110
views

DeFi on Bitcoin? An Introduction to SOVRYN

Here’s a look at SOVYRN – the project that is quietly revolutionizing the Bitcoin network with once-incompatible functionality: decentralized finance. With time, it may fully correct Bitcoin’s limitation on programmability, rendering various altcoins obsolete.

The Present Crypto Divide

As things stand, Bitcoin is still the most valuable cryptocurrency on the market. After recently breaking its all-time high, the digital asset now has a $1.1 trillion+ market cap. Next to the total crypto market cap of $2.7 trillion, Bitcoin’s market dominance is unquestionable.

The outside world also adopts the currency at breakneck speed by businesses and hedge funds alike. From Twitter enabling Bitcoin payments to Tesla adding BTC to its portfolio, Bitcoin’s legitimacy as an asset is also unavoidable. It has even been recognized by multiple businesses as an inflation hedge superior to gold.

Yet despite Bitcoin’s popularity and network, it is no longer the only mainstream cryptocurrency in existence. Instead, several other cryptos, tokens, platforms, and protocols have risen next to it. While some have been nothing but short-term and speculative fads, others have proven to be viable long-term.

Fervent Bitcoin maximalists may claim that this is due to ignorance or pure market speculation. However, a more charitable interpretation would have it that such altcoins fill gaps in the decentralized economy, which Bitcoin cannot. For example, Tether serves as a convenient yet value stable form of liquidity for crypto traders. Meanwhile, Monero provides enhanced transaction privacy, which Bitcoin fails due to its public blockchain.

However, the most noteworthy alternative blockchain network is currently Ethereum. Founded by Vitalik Buterin and others, Ethereum’s market cap rests presently above $500 billion. It is the only cryptocurrency network that most people believe could plausibly grow larger than Bitcoin.

Driving this belief is the following observation:

As Bitcoin uses a Turing incomplete programming language, it is unsuitable for smart contracts. Therefore, it is inferior to Ethereum for conducting decentralized finance.

Why Does Defi Matter?

Decentralized finance (DeFi) is the most popular developing use case for blockchain technology and decentralized networks. It is a simple set of peer-to-peer financial services that require no central authority to facilitate them. These could include savings, lending/ borrowing, trading, and even insurance.

The appeal of such technology is that it is permissionless, efficient, and almost constantly active compared to centralized financial alternatives.

For such a parallel financial system to function, it requires three main pillars:

  • Stable currency
  • Chequing/Savings Accounts
  • Various Exchanges

In the developed world of centralized finance, each function is served by multiple parties. Just one example of each would be the US dollar, Chase Savings, and the NASDAQ stock exchange, respectively.

Meanwhile, Defi developers are already creating less centralized and more efficient blockchain-based equivalents of these systems. For example, the Ethereum platform hosts multiple dollar-pegged stablecoins (Tether, USDC, DAI, etc.) to serve as stable currencies. Meanwhile, Compound is a borrowing/ lending protocol that lets people earn from their crypto savings in smart-contract-controlled lending pools. Finally, Uniswap functions as a decentralized exchange for ERC-20 tokens, which could practically be utilized for trading tokenized assets like stocks.

These days, Ethereum’s facilitation of smart contracts and Defi protocols has given it a massive niche within the cryptocurrency market. It is the backbone and standard of decentralized applications that enhance finance beyond value storage and transactions. Furthermore, as all tokens traded on the platform require spending ETH for gas, the cryptocurrency accrues additional layers of demand.

These factors have led Ethereum to be recognized as a second “primary” cryptocurrency, alongside Bitcoin. Because it serves different functions, many refer to Ether as “digital oil,” whereas Bitcoin is “digital gold.”

SOVRYN: Combining Defi with Hard Money

What if the advantages of Bitcoin’s trust, security, and decentralization could be combined with Ethereum’s smart contract compatibility? What if the benefits of “digital gold” and “digital oil” could be brought under one tent?

As of 2021, an emerging protocol is developing on Bitcoin’s application layer, striving to do just that. Its name is SOVRYN.

SOVRYN is a “non-custodial, permissionless, smart contract-based system for bitcoin lending, borrowing, and margin trading,” according to its website. Edan Yago co-founded SOVRYN and launched it in April 2021. Today, it is Bitcoin’s most feature-rich Defi platform.

Features of SOVRYN

SOVRYN’s current features include the following, among others:

  • A lending pool with which HODLers can earn interest on their tokens from borrowers and margin traders – including bitcoin. This is like Compound on Ethereum.
  • Over collateralized borrowing from the lending pool.
  • A decentralized spot exchange allows users to instantly trade tokens using the lending pool, similar to UNISWAP.
  • A token bridge between RSK, Ethereum, and Binance Smart Chain (BSC).
  • Up to 5X leverage trading, also borrowed from the lending pool.
  • Bitcoin-backed, US dollar-pegged stablecoins, all backed by over collateralized bitcoin. This is a Bitcoin equivalent of DAI.

