Sushi joins ZetaChain to start testing native Bitcoin DeFi swaps

Diffie's platform Sushi has partnered with app platform ZetaChain to explore the possibility of exchanging Bitcoin (BTC) for its users on 30 different blockchain networks.

The deployment of Sushi's Decentralized Exchange (DEX) on ZetaChain is said to enable BTC trading across multiple blockchains in what the group describes as a “native, decentralized and permissionless way”.

The integration is set to include Sushi's v2 and v3 automated market makers and Sushi's cross-chain swap, SushiXSwap.

ZetaChain's main contributor Ankur Nandwani told Cointelegraph that the partnership could bring Bitcoin's vast user base into the decentralized finance (DeFi) sector in a native way. He also countered arguments that suggested it was impossible to link BTC without referencing its assets on another chain.

“There have been early examples like THORChain that trade Bitcoin natively with other on-chain assets. Other approaches like Bitcoin sidechains are also giving a taste,” Nandwani said.

He added that ZetaChain's approach allows anyone to build Bitcoin-interoperable decentralized applications (DApps) that can natively settle contracts and transactions.

“Of course, there are assumptions of trust, namely trusting the decentralization of the network that runs this cross-chain transaction.”

It has been reported that ZetaChain has proven its technology at the TestNet level and is looking to partner its main network with SushiSwap and other DeFi protocols to validate its service.

Sushi's head chef Jared Gray hailed the merger as a significant development for DeFi and described the ability to natively convert Bitcoin as a “game changer” for the industry.

“It's not just about increased liquidity from Bitcoin; it's about to start a new chapter in DeFi, where we'll see more practical interoperability and improved connectivity issues.”

Sushi's integration with ZetaChain is set to take place in two phases. The first will see Sushi introduce a DEX on ZetaChain's testnet to support basic asset exchange and liquidity. This phase is set to include beta testing and incentives for app testing.

Sushi will be one of ZetaChain's launch partners when it deploys its core. The launch is expected to feature full functionality for Bitcoin interoperability. Nandwani explained the technical details behind the functionality that allows native BTC cross-chain exchange.

The cross-chain exchange contract is deployed on ZetaChain's Ethereum virtual machine. The contract is omnichain, which means that when it is distributed on ZetaChain, it can be called, and the value can be transferred to it from any connected chain, including Bitcoin.

Invoking an on-chain exchange contract involves the user sending a standard native token transfer transaction in Bitcoin to a TSS address on a special token. The note contains the address of the omnichain contract by ZetaChain and the value transferred to the contract. For a cross-chain exchange, the value will be the destination token, such as Ether (ETH) or USD Coin (USDC) on Ethereum, as well as the recipient's address on the destination chain.

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The TSS address is owned by the ZetaChain Signing Validators. The BTC transferred to the TSS address is locked, and validators observe this transfer and vote on this event on ZetaChain. If enough votes are cast, the event is considered considered, and an incoming cross-chain transaction (CCTX, from Bitcoin to ZetaChain) is created.

Once the CCTX is processed, the ZetaChain omnichain contract is called, and the amount of BTC transferred to the TSS address is saved as ZRC-20 BTC. During the execution of the chain exchange contract, ZRC-20 BTC is exchanged for another token ZRC-20, for example, ZRC-20 ETH.

ZRC-20 ETH will finally be taken to the destination chain. During the extraction process, ZRC-20 ETH is burned, and outgoing CCTX is created from ZetaChain to Ethereum. Viewer validators vote on ZetaChain in this CCTX. Once the outgoing CCTX is processed, native ETH is transferred from the TSS address on Ethereum to the Ethereum recipient.

Nandwani provided this example to outline how native BTC can be decentralized to native ETH between chains connected by ZetaChain network validators.

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