Written by: Tia, Techub News
MakerDAO is one of the important cornerstones of the development of Ethereum DeFi ecosystem. By pledging Ethereum to MakerDAO, users can obtain certain liquidity without having to sell assets. Bitcoin is the most valuable asset in crypto, but due to its Turing incompleteness, Bitcoin assets have not been well utilized. However, with the development of the Bitcoin ecosystem and the blossoming of various Bitcoin Layer2, it seems to have brought a glimmer of possibility for the financialization of Bitcoin.
Satoshi Protocol is an over-collateralized stablecoin protocol built on Bitcoin Layer2 BEVM. On July 9, it announced that it had completed a $2 million financing, led by CMS Holdings and RockTree Capital. Currently, its locked position is $1,047,886. Although the scale is not large, there is still some potential in terms of the narrative of Bitcoin over-collateralized stablecoins.
How to mint stablecoins? How to keep them “stable”?
The stablecoin issued by Satoshi Protocol and pegged to the US dollar is SAT. Users deposit collateral to borrow SAT stablecoins, with a minimum collateral ratio of 110%. Currently supported collateral includes Bitcoin on Bitcoin Layer2 Bitlayer and BEVM, as well as Lorenzo stBTC (Lorenzo is a Bitcoin liquidity financial layer based on Babylon, and Lorenzo stBTC is a liquidity pledge token generated by staking Bitcoin).
When users mint SAT through collateralized borrowing, the Satoshi protocol will charge a minting fee and a fixed annual interest fee. At the same time, an additional 2 SAT must be deposited as a reserve to be used as the gas fee for liquidation. Of course, if the position is not liquidated, the fee will be returned to the user when the position is closed.
Among them, the minting fee is paid in one lump sum, and the rate is the base rate + 0.5%. The base rate is determined by the ratio of the amount of SAT redeemed to the total supply of stablecoins. The interest rate is dynamic, but the minimum is not less than 0.5% and the maximum is not more than 5%.
Stabilization Mechanism: Nexus Revenue Module
The Nexus Yield Module (NYM) is designed to manage and optimize the use of stablecoin assets within the ecosystem. NYM allows users to exchange stablecoins such as USDT and USDC for Satoshi Protocol's stablecoin SAT. After receiving the user's stablecoin (USDT, USDC), the module will mint an equal amount of SAT and send it to the user. When there is a price difference in SAT, external users can use this module to arbitrage, thereby helping to maintain the peg of SAT to the US dollar.
At the same time, the Nexus income module will also obtain additional income by participating in DeFi mining or using the CeFi platform for financing interest rate arbitrage and market neutral transactions. Users can also deposit SAT into this module to obtain income distribution. After depositing SAT, users will receive a certificate sSAT representing their pledged assets, which will be used to collect rewards generated by NYM income activities.
Wind control
Risk control mainly relies on the liquidation mechanism, that is, when the collateral is lower than the minimum ratio of over-collateralization, liquidation is automatically initiated and the debt of the liquidated position is repaid. Of course, Satoshi Protocol's liquidation mechanism also has some more detailed parts, such as implementing different liquidation parameter standards for different assets in order to isolate risks. Satoshi Protocol will implement customized borrowing rates, loan-to-value ratios (LTV) and other risk parameters according to different asset types to ensure that the protocol remains safe and adapts to different market conditions. By distinguishing these parameters, the protocol can better manage the risks associated with volatile assets and provide users with a more stable and secure environment. In addition, the protocol will continue to monitor the performance and volatility of each asset type. If market conditions change, the parameters of each asset can be adjusted accordingly.
Satoshi Protocol is also different in its liquidation mechanism . In crypto, the more common liquidation mechanism is auction. When prices fluctuate violently, the inefficient auction model will lead to liquidation delays and thus aggravate losses. But Satoshi Protocol's more open liquidation mechanism can circumvent this well. In Satoshi Protocol, users do not need permission to participate in liquidation. When the collateral ratio is lower than the minimum standard, any user can trigger the liquidation process on their own, which makes liquidation more immediate. In addition, in order to incentivize liquidation behavior, Satoshi Protocol will also provide incentives for liquidators, who can receive a certain percentage of collateral rewards and Gas compensation.
Stabilization pool
In addition, Satoshi Protocol has created a special asset pool called the Stability Pool (SP) for liquidation. Users can deposit their SAT into the pool to earn rewards for liquidation events and rewards for the Satoshi Protocol protocol token OSHI. When liquidation is triggered, the Stability Pool can use SAT to repay debts. In return, the Stability Pool receives collateral from the liquidation position. The proceeds from the liquidation will also be distributed to users who inject SAT into the Stability Pool. Satoshi Protocol is also equipped with a flash loan module to support liquidation, ensuring that the protocol can quickly handle liquidations even when the Stability Pool is underfunded.
Recovery Mode
Satoshi Protocol is also equipped with a recovery mode. This mode is triggered when the total collateral ratio (TCR) falls below 150%. In recovery mode, specific measures will be taken to prevent the TCR from falling further. These measures include liquidating positions with a collateral ratio below 150%, restricting lending activities that may further damage the TCR, and waiving lending fees to improve TCR lending.
Token Economy
The native token of Satoshi Protocol is OSHI, and the total supply is capped at 100,000,000. Among them, investors account for 15%, consultants account for 2%, the team accounts for 15%, ecological incentives account for 45%, public sales account for 2%, and the remaining 21% is kept as reserves.
The ecological incentive part will be used for position creation incentives, stablecoin pool (SP) incentives, and liquidity incentives for liquidity pools. 20% of the total supply is allocated to position creation incentives, 10% is allocated to stablecoin pool (SP) incentives, and 15% is allocated to liquidity pools to provide liquidity incentives.
At the same time, the protocol also provides unlocking time for holders. Investors can unlock 10% 3 months after the public offering (TGE), and the remaining 90% needs to wait for a 6-month cliff period after the TGE, and then unlock linearly within 24 months. Advisors need to wait for a 12-month cliff period after the TGE, and then unlock linearly within 24 months. The team also waits for a 12-month cliff period after the TGE, and then unlocks linearly within 24 months. The reserve and ecological incentive parts are unlocked linearly within 60 months.
sOSHI
Staking OSHI can obtain sOSHI. The longer the pledge lock-up period, the higher the conversion rate of the obtained sOSHI. sOSHI holders have the right to share all the benefits of the agreement.
The above is all about the introduction of Satoshi Protocol. Satoshi Protocol has made some improvements to the over-collateralized stablecoin in some details, increasing its risk resistance, but overall, the mechanism is still similar to the traditional CDP.