Features currently in development for SOVRYN include a fiat off-ramp and trading limit orders.

As we can already see, SOVRYN is now offering the three core services needed for a parallel financial system. However, on this system, bitcoin is the base asset.

How it Works

Rootstock

This DAO is built on Rootstock (RSK), a Bitcoin sidechain that enables smart contracts. RSK connects to the main Bitcoin blockchain through merge-mining, whereby the same miners and energy secure both networks. Users can convert their BTC from the Bitcoin network into “smart bitcoin” (RBTC) on Rootstock using a two-way peg. Hence, users can take advantage of various dApps as they would on Ethereum, alongside Bitcoin’s peerless security and asset value. SOVRYN is one such DApp.

SOV Token

In the spirit of decentralization, SOVRYN works under a “Bitocracy” using the platform’s native governance token “SOV.” SOV tokens allow holders to manage the SOVRYN protocol through staking and voting. Holders will also receive rewards from the funds that the protocol generates.

SOV token supply has a maximum cap at 100,000,000 and is being distributed over 7 years. Their allocation takes place in varying proportions to founders, early funders, early users, developers, and contributors. Some SOV will be distributed through programmatic sales, allowing users to trade in bitcoin for SOV.

According to Edan Yago, SOV token holders have the incentives to participate with and contribute to the network’s development. This makes it different from holding an ordinary company share.

“If you just passively hold a Wal-Mart share, you get money. If you just passively hold SOV, you don’t. You need to actively participate in the system. It’s sort of like an access pass into participating and having influence over the system.”

Due to the various incentives provided, over 4000 people had locked up SOV on the platform in early June. Furthermore, improvement proposals for the network were regularly receiving over 60% participation from those holders.

Generally speaking, users that manage to accrue more SOVRYN through its various distribution methods have more influential voting power. Also, by staking his SOV, a user may delegate his voting power to another network address.

Furthermore, SOVRYN admits that its protocol cannot achieve decentralization like Bitcoin’s base layer. Still, it allows it to go a long way. Moreover, this form of decentralization does not come at the expense of features or scalability.

Benefits of SOVRYN

SOVRYN provides several unique benefits to dedicated Bitcoiners, as well as the strength and security of Bitcoin itself. Some of these benefits include the following:

Privacy

As a uniquely decentralized bitcoin lending service, users can remain protected by Bitcoin’s pseudonymity while putting their bitcoin to work. This is in contrast to centralized lending services, which typically adhere to KYC and user tracking restrictions.

Self Custody

One’s private keys no longer need to be concentrated with one centralized party. With peer-to-peer lending available, SOVRYN users conduct finance with total “sovereignty” over their funds.

Bitcoin Native

With Bitcoin as the Rootstock chain’s native asset, users can pay transaction fees in BTC. Since SOVRYN is a platform for Bitcoin lovers, transacting is far more convenient for the average user, who is likely trading bitcoin anyways.

This is different from the Ethereum blockchain, which requires Ether for transactions despite most people on the network transacting in USDT. Purchasing Ether can be quite a hassle for those interested in only its platform but not the base asset.

Bitcoin nativity also entails piggybacking off of Bitcoin’s unmatched network security, bolstered by miners worldwide.

Keeping Bitcoin Decentralized

Decentralization is not only a feature but a necessity for network integrity. Should Bitcoin’s use-cases fail to increase, its more complex financial applications would risk concentrating in the hands of centralized services. This would defeat the purpose of Bitcoin, as money once again passes through financial giants for the sake of added utility. Meanwhile, the pathway to censorship would be available again.

Through SOVRYN, users have an uncensorable access pass to sophisticated Bitcoin finance. The protocol itself should achieve reasonable decentralization, massively reducing the risk of targeted censorship.

Conclusion

SOVRYN’s features continue to multiply over time. It appears to be emerging as the go-to decentralized finance protocol native to Bitcoin. Furthermore, as ideas and DeFi applications develop on other blockchains, SOVRYN will have the freedom to adapt them as the community sees fit.

This raises an essential question regarding the future of other cryptocurrencies, blockchains, and Defi protocols. If SOVRYN is bringing Defi to Bitcoin, do other chains have any reason to exist long-term?

As mentioned, most crypto lovers – even Ethereans – recognize bitcoin as the highest tier asset. It has the best chance of all cryptocurrencies to garner global trust at the scale of a world currency. Its decentralization and inception are characteristics no other blockchain or crypto can mimic. Hence, Bitcoin faces little competition in its role as “digital gold.”

Meanwhile, Ethereum, Cardano, Solana, and other networks face steep competition for providing the best DeFi services. While Ethereum is presently winning that contest, bitcoin may take over with time, thanks to SOVRYN. Furthermore, if Bitcoin gains enough traction over time, SOVRYN may become its protocol of choice. This is due to its use of BTC as the base asset.

