MT Capital: bitSmiley - Pioneer of Bitcoin-native stablecoin protocol.

MT Capital

24-01-30 10:50

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Original Title: "MT Capital: bitSmiley - Pioneer of Bitcoin Native Stablecoin Protocol"

Original Author: Severin, MT Capital

bitSmiley fills the gap in the BTC stablecoin market

Since the second half of last year, the popularity of inscriptions has brought a large amount of funds and user traffic to the Bitcoin network, driving the development of the Bitcoin ecosystem. The demand for inscription transactions from users has spawned a large number of Bitcoin wallets and inscription transaction market infrastructure. The limitations of Bitcoin network transaction throughput and high Gas costs have also led developers to gradually focus on the Bitcoin expansion track. Inscriptions, which have accumulated a large amount of funds, need to find new usage and breeding scenarios, and the funds of other ecosystems also urgently want to capture the dividends of the rise of inscriptions. Therefore, cross-chain projects are also emerging one after another.

As of today, although the overall Bitcoin ecosystem is still in its very early stages, a number of high-quality infrastructure have emerged to fill the market gap. For example:

· Wallet: Unisat, Alby, OKX Wallet, Wizz Wallet....

· Trading Markets: Unisat, OKX BRC20 Market, idclub, Dotswap swap, Alex lab....

· L2 / Scalability：B^2 Network、Merlin Chain、BounceBit、BEVM、Bison Labs、SatoshiVM….

· Bridge：MultiBit、TeleportDAO、Ordinifinity、Ordbridge….

· DA：Nubit、B^2 Network、Babylon….

source：MT Capital

The popularity of the Bitcoin ecosystem reminds people of Ethereum's DeFi Summer. However, compared to Ethereum, the current Bitcoin ecosystem still lacks DEX, Lending, and Stablecoin projects. Especially for the pearl of DeFi, the native stablecoin market of Bitcoin still has a lot of blank spaces. With the gradual launch of BTC L2, stablecoins are needed to leverage BTC DeFi leverage and release the liquidity of Bitcoin's mainnet funds. When the craze for inscriptions gradually fades and the market tends to be rational, the funds remaining on the Bitcoin network also need to find new investment and usage scenarios, and stablecoins are undoubtedly the best choice. Therefore, we also set our sights on bitSmiley, the first BTC-based over-collateralized bitRC-20 stablecoin project in the Bitcoin ecosystem. bitSmiley is expected to fill the gap in the BTC ecosystem's stablecoin market and become the core component of the new round of BTC **** ecosystem.

BTC's "MakerDAO + Compound"

bitSmiley consists of two core components: the stablecoin bitUSD, which is minted based on BTC over-collateralization, and the decentralized collateralized lending platform bitLending, which is based on bitUSD. Its business model of stablecoin + decentralized lending is also known as "MakerDAO + Compound" in the Bitcoin ecosystem.

source：<https://medium.com/@bitsmiley_labs/who-we-are-92e02a0c4b27>

bitUSD

bitUSD is the core of the bitSmiley ecosystem. Due to the limited functionality that can be achieved with Brc-20, the bitSmiley team has further optimized the Brc-20 protocol to meet the business needs of stablecoins, resulting in an enhanced version called bitRC-20. bitRC-20 is compatible with Brc-20 and adds the operations of Mint and Burn to meet the needs of stablecoin minting and burning.

The overall minting logic of bitUSD is similar to MakerDAO. First, users need to over-collateralize BTC on the Bitcoin mainnet. Then, the oracle will transmit the information to L. The bitSmileyDAO deployed on L2 will transmit the information to the validators on the Bitcoin mainnet to mint bitUSD after receiving and verifying the oracle information through consensus. This is how bitUSD is minted on the Bitcoin mainnet.

source：https://github.com/bitSmiley-protocol/whitepaper/blob/main/BitSmiley_White_Paper.pdf

The logic of redemption is similar to that of casting. After the user retrieves the collateral, the corresponding bitUSD will also be destroyed accordingly.

source：https://github.com/bitSmiley-protocol/whitepaper/blob/main/BitSmiley_White_Paper.pdf

If the situation arises where the collateral ratio falls below the threshold, bitSmiley will initiate a liquidation process and auction off the collateral assets. Similar to MakerDAO's liquidation mechanism, bitSmiley's liquidation will also use a Dutch auction format, with bidding starting at a high price and gradually decreasing. bitSmiley will also use 90% of stable fee income and auction revenue as a liquidation buffer to ensure the overall system's security. In addition, when the liquidation buffer is unable to offset the debt, bitSmiley will use the platform's future revenue as collateral for debt auctions to minimize the occurrence of bad debts and better withstand the damage caused by extreme market fluctuations to the platform.

source：https://github.com/bitSmiley-protocol/whitepaper/blob/main/BitSmiley_White_Paper.pdf

The implementation of MakerDAO's decentralized over-collateralized stablecoin has been validated by the market. bitSmiley has cleverly referenced MakerDAO's implementation ideas and made more refined innovations in token standards and liquidation mechanisms, thus better meeting the stablecoin market demand in the Bitcoin ecosystem.

bitLending

In addition to stablecoin demand, bitSmiley also keenly noticed the demand for liquidity lending from Bitcoin users. Therefore, bitSmiley can also provide decentralized lending services native to Bitcoin.

