR through deflationary mechanisms, such as burning tokens from transaction fees. This mechanism creates upward pressure on the token's value over the long term, benefiting long-term holders and providing support for the network's stable development.

How to drive decentralized governance of INTR

Decentralized governance is the core principle of Interlay, and INTR is the key tool to achieve this goal. Unlike traditional governance structures that rely on centralized control, Interlay uses the INTR token to ensure collective decision-making and transparency. Any INTR holder can propose changes or upgrades to the network by staking a certain amount of tokens. These proposals require community voting, with each token representing one vote, ensuring that decisions are proportionate to the holding ratio of participants in the network.

Once the proposal is approved, its implementation is completed through smart contracts, ensuring transparent governance decisions without centralized supervision. By dispersing decision-making power throughout the community, INTR's governance mechanism reduces the risk of centralization and ensures that the platform's development direction remains aligned with user needs.