Bitcoin live price
Btc
Bitcoin
$35.343
price
0.74595%
price change
BUY NOW

This future is still a long way out if it exists at all. However, innovations like SOVRYN may render Ethereum – and all other blockchains – useless next to Bitcoin.

Stay up to date with our latest articles

More posts

Top 5 Smart Contract Auditing Companies

Deploying a smart contract on the blockchain without auditing can quickly spell "suicide" for most projects. Nowadays, hackers are constantly looking for potential code errors and vulnerabilities. Furthermore, most users have the necessary experience to know they cannot trust unaudited DeFi and crypto protocols. Fortunately, no project has to launch unaudited, especially with the abundance of professional auditors in the industry. These experts can check smart contracts in-depth, detect errors or vulnerabilities, and suggest fixes. Simply put, they increase a…

DeFi on Bitcoin? An Introduction to SOVRYN

Here's a look at SOVYRN – the project that is quietly revolutionizing the Bitcoin network with once-incompatible functionality: decentralized finance. With time, it may fully correct Bitcoin's limitation on programmability, rendering various altcoins obsolete. The Present Crypto Divide As things stand, Bitcoin is still the most valuable cryptocurrency on the market. After recently breaking its all-time high, the digital asset now has a $1.1 trillion+ market cap. Next to the total crypto market cap of $2.7 trillion, Bitcoin's market dominance…

Earliest Cryptocurrencies with DeFi-like Characteristics

A recent Chainalysis report shows how Europe accounts for 25% of the world's cryptocurrency transactions. The news came as a surprise to many. However, Decentralized Finance (DeFi) is the center of these crypto transactions. So, it takes about 50% of the total amount from the region's trades. DeFi is an innovative niche that many enthusiasts still have not explored fully. Nevertheless, numerous smaller crypto assets with similar characteristics to DeFi tokens already exist. Binance Chain, PancakeSwap, and Uniswap are examples…

Best DeFi Tools That Every Crypto Enthusiast Should Know

Decentralized Finance is one of the fastest evolving and most lucrative fields in the crypto world. It is deploying financial software and applications on the blockchain. DeFi can enable a new banking approach and offer all banking services. Today, there are 200+ DeFi projects. It is not easy for rookies to make the right investment decision. DeFi platforms offer tools for analyzing and investing in DeFi and decentralized exchanges. Additionally, some venues have unique tools that analyze various markets and…

The Beginner’s Guide to Fantom (FTM)

Since its inception, the decentralized sector has been booming. Fantom is a leading DeFi platform aiming to take this financial revolution to the next level. The project advances at a remarkable speed. For instance, several reputable exchanges have already listed Fantom's native FTM token. Also, some of the most popular DeFi protocols have hosted the coin in the past few months. In this short guide, we take a closer look at the Fantom project and how it works. Also, we…

A Guide to Undercollateralized Loans in DeFi

The DeFi space releases innovative financial tools almost every month. The latest one on this list should enable users to loan assets with lower value collateral. Through undercollateralized loans, borrowers would access funds way above their holdings. Also, lenders would earn interest, and lending protocols would surpass traditional banks in approachable crediting services. As you can see, this feature should keep everyone happy. It all sounds just too good to be true. After all, under collateralization should be the next…

How Profitable is Crypto Yield Farming?

At its core, Yield farming, also known as liquidity harvesting, involves the art of lending cryptocurrency. It provides more lucrative returns than any other cryptocurrency or conventional investment. It's a chance for the bold and risk-averse digital holders to win big. The United States Securities and Exchange Commission (SEC) is considering whether to regulate the process. In lending cryptocurrencies, the owner profits when the coin appreciates. Therefore, yield farming is an incentive that stimulates the adoption and growth of cryptocurrencies. Yield farming…

Beginners Guide to Total Value Locked in Cryptocurrencies

When contemplating investing in a particular company, a serious investor always wants to know the company's real value beforehand. There are straightforward ways of determining the company's value in traditional finance, like multiplying stock by the unit stock price.  In Decentralized finance, good investors always want to analyze the value of a Defi project before making any decision. How can an investor know the actual value of Defi? The most popular metric used in the Defi world is determining the…

Common DeFi Marketplaces You Should know About

Decentralized Finance (DeFi) has been making headlines for the past year and has massively gained users and market capitalization. DeFi refers to financial services utilizing smart contracts. These contacts are automatically enforceable agreements that do not require an intermediary such as a bank but rely on blockchain technology instead.  Between December 2019 and now, the DeFi industry has grown from $700 million to $74.96 billion. It represents about 5.3% of the total crypto market space. Following that, this article will…

6 Interesting Binance Smart Chain (BSC) DeFi Projects to Check

This year has seen the restructuring of the crypto sector in many different ways. The DeFi and NFT sectors' growth has put a large strain on older blockchains, such as Ethereum. These networks were built in a way that is designed to increase their fee structure based on the blockchain’s congestion. Unfortunately, this design flaw has created record-high gas fees for users. These fees have left many in the market searching for viable alternatives.  One option that has seen considerable…