Guide to Threshold – the fusion of Keep Network and NuCypher
June 2, 2022
By Amogh Gupta, Protocol Specialist
As a milestone in crypto history, the Threshold network is the first-ever merger of two decentralized protocols: Keep Network and NuCypher. Threshold combines Keep Network’s infrastructure and unique off-chain, privacy-preserving containers (called keeps) with NuCypher’s privacy tools and distributed node network.
Threshold leverages the strengths of these two privacy-focused protocols to enable a suite of products secured by threshold cryptography (i.e. where participants – each with access to a secret key – can jointly re-encrypt or sign information without any single participant having access to the entire secret key). Threshold provides privacy-focused solutions for a variety of use-cases:
Threshold's proxy re-encryption (PRE): This service allows users to dynamically control access (i.e. grant and revoke access) to sensitive data on public networks without exposing the underlying data to any external party or validator. The data is always encrypted, and the nodes do not have access to it in plaintext at any time. The entities granted access by the data owner can decrypt the re-encrypted data using their private keys as long as they have access to it. The data owner can revoke access to the data for these entities at will.
tBTC v2: BTC is the largest digital asset by market cap, but the Bitcoin network does not allow holders to deploy their capital to earn interest. tBTC opens up opportunities for BTC holders to maintain sovereignty and control over their BTC by bridging their asset on to Ethereum in a trustless, decentralized manner through threshold cryptography. tBTC is the only sovereign, decentralized solution for BTC holders to bridge their assets on Ethereum to get access to a variety of different applications, providing them the ability to deploy their capital and generate yields. tBTC v1, initially enabled by the Keep network, bridged millions of dollars worth of BTC to Ethereum, however, the initial implementation of the protocol lacked scalability due to high collateral requirements for the node operators who secured the protocol.
Via tBTC v2, expected to launch in August 2022, Threshold aims to eliminate the scalability constraints of the previous version and bring tBTC v2 to millions of users.
How node operators participate in the network
Threshold’s services (i.e. keeping information secure – such as BTC private keys – while using a public blockchain) are enabled by a global network of nodes working together. These services operate by smart contracts deployed on Ethereum, and the work is performed by the nodes who then reach a threshold consensus to provide services to the final user.
As the protocol grows and adds more modules, node operators will have the option to choose which modules (i.e. software that allows the nodes to perform specific services and interact with service-specific smart contracts) they want to support, and get rewarded accordingly in T tokens (Threshold’s native currency). The T token is both a utility token for the Threshold network and a governance token for the Threshold DAO.
As of June 2022, NuCypher’s PRE is one such operating module that is live on the network and with the launch of tBTCv2, additional modules such as ECDSA and random beacon will be released.
Threshold Network governance
Threshold is governed by the Threshold DAO which is composed of three bodies – the Staker DAO, Token Holder DAO and Elected Council (a.k.a. Multisig council).
Consists of T holders who stake T on the network.
Responsible for submitting proposals on-chain, voting, and executing proposals
Token Holder DAO
Consists of T holders who deposit into tBTC coverage pools
Responsible for submitting proposals on-chain, voting, and executing proposals. Also responsible for managing the treasury and T minting decisions. In the future, will also be responsible for electing and removing council members.
Elected Council (a.k.a. Multisig council)
Consists of nine seats – four Keep community members, four NuCypher community members, and one mutually-elected independent member. Future Council elections will draw nominees from the united Threshold community.
Responsible for setting staker rewards and vetoing malicious proposals.
Economics and rewards of T token staking
Threshold supports multiple modules that require the node operators to provide a variety of services. These different services will be released as modules and the stakers have the flexibility to select which modules they want to service. For instance, PRE nodes can be serviced through the PRE module, while tBTC v2 is expected to be serviced through multiple modules such as random beacon and ECDSA signing.
The rewards for servicing all the modules on the network are initially set at 15%. This 15% will be split amongst different modules depending on the allocation that will be determined through governance, specifically the discretion of the Council. For instance, if the Council determines that the split should be 3%, 5% and 7% amongst PRE, random beacon and ECDSA respectively, then a node operator that only runs a PRE node will earn a 3% reward rate, as opposed to the 15% reward rate if they service all the three modules.
The tokenomics of T token is structured as follows: Of a 10 billion initial total token supply, 90% of the tokens are exclusively held by the initial owners of NU and KEEP tokens, while the remaining 10% of the total supply is held by the treasury.In order to convert KEEP and NU to T, use this dashboard.
How to run a Threshold node
Coinbase Cloud offers a reliable suite of products for token holders to run nodes. To ensure maximum returns for our customers and to support the protocol's success, Coinbase Cloud aims to support all the modules as and when they are released, subject to the necessary testing and security audits. At the same time, we strive to provide maximum flexibility to our customers and give them the option to opt out of supporting a certain service.
Node operators can easily and securely stake their T tokens. To get started, node operators need a minimum of 40,000 T to stake, plus funds to cover the gas fees.
Further, those who wish to run their own full and dedicated validators on Threshold can do so using our Participate product. Coinbase Cloud’s staking infrastructure is built to the highest security standards and offers 99% uptime guarantee, making it easy for anyone to spin up a validator in just a few steps from their dashboard.
Risks of participation in Threshold
The protocol does not currently impose slashing for the PRE module. Slashing will be imposed later after the launch of tBTC v2 for certain offenses. Initially, tBTC v2 will be rolled out without any slashing, and as the product hardens, slashing will be imposed. Once announced, slashing dynamics will be governable.
Why run a node
Threshold will offer a variety of different services and add new use-cases as the network grows. Each new service on the network provides stakers an opportunity to earn higher fees and maximize rewards.
Running a node helps bolster the decentralization of the Threshold network.
Why run a node with Coinbase Cloud
Coinbase Cloud has deep expertise on the Threshold network. Coinbase Cloud led the governance process to merge the networks and assisted the Threshold team through the historic merger.
Staking via Coinbase Cloud is non-custodial and requires no engineering resources on the part of the client.
Coinbase Cloud is a subsidiary of a public company that upholds high standards for our products’ quality, reliability, and security.
Running a validator with Coinbase Cloud is a simple, easy process. Spinning up and managing the validator is done entirely through the intuitive UI dashboard.