Proposal: Keep and NuCypher Hard Merge

Background

Over the past few weeks, we’ve been discussing a major collaboration with NuCypher.

We’ve gotten to know the the team and community over the years, and have huge respect for what they’ve built. A couple weeks ago, a few shared Keep and NuCypher community members reached out. We all got on a call, and realized we have a lot in common.

We have shared goals: driving the adoption of threshold cryptography, privacy-preserving technology, and decentralized Bitcoin on Ethereum. And we have aligned communities: stakers who want to realize a vision for a freedom-preserving world built on cryptography, and developers who refuse to compromise end-user security.

This conversation led to an interesting idea, and since then we’ve pulled in stakers, community members, and developers from both networks to get early feedback. And now, together, we would like to propose something new… the first decentralized, on-chain protocol hard merge.

Proposal

With the consent of our stakers and community governance multisig, I propose we execute a hard merge with the NuCypher protocol, forming an extended network in a 50/50 on-chain collaboration between both communities.

What, exactly, is a hard merge?

The idea is to combine protocols and staking networks as well as development efforts, allowing both communities to rally behind a new network inheriting the best aspects of each original network. As far as I know, this is the first effort to merge protocols in this way, sharing some similarities with a “hard spoon”, while bringing together two different networks using an interoperable third network.

We believe that teaming up is the best way forward. As we see every day in Ethereum, cooperation and composability often trump competition. The Keep and NuCypher networks have built similar technology with similar goals. Rather than continuing to split the market, we think we can achieve significantly more together. And while both dev teams will remain independent, we’ll all be focused on a single protocol.

Keep and NuCypher combining forces to bring more useful services, and more fees, into a joint network is the surest path to long term sustainability and success of the work-token model for threshold cryptography.

Implementing a combined network

Combining the NU and KEEP protocols requires committing to a few important decisions upfront to ensure the resulting network is more resilient, decentralized, and sustainable than the sum of its parts.

A phased roll-out

I propose the new protocol be rolled out in 4 phases, allowing partitioned functionality and iterating toward complete integration.

  1. A new staking contract, supporting both NU and KEEP as work tokens
  2. A DAO, managed by stakers in the new contract
  3. Deploying the random beacon and tBTC v2
  4. Integrating the client networks

The staking contract

The first component in the new network is a staking contract.

The staking contract should accept any candidate work token on an allowlist, each with a governable relative staking weight. The first two tokens on this allowlist will be NU and KEEP. The staking weights should be algorithmically or manually managed such that they take into account each existing network’s emissions schedule, giving each a collective 50/50 stake in the network.

Building in the ability for governance to add future work tokens keeps the new network flexible.

The DAO

The new network will need its own governance to enable upgrades, to adjust staking weights, and to ensure fair fee distribution.

The new network DAO should give every staker a vote, proportional to their total staking weight. Additionally, the DAO will periodically elect a council as a form of representative democracy. This council will freely decide ongoing economic parameters that are in the best long-term interest of the network. As a balance against a rogue council, they can be recalled and replaced by a high-quorum DAO vote.

Deploying tBTC v2

tBTC v2 will be deployed to the combined network, increasing the number of candidate stakers to as many as 2200 at launch. The minimum stake will be adjusted to allow further participation and increase network resilience. Because v2’s rollout is more iterative than v1, council-based governance will be crucial to a successful deployment.

After the rollout of v2, the new network will not only host the most widely decentralized custodial solution in existence, it will have removed all economics bottlenecks present in tBTC v1, opening the door to surpass WBTC.

Integrating the client networks

Initially, the client network will move forward as dual deployments. Proxy re-encryption stakers will use the nucypher client, random beacon and ECDSA stakers will use the keep-core and keep-ecdsa clients.

The teams will begin work on a shared network specification and release plan, with the goal of shipping two compatible clients for the new network.

This integration will bring proxy re-encryption and future NuCypher applications to the combined network.

Proposed voting methodology

I hope to use the next week to discuss the direction and details of this proposal, both among ourselves and with the NuCypher community.

