As the decentralized economy grows, developers seek new and intriguing ways to unlock liquidity in the blockchain industry. Among these latest concepts, the pToken approach has proven itself as a significant technology to consider. This is a type of Ethereum token that portrays a 1:1 peg with another blockchain asset. In this article, we will see what is pToken.
Crucially, the “p” in pToken stands for portable, provable, and pegged. These tokens are pegged on a 1:1 basis to their underlying virtual asset. This allows users access to cross chain industry without the requirement to trade their token directly. This approach is exciting when you think trading digital currencies is a taxable incident in many sectors like the United States. Interestingly, these tokens can support any blockchain asset.
In this way, the complete DeFi (decentralized Financial) sector receives liquidity. DeFi is a technological shift that tries to replace centralized financial mechanisms with decentralized protocols. DeFi systems offer more security in comparison to centralized systems for many purposes, basically because there is no central attack vector to exploit.
The DeFi sector prevails to experience record growth, and for a good purpose. Its trustless and more effective strategy for primitive financial services already has $1 billion in locked value. Along with that, this shift has contributed to the development of several innovative financial services that were earlier unimaginable.
DeFi Requires pTokens
The hype around the decentralized finance movement is warranted. However, for the DeFi space to succeed, liquidity is the primary thing. Presently, the crypto market suffers from a scarcity of liquidity in comparison to traditional markets like commodities or stocks. These markets get trillions in market liquidity, whereas the crypto space has yet to break a trillion in market cap.
A lot of the liquidity issues stem from a lack of cross-chain compatibility. Mainly, you can only work inside the blockchain your asset lives on. In other terms, a person that owns BTC cannot partake in the ever-expanding ecosystem of Ethereum until now.
Why pTokens Are Important?
Offering inter-chain operability is supreme to large scale blockchain adoption. Imagine a day when every digital currency holder can take benefit of any ERC compatible decentralized applications. This approach could unleash a tidal wave of the latest liquidity flow instantly between varied blockchains. It also has the potential to make the most famous pToken DApps available to anyone.
The developers associated with the pToken idea began with the pBTC token. This token allowed access for BTC holders to the Ethereum network in a frictionless and instant manner. The token immediately became a success as it opened the DeFi world of Ethereum to every BTC holder.
Developers recently released the first pLTCs on July 29, 2020. The token was released officially on the Kyber Network. It allowed LTC holders to use KyberSwap and other dApps (decentralized apps) in seconds.
How Do pTokens Work?
The pToken idea uses two light clients to attain its unique tasks. The first client associates native blockchain, in this instance, BTC. This client uses a P2SH (pay to script hash) BTC address to authenticate your holdings and start the process. This client will then operate with the Ethereum based protocol to “wrap” your BTC in Ethereum.
The user ends up with an ERC-777 token that is backed by Bitcoin on a 1:1 basis. Notably, ERC-777 tokens are an ERC-20 compatible coin standard developed mainly for this task. The protocol includes many dimensions from OpenZeppelin’s standard smart contract. So if you were wondering how to use pTokens, then you must have got your answer by now.
How Do I Get pTokens?
There are presently two DEXs (decentralized exchanges) providing pToken support which are a Bancor Network and Kyber Network. Both of these channels are reputable DEXs that offer the user with streamlined trading instances. Register for an account, and the user can start taking benefit of this intuitive protocol presently.
Talking about the new protocol, the marketing manager at Kyber Network, Shane Hong, illustrated that his team was proud to be a part of this important task. He spoke on how LTC users could now conveniently and easily
“Explore the world of decentralized finance on Ethereum.”
The Bottom Line
The user will have to hand it to this development team. They seem to have figured out a great solution to interoperability and liquidity issues in the sector. If successful, this pToken could reshape the complete blockchain sector moving forward. As of now, the crypto space is ready to check out these new abilities.