A new project built on the Bitcoin sidechain RSK is gunning to advance decentralized finance (DeFi) on Bitcoin’s ecosystem.
Sovryn, a self-billed “decentralized platform for trading and lending Bitcoin,” launched today with $2.1 million at its back – a symbolic number representing Bitcoin’s total supply. Crypto venture capital firm Greenfield One led the funding round, which also saw contributions from Collider Ventures and Monday Capital.
A 2-in-1 decentralized exchange and derivatives market, Sovryn will offer traders borrowing and lending service in bitcoin, USDT and RSK’s dollar on chain (DOC) stablecoin; they can also long or short bitcoin on the platform with up to 5x leverage.
“RSK was a natural fit for Sovryn,” said Edan Yago, Sovryn project lead. “The team behind it share our vision for a borderless and censorship resistant digital currency. This runs right to the core of the system where transactions are secured by bitcoin miners. Now, with the addition of a smart contract layer, deploying on RSK has meant we can provide the same or better functionality than centralized services, but in a decentralized way.”
The market is the second DeFi platform to come to RSK, a year behind the DAO-like stablecoin market Money on Chain. Cloning yet another DeFi product, Sovryn plans to launch a governance token which mimics Compound Finance’s model in Q1 of 2020 with its SOV token sale.
What is a Bitcoin sidechain?
A Bitcoin sidechain is a scaling solution for Bitcoin that offloads transactions onto a network that operates independently from the primary Bitcoin network, using a 1-for-1 tokenized version of bitcoin as a native currency. These systems are sometimes called “federated networks” because they sacrifice decentralization in favor of efficiency increases like transaction speed.
For RSK, a group of signatories oversee the peg-in and peg-out process to convert BTC into RBTC, RSK’s tokenized version, though RSK is in the process of revamping this design. RSK processes transactions through a “merge mined” process, wherein Bitcoin miners also contribute hashrate to RSK in return for RBTC transaction fees.
DeFi on Bitcoin
Sovryn’s launch comes shortly after RSK’s MakerDAO-esque stablecoin market Money on Chain introduced liquidity mining last week.
These software rollouts have RSK sinking its teeth further into the market designs that made DeFi so hot in the summer and early fall of 2020. These financial products, a mishmash of derivatives markets, lending markets and everything in between, have found a home on Ethereum, whose programming language can accommodate more flexible smart contracts than Bitcoin’s own.
“Sovryn, Money on Chain and RIF Dollar only represent the beginning of the Bitcoin DeFi ecosystem,” said Diego Gutierrez Zaldivar, IOVlabs CEO and RSK co-founder.
“Other than the RSK-Ethereum bridge being utilized more often, by MakerDAO and Aave for example, 2020 showed the Bitcoin ecosystem is the strongest one and where users want to be. That has led to many developers and entrepreneurs to understand they should, at the very least, create interoperable solutions to Bitcoin’s open finance protocols like RSK. Bitcoin is the future of the Internet of Value, and we’re excited to participate and lead it.”
Sidechains like RSK have often been billed as a way to bring Ethereum-like smart contract capabilities to Bitcoin. Greenfield One partner Jascha Samadi told CoinDesk that Sovryn is definitely a “short- to mid-term play” to capture some of the lending and derivative markets volume that occurs on Ethereum-native DeFi and even centralized exchanges.
But the long play is about more than active crypto users; it’s about the crop that doesn’t have skin in the game yet.
“The long term play for DeFi on Bitcoin could be significantly larger with users (both retail and institutional) that are not in crypto yet,” Samadi wrote over email.
“At some point obviously, all these users will want to interact with DeFi applications as well, and with products like Sovryn, this will be possible right where they entered the ecosystem,” meaning in Bitcoin, rather than “having to educate them [on how to move] their BTC to Ethereum or some other ecosystem.”