Once we’ve had time to discuss and address any feedback on the proposal, I’d like to put the issue to community multisig and staker signaling votes. Though Keep SEZC won’t vote its holdings, all employees and contributors are free to vote for whatever they think is in the best interest of the network.

If our community is behind the move and the NuCypher community agrees, we’ll move toward a more detailed implementation plan.

This is an incredible opportunity. As the first on-chain hard merge, we have a chance to change how collaboration in the space works, forever… seizing the narrative and the momentum we need to be the leading Bitcoin bridge everywhere. I look forward to hearing everyone’s thoughts :slight_smile:

Appendix

Staking weights

Token holders have asked how the new network can be split evenly between both communities, considering the difference in each token’s economics.

The invariant we want to hold can be modeled by calculating or estimating the total “stakeable” tokens on each respective network at a given time, and adjusting the staking weights of each work token in the new staking contract to match.

StakingWeight_KEEP = KEEP_stakeable / (KEEP_stakeable + NU_stakeable)
StakingWeight_NU = NU_stakeable / (KEEP_stakeable + NU_stakeable)

Maintaining this invariant will normalize the NU and KEEP emissions schedules as well as any specific contributor vesting schedules.

Some additional care needs to be taken to allow for any unvested tokens in either network that aren’t immediately stakeable in the original network (eg some older KEEP grants), but the respective staking adapter should be able to handle those edge cases.

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I participated both in KEEP and NuCypher’s (much less so with NuCypher) early steps last year (and I have bags of both :slight_smile:) In fact, the reason I got interested in NuCypher is that they were deploying a Threshold ECDSA technology to keep and share information in a private manner and with the authorization of the owner, similar to KEEP. That is how I connected the two back in August of last year.
So from the technical point of view it is closely related in spirit (I don’t know in the details…)
I have very high respect for the KEEP Team and Leadership and I think the KEEP community is great.
NuCypher has some passionate participants in their community. Their Leadership team is very solid.
I was particularly impressed with Maclane Wilkison (@MacLaneWilkison in Twitter, I think he was early on part of the Curve team, or some member of the NuCypher team moved on the Curve Team; in either case, very solid, credible and hardworking contributors with great vision and execution!)

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I almost participated in the NuCypher worklock, but refrained at the last minute due to some uncertainties about profitability. I don’t know a great deal about the project except from brief research back then, however I have a strong confidence in the KEEP team and their integrity. If they believe this is the best path forward I will trust their judgement and vote in favor of the proposal, unless there are some very heavy weight arguments brought forward against doing this.

My main concern would be dilution of KEEP holders. If I understand correctly the 50/50 split is based on number of coins, and not price. E.g if max supply is 4 billion NU and 1 billion KEEP, each NU should count 1/4 of a KEEP. That seems perfectly fine to me as a KEEP holder since I don’t have to study how NuCypher is distributed to agree.

But according to CoinGecko NuCypher has a fully dilutated market capitalization at $2.6b while KEEP is only at $400m. So I have to wonder if this mismatch in capitalization might cause some complaints in the NuCypher crowd?

Would like to hear more about this part and plans around the tokenomics.

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I believe Matt and the entire Keep team! I am ready to support this proposal, but I agree with @Agoristen I would like to hear comments about the tokenomics and cap of both projects, given the hard merge.

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I can’t speak for the NuCypher community as a whole but, in my opinion, the relevant metric is allocated network capitalization rather than fully diluted capitalization.

The extreme differences between KEEP and NU on a fully diluted basis is largely an artifact of each network’s initial design decision around inflation: KEEP is a fixed supply token whereas most of NU’s supply is emitted over time as inflation.

While the NU inflation pool is reserved for future stakers, it’s not yet allocated to anyone in particular. IMO, it’s more appropriate to consider the tokens that have been allocated (whether they are liquid/staked/locked/vested/etc.). On that basis, there is still a valuation difference between the networks but it feels much more tractable.

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I’m an investor in both Keep and NuCypher. I have high confidence in both teams and am a very proud investor. I fully support their decision-making in this matter.

