What Are pTokens and Why they are so Important

Beginner’s Guide / 08.08.2020

As the decentralized economy continues to expand, developers seek new and exciting ways to unlock liquidity in the blockchain sector. Among these new concepts, the pToken strategy has proven itself as a prominent technology to consider. pTokens are a type of Ethereum token that represents a 1:1 peg with another blockchain asset.

Importantly, the “p” in pTokens stands for provable, portable, and pegged. pTokens are pegged at a 1:1 basis to their underlying digital asset. This enables user access to cross-chain markets without the need to trade their token directly. This strategy is intuitive when you consider that in many locations, such as the US, trading cryptocurrencies is a taxable event. Importantly, pTokens can support any blockchain asset.

DeFi Gains

In this way, the entire decentralized Financial (DeFi) sector gains liquidity. DeFi is a technological movement that aims to replace centralized financial systems with decentralized protocols. DeFi systems provide more security than centralized systems for many reasons, primarily because there is no central attack vector to exploit. 

The DeFi sector continues to experience record growth and for good reason. Its trustless and more efficient approach to traditional financial services has already $1 billion in locked value. Additionally, this movement has contributed to the development of numerous innovative financial services that were previously unimaginable.

DeFi Needs pTokens

The hype around the DeFi movement is warranted, however, for the DeFi sector to succeed, liquidity is key. Currently, the crypto market suffers from a lack of liquidity when compared to traditional markets such as stocks or commodities. These markets enjoy trillions in market liquidity, whereas the crypto market has yet to break a trillion in market capitalization.

A lot of the liquidity issues stem from a lack of cross-chain interoperability. Basically, you can only work within the blockchain your asset lives on. In other words, a person that owns Bitcoin can’t partake in Ethereum’s ever-expanding ecosystem – until now.

Why pTokens are Important

Providing inter-chain operability is paramount to large scale blockchain adoption. Imagine a day when every cryptocurrency holder can take advantage of any ERC compatible Dapp. This strategy could unleash a tidal wave of new liquidity flow instantly between different blockchains. It also has the potential to make the most popular DApps accessible to anyone.

pBTC

The developers behind the pToken concept started with the pBTC token. This token enabled access for Bitcoin holders to the Ethereum network in an instant and frictionless manner. The token instantly became a success as it opened Ethereum’s DeFi world to every Bitcoin holder. 

pLTC

Developers recently launched the first pLTCs on July 29, 2020. The token launched officially on the Kyber Network. It enabled LTC holders to utilize KyberSwap and other decentralized apps in seconds. 

How Do pTokens Work

The pToken concept utilizes two light clients to accomplish its unique tasks. The first client involves the native blockchain. In this case Bitcoin. This client utilizes a P2SH (pay to script hash) Bitcoin address to verify your holdings and initiate the process. This client will then work with the Ethereum based protocol to “wrap” your Bitcoin in Ethereum. 

ptokens explained

You end up with an ERC-777 token that is pegged to Bitcoin at a 1:1 basis. Notably, ERC-777 tokens are an ERC-20 compatible token standard developed specifically for this task. The protocol incorporates many aspects from OpenZeppelin’s standard smart contract.

Instant Access

Insanely, the entire process takes seconds and just like that, you granted access to Ethereum’s Dapp network. This vast community includes a huge array of decentralized exchanges and other unique and exciting platforms. Best of all, you can easily convert your pToken back to Bitcoin in seconds at its current value.

How Do I get pTokens?

There are currently two decentralized exchanges (DEXs) offering pToken support – Bancor Network and Kyber Network. Both of these platforms are reputable DEXs that provide you with streamlined trading experiences. Simply register for an account and you can begin taking advantage of this intuitive protocol today.

Discussing the new protocol, the marketing manager at Kyber Network, Shane Hong explained that his team was proud to be a part of this crucial task. He spoke on how LTC users could now easily and conveniently “explore the world of decentralized finance on Ethereum.”

pTokens are Coming

You have to hand it to this development team. They seem to halve figured out a reasonable solution to liquidity and interoperability concerns in the sector. If successful, this project could reshape the entire blockchain sector moving forward. For now, the crypto community is ready to check out these new capabilities. 

 

David Hamilton aka DavidtheWriter is a long time Bitcoinist and cryptocurrency journalist. Currently, he has over a thousand articles published on blockchain technology. His expertise and experience makes him one of the most reputable writers in the sector.