SushiSwap Partners with ZetaChain to bring native Bitcoin DeFi swaps

The DeFi platform Sushi has entered into a collaboration with ZetaChain, an interoperability platform, to explore enabling native Bitcoin swaps for its users across a network of 30 different blockchains.

This partnership will see Sushi's decentralized exchange (DEX) operate on ZetaChain, allowing for the trading of Bitcoin without the need for wrapping it, across multiple blockchains. This process is described as native, decentralized, and without permissions. The integration will encompass Sushi's v2 and v3 automated market makers and its cross-chain swap feature, SushiXSwap.

Ankur Nandwani, a core contributor at ZetaChain, shared with media that this partnership could bring Bitcoin's extensive user base into the DeFi sector in a more direct way. He addressed skepticism around the feasibility of bridging BTC without wrapping it on another chain, citing examples like THORChain, which already trades Bitcoin natively with assets from other chains. Nandwani also mentioned Bitcoin side chains as another approach.

Nandwani further explained that ZetaChain's method allows for the creation of Bitcoin-interoperable decentralized applications (DApps) that can settle contracts and transactions directly on the Bitcoin network. He acknowledged that this approach does require a level of trust in the network's decentralization for cross-chain transactions.

ZetaChain has successfully tested this technology on its testnet and aims to demonstrate its utility with the launch of its mainnet, in partnership with SushiSwap and other DeFi protocols.

Jared Grey, the head chef at Sushi, praised the integration as a major step forward for the DeFi industry, highlighting the potential of native Bitcoin swapping as a transformative development. Sushi's collaboration with ZetaChain will occur in two stages. The initial phase involves launching a DEX on ZetaChain's testnet to facilitate basic asset swaps and liquidity provision, including beta testing and incentives for application testing.

Upon the deployment of its mainnet, Sushi will become one of ZetaChain's launch partners, with full functionality for Bitcoin interoperability expected to follow. Nandwani detailed the technical aspects behind the functionality that enables native BTC cross-chain swaps.

A cross-chain swap contract will be deployed on ZetaChain's Ethereum Virtual Machine, which is omnichain, meaning it can interact with any connected chain, including Bitcoin. Users can initiate a cross-chain swap by sending a Bitcoin transaction with a special memo to a TSS address. This memo includes the omnichain contract address on ZetaChain and the intended value for the contract, such as Ether or USD Coin on Ethereum, along with the recipient's address on the destination chain.

The TSS address, managed by ZetaChain signer validators, locks the transferred BTC. These validators observe the transfer and vote on it within ZetaChain. Once enough votes are cast, an inbound cross-chain transaction (CCTX) from Bitcoin to ZetaChain is created.

After processing a CCTX, a ZetaChain omnichain contract is activated, minting the transferred BTC amount as ZRC-20 BTC. This ZRC-20 BTC is then swapped for another token's ZRC-20 version, such as ZRC-20 ETH, which is eventually withdrawn to the destination chain. During this withdrawal, the ZRC-20 ETH is burned, and an outbound CCTX is created from ZetaChain to Ethereum. Once processed, native ETH is transferred from the TSS address on Ethereum to the recipient.

Nandwani used this example to demonstrate how native BTC can be swapped for native ETH in a decentralized manner, facilitated by ZetaChain's network validators across the connected chains.