Sovryn - DeFi on Bitcoin

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DeFi on Bitcoin? Yes, it's happening. @SovrynBTC is an application enabling decentralized trading, lending, borrowing, yield farming and NFT markets using only #Bitcoin. How does Sovryn work and how to get started? 👇 🧵

1/22 Many Bitcoiners believe that the Bitcoin network is the most secure blockchain, and bitcoin the hardest money. Bitcoin was the first blockchain to emerge, and it has been around the longest, therefore having the strongest "Lindy effect" amongst cryptocurrencies.

2/22 However, Bitcoin missed out on new innovations and adoption happening on other blockchains starting in the summer of 2020, often referred to as "DeFi summer". This was because the Bitcoin blockchain doesn't allow smart contracts that are essential for building DeFi apps.

3/22 If you wanted to put your bitcoin to work, for e.g. lending it out, you had to give it out to centralized custodians. This seemed to be against the core values of Bitcoin, making the ecosystem more centralized and less self-sovereign.

4/22 The SegWit upgrade in 2017 allowed the creation of Bitcoin sidechains. This was a major step towards DeFi on Bitcoin, since smart contract capabilities were now possible on various Bitcoin sidechains. Sidechains inherit the security and settlement assurances of Bitcoin.

5/22 Sovryn is a DeFi application on the @rootstock sidechain (RSK). RSK is an EVM-compatible sidechain "rooted" to the BTC blockchain through merge-mining consensus and a multisig bridge. The native token and "gas" token on RSK is RBTC, which is pegged to the price of BTC.

6/22 Merge-mining is a mechanism where BTC miners can provide security to the RSK sidechain and earn its block rewards simultaneously to mining BTC. Securing a sidechain is a byproduct of mining. Miners don't have to dedicate any additional computational power to secure RSK.

7/22 You can think of merge-mining as finding needles in a haystack. Some needles are more valuable than others. You're on the hunt for the most valuable ones, let's say orange needles (BTC rewards), but in the process you will also find many green ones (RBTC rewards).

8/22 As of writing this thread, 46% of the Bitcoin hashrate is also mining RBTC. As RSK is a sidechain, transaction fees are much lower than on the Bitcoin blockchain. RSK is also Turing-complete, so there are no limitations what devs can build.

9/22 How to get started on Sovryn? First, you have to deposit BTC to the RSK sidechain. The fastest method is to use the federated swap protocol FastBTC Relay developed by Sovryn. BTC is sent to a deposit address and the bridging takes about one BTC block (about 10 mins).

10/22 Alternatively, you can use Rootstock's PowPeg bridging process, which is much slower but also the most secure and low-cost way to bridge between BTC and RBTC. When the bridging is done, you can connect your browser wallet, e.g. MetaMask or Rabby and start using the app.

11/22 On the app, you can e.g. swap assets, trade spot markets, trade on margin, or lend your BTC. However, the lending APY for RBTC is currently only 0.7% because there's more supply from lenders than demand from borrowers.

12/22 Sovryn is about to launch its "Zero" product to public in early March featuring a Bitcoin-backed, overcollateralized ZUSD stablecoin. Zero enables 0% interest stablecoin loans by enabling you to borrow from yourself.

13/22 ZUSD stablecoins are certificates that you issue to yourself that represent a claim on a specific value of RBTC denominated in USD. It's minted directly from the collateral instead of diverted from a pool of funds or another use.

14/22 The minimum collateral ratio for Zero loans is 110%. The protocol is able to maintain such a low ratio because the issuing mechanism makes liquidations instant and more efficient, as opposed to some other DeFi money markets that rely on lengthy auction mechanisms.

15/22 ZUSD also enables a sovereign USD-dominated savings account since users can deposit their ZUSD to a stability pool to profit from liquidations. Zero can be plugged to exchanges or wallets that want to offer the product through their own brand using Sovryn's Zero SDK.

16/22 In early March, Sovryn is launching Sovryn Dollar (DLLR) which aggregates several Bitcoin-backed stablecoins, and can also be used for taking out 0% loans.

17/22 Sovryn Dollar could become a good censorship-resistant alternative to USDC and USDT for people in countries with high inflation who can't afford Bitcoin's exchange rate volatility.

18/22 Sovryn has its own governance token SOV, although it's not needed to use the platform. By staking SOV, users can take part in governance and earn protocol fees in BTC. The SOV token is thus both a governance token and a quasi-equity token.

19/22 The SOV token doesn't grant 1 vote for 1 token. The longer you have staked the token, the more voting power you have. This encourages long-term commitment from the stakers.

20/22 It's technically challenging to build a fully decentralized and trustless bridge. Also smart contract risks should always be taken into account when using DeFi protocols.

21/22 The current bridging mechanism that Sovryn uses is not fully trustless, but could benefit in the future from cryptographically secure zero-knowledge proofs.

22/22 Finally, a very recent Twitter Spaces hosted by @rootstock_io with Sovryn contributors @EdanYago and @alesander97 twitter.com/rootstock_io/status/1629126197060767744?s=20