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I’ve been part of KEEP community for quite some time and also a mainnet tBTC v1 KEEP staker and looking to be part of tBTC v2 whenever it launches. I do have some NU bags (small bag). KEEP team is one of the honest/best in class in crypto and always pushing for full decentralization and thinking long term potential. TBTC is the only fully decentralized BTC on Ethereum today compared to others with custodial/semi/hybrid decentralized.
As the markets are taking a next step forward towards maturity, this will become more and more important -

I fully support this proposal and believe the hard-merge is a big win-win for both communities.
Definitely would like to hear more about the tokenomics of #CodenameKEANU !
Looking forward for the exciting journey together !

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Waiting to hear on the tokenomics

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The plan in this KIP would be to adjust staking weight to account for both tokens’ emissions. I’ve got the math on my end but skipped it for the initial proposal — editing to add it back in the appendix.

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I’ve also included some notes on differences between both networks in case anyone wants to read up a bit to help inform this discussion. Hoping @maclane and the NuCypher community can help flesh that out with further details and links.

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I’ve participated in the Nu Stakedrop and been an active Keep community member also running nodes.

My main concerns are:

  1. Dilution/how to value the weight of each network in the merge.
  2. Proved use cases of Nu since Keep has showed to the world that a decentralized BTC is possible and is having real demand. What has Nu done? I get they have stakers and did a big stakedrop campaign through Coinlist but… Have they any working dapp with real demand? Do they have fees coming in from clients/customers? I think this metrics should be deeply considered.

Willing to have more feedback from Matt and Maclane :slight_smile:

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I’ve invested in both Keep and NuCypher. IMO both teams are great and very technically skilled. I’m all for that. I hope this will have a positive impact on both projects as they are obviously very undervalued by the market. It would be great to hear more details about the implementation.

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Also have Keep bags and waiting for my NUs from worklock. Would be very interesting to see where this proposal may take us. A little bit of spooning never hurt no one

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I have a lot of respect for the engineering skills of both teams, the only reason I don’t currently run a NuCypher node is I wasn’t sure what the killer app to drive the adoption of proxy re-encryption was.

The collaboration of two teams with a deep knowledge of threshold cryptography and a history of shipping code sounds like a powerful combination to me.

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What has Nu done?

Built a working proxy re-encryption network.

I researched the project in 2018 and found understanding the whitepaper hard enough :wink:

Have they any working dapp with real demand? Do they have fees coming in from clients/customers?

I think the important question is will TBTC v2 be stronger if the two teams collaborate on it.

Both teams have experiential knowledge from building, testing and shipping a threshold encryption network.

I would rather see the teams collaborate than compete.

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I’m part of the KEEP community for over a year now - running nodes - and will support the merge with NU - once tokenomics have been provided and it’s even more clear what we are heading into - as I believe we can be stronger together and it will be incredibly interesting to see where this will lead to.

I have big respect for both teams and their fantastic communities.

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This is a very interesting proposal. I’ve come to known the Keep team as a very open, focused and passionate team that are dedicated to their mission. I don’t know the Nu team as well as the Keep team, but at first glance they share the same believes. I also trust the Keep teams judgement in this.

In general I think teaming up can make each other and the product stronger. From a technical perspective it’s hard for me to judge what unique aspects both projects add to the merge, but teaming up development wise means a lot more can be done.

Another advantage I can imagine is potentially splitting incentives to bootstrap tBTC v2. Furthermore the amount of nodes Nu brings to the merge is offcourse also already a great bootstrap in its own.

If possible, I would be interested in estimates like what it would mean for time to market for v2. Or it would enable pulling in the introduction of L2 features this much. Give it these features as of launch etc. I understand these may be difficult to give at the moment.

Similar to others I would also be interested in seeing more on the Tokenomics.

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Congratulations to both teams. As the community votes we will be making history in the blockchain space with this amazing onchain protocol merger.

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While I only got to know about NuCypher until now, as a KEEP community member I fully support this proposal. Completely agree with Matt on the below:

Let’s be the first on-chain hard merge, let’s define collaboration in the space, the same way as we have been the first decentralised BTC on Ethereum.

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