Proposal for a Decentralized Financial Protocol

by David Rankin

(Draft 3/7/2023)

Platforms like Liquity allow one to mint a debt position in the form of a monetary unit against ETH.

Assuming growth in usage of tBTC after proper testing. It would be interesting to have a platform like Liquity using tBTC with a few potential features.

Control could be decentralized via DAO NFT, minted upon the creating a trove with an associated debt position, while representing the depository assets and position. An NFT representing the trove without a debt position would have no voting claim. Proposal could be voted upon with a unique registered delegated address or via signing with an address containing said NFT like ENS voting standards. The NFT would be transferable along with its underlying collateral and debt position. Votes could be weighted based on the age and size of the trove with required locking periods for voting.

With a reasonable quorum of voters, based on representation of the total debt, the DAO would manage two functions to address monetary issues within reasonable limits and in reasonable time frames.

1.       Adjustments to the interest rate

(suggestion < 0.25% weekly with base limits).

2.       Adjust the liquidation ratio

(suggestion < 1% weekly with base limits).

As the Bitcoin market grows and stabilizes into the future, the collateral ratios could be reduced to increase the supply of the decentralized monetary unit (DMU). But a proposal could also be used to reduce the circulating supply by raising rates or collateral ratios. Being over leverage would be discouraged, as liquidations would cancel out the value of one’s DAO NFT vote.

The platform should allow for self-liquidations. The DMU token or debt position being issued should allow for the repayments of debts. The platform should also allow for the redemptions of underlying assets should the DMU token depeg. A user should be capable of adding additional collateral to shore up loans or use new collateral to pay down existing loans.

If we don't like DMUs...

We could call it DUMB, Decentralized Unit of Monetized Bitcoin.

Similar projects to review:

Threshold Network
Threshold powers user sovereignty on the public blockchain.
Liquity | Interest-free Borrowing on Ethereum
Liquity is a decentralized borrowing protocol that allows you to draw 0% interest loans against Ether used as collateral.
Interest-free Borrowing on EthereumTwitter iconTwitter icon
DCHF - Liquidity Mining Aggregator
The easiest way to build a stable income with your cryptos. Profit from Yield Farming even in a bear market.
DCHF
Compound
Compound is an algorithmic, autonomous interest rate protocol built for developers, to unlock a universe of open financial applications.
MakerDAO | An Unbiased Global Financial System
MakerDAO enables the generation of Dai, the world’s first unbiased currency and leading decentralized stablecoin.
An Unbiased Global Financial System

Disclosure Statement: The content being provided is an opinion piece for discussion and educational purposes only. One should not construe any such information or other material as legal, tax, investment, financial, or other advice. Nothing presented here constitutes a solicitation, recommendation, endorsement, or offer to buy or sell any securities or other financial instruments whatsoever. Do your own research and due diligence. Seek proper council. Make your own decisions based on your level of risk and level of knowledge. Realize that any investment could result in loss. Don’t risk what you're not willing to lose.