Interpreting the BTC ecosystem over-collateralization stablecoin protocol Satoshi Protocol

Author: Tia, Techub News

MakerDAO is one of the important cornerstones of the development of Decentralized Finance (DeFi) on the Ethereum (ETH) platform. By collateralizing their ETH in MakerDAO, users can obtain liquidity without selling their assets. BTC is the most valuable asset in the crypto space, but due to its Turing incompleteness, it has been difficult to fully utilize BTC assets. However, with the development of the BTC ecosystem and the emergence of various BTC Layer2 solutions, there seems to be a possibility of financializing BTC.

Satoshi Protocol is a stablecoin protocol based on BTC Layer2 BEVM and over-collateralization. On July 9th, it announced the completion of a $2 million financing round led by CMS Holdings and RockTree Capital. Currently, the locked-in amount is $1,047,886. Although the scale is not large, it still has certain potential in the narrative of BTC over-collateralization stablecoins.

How to mint Stable Coin? And how to keep it “stable”?

The USD-pegged stablecoin of Satoshi Protocol issuance is SAT. Users can borrow SAT stablecoins by depositing Collateral, with a minimum Collateral rate of 110%. Currently supported Collateral includes BTC Layer2 Bitlayer and BTC on BEVM, as well as Lorenzo stBTC (Lorenzo is the BTCLiquidity financial layer based on Babylon, and Lorenzo stBTC is the Liquiditystake token generated by stakeBTC).

When users mint SAT by borrowing against collateral, the Satoshi Protocol charges a minting fee and fixed annual interest fee. In addition, it is necessary to mint long 2 SAT as a reserve for Gas fees for settlement. Of course, if the position is not settled, the fee will be refunded to the user when the position is closed.

Where the minting fee is paid in a lump sum, the rate is BenchmarkIntrerest Rate + 0.5%. The BenchmarkIntrerest Rate is determined by the proportion of redeemed SAT quantity to the total stablecoin supply, and this Intrerest Rate is dynamic but not less than 0.5% and not more than 5%.

Stability Mechanism: Nexus Revenue Module

The Nexus Yield Module (NYM) aims to manage and optimize the use of Stable Coin assets within the ecosystem. NYM allows users to exchange Stable Coins such as USDT and USDC for Satoshi protocol’s Stable Coin SAT. After receiving the user’s Stable Coin (USDT, USDC), the module will mint an equivalent amount of SAT and send it to the user. When there is a price difference in SAT, external users can use this module for arbitrage, thereby helping to maintain the peg of SAT to the US dollar.

Meanwhile, the Nexus profit module will also generate additional income through participating in Decentralized Finance Mining, or utilizing CeFi platforms for Intrerest RateArbitrage and market-neutral trading. Users can also deposit SAT into this module to receive income distribution. After depositing SAT, users will receive a certificate sSAT representing their stake assets, which can be used to claim rewards from NYM profit-generating activities.

Risk Control

Risk control mainly relies on the liquidation mechanism, which automatically initiates liquidation and repays the debt of the liquidation position when the collateral falls below the minimum ratio of over-collateralization. Of course, the liquidation mechanism of the Satoshi Protocol also has some more detailed parts, such as implementing different liquidation parameter standards for different assets to isolate risks. The Satoshi Protocol implements customized lending interest rates, loan-to-value ratios (LTV), and other risk parameters according to different asset types, ensuring that the protocol remains secure and adapts to different market conditions. By distinguishing these parameters, the protocol can better manage risks associated with volatile assets and provide users with a more stable and secure environment. Additionally, the protocol continuously monitors the performance and volatility of each asset type. If market conditions change, the parameters for each asset can be adjusted accordingly.

The liquidation mechanism of the Satoshi Protocol is also different. In crypto, the most common liquidation mechanism is auction. In the case of significant Fluctuation in price, the inefficient auction model can lead to liquidation latency and exacerbate losses. However, the more open liquidation mechanism of the Satoshi Protocol can effectively avoid this. In the Satoshi Protocol, user participation in liquidation does not require permission. When the Collateral ratio falls below the minimum standard, any user can trigger the liquidation process on their own, making liquidation more immediate. Furthermore, to incentivize liquidation behavior, the Satoshi Protocol also provides incentives for liquidators. Liquidators can receive a certain proportion of Collateral rewards and gas compensation.

Stable Pool

In addition, Satoshi Protocol has created an asset pool called the Stable Pool (SP) specifically for settlement. Users can deposit their SAT holdings into the pool to earn rewards for settlement events as well as rewards in Satoshi Protocol protocolToken OSHI. When a settlement is triggered, the Stable Pool can use SAT to settle the debt. In return, the Stable Pool can obtain Collateral from the settlement position. The profits obtained from the settlement will also be distributed to users who inject SAT into the Stable Pool. Satoshi Protocol also has a Flash Loans module to support settlement, ensuring that even when the Stable Pool funds are insufficient, the protocol can quickly process settlement.

Recovery Mode

The Satoshi Protocol also comes equipped with a recovery mode. This mode is triggered when the total collateralization ratio (TCR) falls below 150%. In recovery mode, specific measures will be taken to prevent further decline of the TCR. These measures include liquidating positions with collateralization ratios below 150%, limiting lending activities that may further damage the TCR, and waiving lending fees to improve the TCR.

Token Economy

The native Token of the Satoshi Protocol protocol is OSHI, with a total supply limit of 100,000,000. Among them, investors account for 15%, advisors account for 2%, the team accounts for 15%, ecological incentives account for 45%, the proportion of public sales is 2%, and the remaining 21% is reserved.

The ecological incentive part will be used for position creation incentives, stablecoin pool (SP) incentives, and providing Liquidity incentives to the Liquidity pool. 20% of the total supply is allocated to position creation incentives, 10% to stablecoin pool (SP) incentives, and 15% to providing Liquidity incentives to the Liquidity pool.

At the same time, the protocol also provides unlock time for holders. Investors can unlock 10% after the public issuance (TGE) for 3 months, and the remaining 90% needs to wait for another 6 months after TGE for a cliff period, and then unlock linearly within 24 months. Advisors need to wait for a cliff period of 12 months after TGE, and then unlock linearly within 24 months. The team also needs to wait for a cliff period of 12 months after TGE, and then unlock linearly within 24 months. The reserve and ecosystem incentive parts unlock linearly within 60 months.

sOSHI

stake OSHI can obtain sOSHI, the longer the stake lock-up period, the higher the conversion rate of sOSHI obtained. sOSHI holder has the right to share all the income of the protocol.

The above is all the introduction to the Satoshi Protocol. Satoshi Protocol has made some improvements to the stablecoin over-collateralization in some details, increasing its risk resistance, but overall, the mechanism is still quite similar to traditional CDPs.