The implementation of bitLending is similar to other peer-to-peer lending protocols in the ecosystem. Lenders can post loan offers on bitLending, including the type and amount of bitRC-20 tokens they are willing to provide, the loan term, and the interest rate. Borrowers can choose to accept the offers they prefer. Once a match is made, bitLending generates a multi-signature address for fund transfer. Borrowers and lenders need to transfer their assets to the multi-signature address and confirm the network consensus. After confirmation, borrowers can withdraw the loan.

Due to the long block time limit of the Bitcoin network, bitLending cannot settle based on oracles like other lending protocols. If the collateral asset price of the borrower drops significantly, the borrower may refuse to repay the loan, and the lender will bear significant losses. To solve this problem, bitLending introduces loan insurance. Both the borrower and the lender need to transfer an insurance fee to a multi-signature address before transferring the loan funds and collateral. The guarantor can receive the insurance fee in the multi-signature address and choose to guarantee the borrower's loss. Once the borrower defaults, the funds in the multi-signature address will be used to compensate the lender, thus protecting the lender's interests.

source：https://github.com/bitSmiley-protocol/whitepaper/blob/main/BitSmiley_White_Paper.pdf

With the maturity of the protocol, bitSmiley also plans to further optimize the lending mechanism of bitLending, so that bitLending can support the splitting and merging of orders, thereby further improving capital efficiency. In addition, bitSmiley also plans to introduce CDS credit default swap products for bitLending, bringing more complex traditional financial games into the Bitcoin ecosystem.

In summary, bitSmiley not only brings the gameplay of stablecoins and lending into the DeFi ecosystem, but also optimizes stablecoins and lending protocols more finely based on the special nature of the Bitcoin network. With the landing of BTC L2 and the gradual maturity of bitSmiley's business, the gameplay of combining stablecoins and lending in bitSmiley is expected to become the liquidity center of the Bitcoin network, further gathering the liquidity of the Bitcoin network, improving the efficiency of fund utilization, and injecting ecological vitality into the Bitcoin network. The first-mover advantage of bitSmiley may make bitUSD become the hard currency of value exchange in the Bitcoin network, and by continuously expanding its network advantages, form its own ecological barrier, thus achieving a dimension reduction strike against other products.

Recent Progress

bitSmiley, in addition to having a high-quality founding team and excellent product capabilities, also has a strong presence in market promotion, publicity, and event operations. Recently, bitSmiley's promotion efforts have been increasing, with continuous promotion of financing institutions and partners on Twitter, active participation in organizing AMA and Twitter Space, and gradually increasing discussions and attention from users interested in bitSmiley within the community. In order to further enhance community stickiness, reward early supporters, and attract more new users, bitSmiley has also launched a series of NFT activities.

Firstly, bitSmiley has launched a limited edition of 100 OG NFTs: bitDisc-Gold, which will be distributed exclusively to Bitcoin OGs and industry leaders. Users who own bitDisc-Gold will be invited to the private Bitcoin OG Club and will receive priority access to all of bitSmiley's products as well as future benefits.

Secondly, bitSmiley has also launched a limited edition of 10,000 bitDisc-Black NFT series to reward regular users, early supporters, and contributors. Users who own bitDisc-Black NFT will also have priority access to bitSmiley products, as well as a range of benefits including potential airdrops.

source：https://medium.com/@bitsmiley_labs/btc-leading-protocol-introduces-og-nft-bitdisc-6b3684a59615

Currently, bitSmiley has taken a snapshot of the early 1999 community followers, and the remaining whitelist will be distributed through subsequent activities. KOLs on Twitter have also started to retweet the whitelist draw activities. In addition, bitSmiley has launched a new round of Discord active user whitelist lottery activities, where users can join bitSmiley's Discord community, actively leave messages, and win whitelist qualifications.

Summary

After in-depth research and analysis, we at MT Capital are very optimistic about the development potential of bitSmiley and have participated in bitSmiley's recent round of financing. bitSmiley has a keen insight into the blank market of stablecoins and lending products in the Bitcoin ecosystem. They have successfully achieved a perfect fit between product and market by launching innovative native Bitcoin over-collateralized stablecoins and decentralized peer-to-peer lending products. In addition, bitSmiley's stablecoins not only provide a new value anchoring standard and value exchange medium for the Bitcoin network, but its lending products also open up new application scenarios and value fields for these stablecoins. We believe that with its first-mover advantage in the market, bitSmiley will quickly build a strong ecological barrier and become a leading DeFi product in the Bitcoin ecosystem with its unique combination of stablecoins and lending products.