What is Kintsugi (KINT)?
The Beginner’s Guide to Kintsugi (KINT)
Kintsugi is a blockchain network that allows bitcoin holders to utilize their assets within the Kusama network. Kintsugi is the so-called canary network for the Polkadot based Interlay project and its interBTC tokens.
Kintsugi’s kBTC aims to open the value of bitcoin to Kusama by enabling bitcoin based transactions across other Kusama parachains such as Karura, Shiden and Moonriver. kBTC is a 1:1 bitcoin-backed asset on Kusama, maintained by a decentralized network of collateralized vaults. Users can redeem kBTC for BTC at any time, so long as their BTC is properly collateralized within these vaults. Users who deposit their BTC in a vault are rewarded with Kintsugi’s native token, KINT.
KINT serves as the parachain network’s governance and utility token. KINT holders are able to participate in network governance, making decisions on network improvements as well as electing council decision makers. KINT is also the medium of exchange for paying transaction fees and earning network participation rewards.
Who created Kintsugi (KINT)?
Kintsugi and Interlay were founded by two PhD researchers from Imperial College London’s Cryptocurrency Research and Development Center, Alexei Zamyatin and Dominik Harz. Both are software engineers focusing on security and decentralization of blockchain networks. Zamyatin serves as the CEO while Harz serves as the CTO.
Both Kintsugi Labs, a not-for-profit organization, and Interlay, the Polkadot based equivalent of Kintsugi, are responsible for the Kintsugi platform. InterBTC, Interlay’s flagship product is based on the XCLAIM protocol the co-founders first developed in 2018. The design of the XCLAIM protocol was published in a top-tier peer-reviewed journal before the team received two Web3 Foundation grants in 2020 and 2021 to implement interBTC (initially referred to as PolkaBTC).
Together, Interlay and Kintsugi Labs are on a mission to support the development and growth of decentralized networks. Kintsugi won Kusama parachain auction 11, raising a crowd loan of 200,000 KSM, worth approximately $60 million at the time of winning.
How Does Kintsugi Work?
At the heart of Kintsugi are collateralized vaults. Vaults are places on the Kintsugi network where participants deposit bitcoin (BTC) and receive a 1:1 representation called kBTC. kBTC can then be used across the Kusama ecosystem, allowing users to put BTC holdings to work within Kusama for various Decentralized Finance (DeFi) purposes. The process of minting and redeeming BTC for kBTC is as follows:
- Lock: A user locks their BTC with a vault (they can deposit with an existing vault or create their own). The user’s BTC is safe and insured by an additional collateral deposit also held within the vault.
- Mint: The user then receives kBTC at a 1:1 ratio to the amount of BTC they locked in the vault.
- Earn on the locked BTC: The user can utilize kBTC as collateral for borrowing, lending, yield farming and other purposes across the Kusama ecosystem.
- Redeem BTC: The user can redeem their kBTC for actual Bitcoin through a trustless, crypto-protocol-based process at any time.
What makes kBTC unique is the approach the protocol takes while upholding its commitment to being trustless and decentralized:
- Secured by collateral: Vaults lock collateral on the Kintsugi parachain in various digital assets, for example KSM, through a MakerDAO-inspired collateralized debt position (CDP) which aims to ensure users’ deposits maintain ample collateralization, even during price volatility. Additionally, if there is misbehavior within the vault, Kintsugi’s consensus mechanisms would detect the event, before ‘slashing’ the user’s funds and returning the deposited collateral. Overcollateralized (when the value of the deposited collateral exceeds the value of the BTC offered) of vaults aims to ensure truthful behavior on the network and reduce the risk of exchange rate fluctuations.
- Radically open: Anyone can open or create a vault and while helping to secure kBTC, anytime. Kintsugi’s ultimate goal is to make cryptocurrencies easier to use within the Kusama ecosystem.
Vaults also assume a liquidation risk. This means that if the price of the asset given as collateral falls against BTC, the vaults might be liquidated and the user loses their collateral. As such, vaults receive KINT as rewards for assuming this risk and protecting against hostile governance takeovers.
Kintsugi’s consensus mechanism
Kintsugi adopts Polkadot’s standard governance structure, with two major modifications: optimistic governance, and stake-to-vote.
Optimistic Governance: Just like on Kusama or Polkadot, Kintsugi differentiates between two types of proposals: Internal treasury proposals (which require only a majority council vote to pass), and external proposals (which require both a council majority and a public referendum to pass). However, to encourage a more active governance process and avoid the “lazy voter” problem, Kintsugi implements optimistic governance, meaning:
- There is no Council, only public proposals generated from the community.
- Referenda are Super-Majority Against (Negative Turnout Bias) by default.
- The community can elect a Technical Committee, who have the power to fast-track proposals.
The Technical Committee (TC) is composed of developer teams whose only function is to fast-track proposals. The TC can make emergency proposals which, if accepted by the community, are “fast-tracked” and executed quickly, e.g. in case of critical software bugs. Members of the technical committee are voted by the community.
Stake-to-Vote: To vote on governance proposals, users must lock KINT with the Kintsugi parachain. The locking period thereby will impact the voting power i.e. the longer KINT tokens are locked the more voting power they have, since the voter has a long-term stake in the health of the system.
Why does KINT have value?
The KINT cryptocurrency plays an important role in maintaining and operating the Kintsugi network.
By owning and staking KINT, users gain the ability to vote on Kintsugi network proposals, with voting power being proportional to the amount and length of time their KINT is locked. The longer a voter locks KINT, the more voting power they have, since the voter has a longer-term stake in the health and success of Kintsugi.
Users who lock KINT and participate in governance of the Kintsugi parachain receive staking rewards in newly minted KINT tokens.
It is important for investors to note that KINT has unlimited supply. Apart from the 10 million KINT being minted over the project’s first four years, new KINT tokens are expected to be released in perpetuity, at a predetermined inflation rate.
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Why buy Kintsugi (KINT)?
Users may find Kintsugi appealing based on their ability to utilize BTC holdings across the Kusama ecosystem.
Users can develop their projects on both Kintsugi and interBTC, using their Kintsugi parachain to experiment and test new features before upgrading on the interBTC parachain, since the Kintsugi network offers more experimental functions and parameters.
Others may want to add KINT to their portfolio should they want to take on a direct responsibility in determining the future development of Kintsugi’s, and ultimately Interlay’s, utilization of BTC in a fully trustless and decentralized manner across the Kusama and Polkadot blockchains respectively.