💰Bitcoin backed lending

Cross-chain bitcoin backed lending utilizing DLCs (discreet log contracts) & atomiq's bitcoin light client

Bitcoin backed lending is the cornerstone of DeFi lending, however so far only way to do that was wrapping your BTC either through a centralized custodian (like the most popular WBTC - BitGo), federation (rBTC - Rootstock, LBTC - Liquid) or economically secured bridges based on non-bitcoin assets (tBTC - Threshold, sBTC - Stacks, iBTC - Interlay). This is unacceptable for the following points:

1. Security - none of the mentioned solutions provide a fully trustless bitcoin lending (because of the need to wrap your bitcoin), wrapping bitcoin is also unacceptable risk for many bitcoiners.

2. Taxes - swapping crypto (this includes wrapping your BTC) in some countries (e.g. Japan, Australia) is a taxable event, nullifying the tax advantage of borrowing against your BTC instead of selling it.

The only way to truly unlock bitcoin's DeFi potential as the ultimate loan collateral is for it to stay on the bitcoin chain. And we can achieve exactly that using DLCs & bitcoin light client allowing people to use their bitcoin as collateral (with bitcoin staying on the bitcoin chain) & borrow against in stablecoins across multiple chains.

DLCs

Discreet log contract allow the bitcoin to be locked in an escrow, where the payout is defined by some external event attested to by one or more oracles (like a BTC/USDC price). Furthermore the oracles are completely blind as to which escrows depend on their attestations, this makes client-oracle collusion highly unlikely. Oracles can also post on-chain bond which can be slashed when they attest to 2 events that equivocate each other (like reporting 2 different BTC prices to 2 different parties). Therefore DLCs are as secure (if not even more secure, due to their blind nature) than existing oracle solutions on top of other chains. We use DLCs to provide a unilateral spending path to the LP if the value of the bitcoin in an escrow drops below a liquidation threshold.

Example

A bitcoin whale Bob is running out of FIAT, but he has a large stack of BTC. He doesn't want to sell his bitcoin as that would be considered a taxable event & he would also loose out on all the possible future price appreciation of bitcoin. The best option for him is to borrow FIAT against his bitcoin holdings.

Borrowing

Bob visits atomiq.lending & types in that he wants to borrow 50,000 USDC on Solana. Right then he is presented with a list of LPs that are wiling to lend him the money at different interest rates & different LTVs (loan-to-value ratios). He selects the interest rate/LTV he desires and proceeds to initiate a lending contract on the Solana side. He is then presented with a bitcoin address where he deposits his BTC to. As soon as his bitcoin transaction confirms, 50,000 USDC will be released to his wallet on the Solana side.

Repayment

Bob visits atomiq.lending where he sees his loan as active & with 5,000 USDC in total accrued interest. He initiates a repayment by typing in the bitcoin address where he wishes to receive his collateral back and then pays back the loan with 55,000 USDC on Solana. The LP then releases his collateral back to Bob's defined address and claims the principal + interest on the Solana side (50,000 + 5,000 USDC)

Liquidation

In the case of bitcoin dropping in value below liquidation threshold, the LP can unilaterally get the collateral on the bitcoin side thanks to DLCs and then sell the bitcoin collateral on the open market to recoup the loss of the loan. Bob can now keep his USDC indefinitely, but cannot get his bitcoin collateral back anymore.