Decentralized finance has increasingly proven to be the future of the financial sector. But have you ever stopped to wonder how long something this important will be mostly built on the Ethereum network? Seeking to answer this question, we brought the analysis of a project that aims to provide all decentralized finance services in the most secure blockchain, which is Bitcoin.
Sovryn is a Bitcoin-based, smart contracts-based platform that provides a decentralized, non-permitted, non-custodial way for investments.
It serves, for example, both trading and borrowing, margin and market making.
That's right: several of the features of the existing DeFi protocols, which many are already used to using. The system runs on the RSK sidechain, which uses Bitcoin mining; that is, it is protected by the largest hashrate in the world. In addition, it has Bitcoin as a native asset to pay the fees.
By allowing more complex applications from Bitcoin, through smart contracts in its own blockchain, the platform aims to insert the huge Bitcoin user base into one of the fastest growing environments in the crypto environment (the DeFi services, which in 2020 it rose 982%).
Sovryn aims to allow Bitcoin to participate in this growth as well.
Along with the rapid growth of DeFi's popularity has come the rapid increase in gas fees (native tax on using the network) on transactions, limiting the number of users who can participate.
As a result, some of these DeFi protocols have become less decentralized and more suited to larger players.
Sovryn tries to solve these challenges by creating a Bitcoin-native financial operating system, which allows people to use their Bitcoin in decentralized applications. It takes the best of existing service innovations and accelerates improvement in the Bitcoin ecosystem by providing easy-to-use, decentralized financing alternatives.
The platform also provides the financial operating system that unites blockchains, expanding the level of decentralization and keeping Bitcoin as the sovereign money that it is (even when used in financial applications). That is, users can use their BTCs in other financial activities without having to sell them.
So, we have the completely DeFi-free financial environment, with the security (hash power) and decentralization of the network and the strongest asset, Bitcoin.
Do not have Know Your Customer (KYC): users will never need to provide personal identification to participate in the platform.
NON-CUSTODIAN: the private keys are entirely in the custody of the user, who can deposit or withdraw as they wish, without the need for any permission and without risk of censorship.
BITCOIN-NATIVE: all fees are paid in Bitcoin and the network has Proof of Work that validates it, making the DeFi platform scalable and secure.
NO CONFIDENCE: Sovryn exists entirely in the blockchain, which makes it resistant to censorship and immune to full closure by any authority.
Alice, a hodler, wants to earn fees by borrowing her BTC for a margin trade.
Bob, a trader, is interested in leveraging her position, as he is seeing a possible rise in Bitcoin in the short term. He opens a BTC long position, borrowing Alice's funds.
Alice and Bob don't want to move their BTC to a centralized service and relinquish control of their keys, so they use Sovryn, whereby Alice issues a P2P loan, which is
used by BOB to trade. All this directly from your wallets, without compromising your privacy.
Margin trading is one of the most popular DeFi services among users. At Sovryn, it is possible to use margin trading assets directly, without the need for a centralized platform. Due to the decentralized nature of Sovryn, there is no book and offers.
Everything is done through an automated market maker (Automated Market Maker), with low slippage, in which rates are adjusted by calculating the supply and demand of each token. Sovryn also provides an exchange service for Bitcoin users. They can exchange BTC for USD on the platform. It claims to offer a low slippage exchange service. Margin trading: opening long/short positions of up to 5X, allowing sweaters to use leverage.
Bitcoin hodlers can lend their satoshis to margin traders and borrowers and earn annual interest for it, based on the APR (Annual percentage rate) that the platform calculates, as well as on Compound and Aave.
This is an essential service in a DeFi environment and is also available from Sovryn. The process takes place by connecting a wallet to the platform, and provides the liquidity needed for a pool.
Providing liquidity in Sovryn is different from other DeFi services. You are not forced to provide both pairs of a portfolio as a liquidity provider. Only one is acceptable.
Sovryn's creators say they have designed the protocol in a way that it can expand and adapt while aiming for maximum decentralization. This evolution will be driven by the Bitocracy process - where governance will be carried out by the
token holders.
Decentralization is achieved by transferring control of smart contracts from the system to a community governance system,
through the SOV governance token, which grants holders the ability to manage the protocol through voting and receipt of revenues generated by the tools available in the protocol.
Of course, Sovryn will never have the same level of decentralization as Bitcoin, but that's not the goal, let alone create another
alternative to Bitcoin in terms of store of value. This is a positive point, indeed an essential one.
It is also important to note that no token is required to use Sovryn and trade Bitcoin. It is mainly used as a way to bet on Sovryn's success and have voting power on its proposals.
The total supply of SOV tokens is 100,000,000, which will be diluted over the next 7 years, with allocations defined in their respective issue rates. In January, Sovryn raised $2.5 million in token pre-sales.
To make this possible, Sovryn uses the RSK sidechain and RIF infrastructure, which enable the creation and execution of the smart contracts that manage transactions on the platform.
RSK works as an independent blockchain, whose main cryptoactive is RBTC, which is paired 1:1 with Bitcoin. The user sends Bitcoin to a special address where it gets blocked.
Then, Bitcoin is unlocked on the RSK network making it possible to use it in applications built there, such as Sovryn.
Thus, RSK makes possible the smart contracts of the Ethereum network in a network with the mining power of Bitcoin, thanks to the merged mining process. Both use the same algorithm, SHA-256 and blocks are created every 30 seconds.
RSK uses a virtual machine similar to Ethereum's EVM. This makes it possible to bridge the gap between developers in the two communities. This makes it possible to bridge the gap between developers in the two communities.
Note the difference in the price of fees charged between the Ethereum network and the RSK network. On that day, to perform a transaction on Ethereum, a fee of US$ 85.65 was charged. At RSK, the fee was US$ 4.20. A difference of 1937.12%. It seems that the Ethereum network is increasingly dependent on the success of Ethereum 2.0, doesn't it?
At the moment, there are 2522 BTCs locked in RSK and transformed into RBTCs, which equates to approximately US$70 million. Everything is still very early here.
RSK's network currently uses 108 EHs of Bitcoin hashrate.
Smart contracts have always been one of Ethereum's key competitive advantages over Bitcoin. Most critics of Bitcoin believed that this network could not provide adequate financial services. With the help of RSK and platforms like Sovryn, decentralized financial services are no longer absent from Bitcoin.
While it can be a little difficult in the early stages, platforms like Sovryn can lead the way toward the goal of expanding Bitcoin's functionality and accelerating ecosystem innovation.
The expansion environment of applications over Bitcoin is still very new. This could be the start of many other projects that, like Sovryn, may provide an interesting alternative to what was being built -until then- almost entirely on the Ethereum network. Who knows, it could turn out to be one of the most used alternatives for trading Bitcoin.
In the end, the winners are the users, who will have access to increasingly better decentralized financial systems.
