MT Capital: bitSmiley - Pioneer of Bitcoin Native Stablecoin Protocol

Author: Severin, MT Capital

bitSmiley Fills the Gap in the BTC Ecosystem Stablecoin Market

Since the second half of last year, the popularity of inscriptions has brought a significant influx of funds and user traffic to the Bitcoin network, driving the development of the Bitcoin ecosystem. The demand for inscription trading has led to the emergence of numerous Bitcoin wallets and inscription trading market infrastructure. The limitations of transaction throughput on the Bitcoin network and the high Gas costs have gradually shifted developers' focus to the Bitcoin scaling track. The substantial funds tied up in inscriptions need to find new use and yield scenarios, while other ecosystem funds are also eager to capture the benefits of rising inscriptions, leading to a proliferation of cross-chain projects.

As of today, although the overall Bitcoin ecosystem is still in a very early stage, a number of quality infrastructures have emerged to fill market gaps. For example:

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• Wallets: Unisat, Alby, OKX Wallet, Wizz Wallet….

• Trading Markets: Unisat, OKX BRC20 Market, idclub, Dotswap swap, Alex lab….

• L2 / Scalability: B^2 Network, Merlin Chain, BounceBit, BEVM, Bison Labs, SatoshiVM….

• Bridges: MultiBit, TeleportDAO, Ordinifinity, Ordbridge….

• DA: Nubit, B^2 Network, Babylon….

source: MT Capital

The excitement in the Bitcoin ecosystem is reminiscent of Ethereum's DeFi Summer. However, in contrast, the current DEX, Lending, and Stablecoin projects in the Bitcoin ecosystem are still severely lacking. Especially the crown jewel of DeFi, the native stablecoin market for Bitcoin, still has a significant gap. With the gradual launch of BTC L2, the L2 ecosystem needs stablecoins to leverage BTC DeFi and release the liquidity of Bitcoin mainnet funds. As the craze for inscriptions gradually fades and the market becomes more rational, the funds remaining on the Bitcoin network also need to find new yield and use scenarios, and stablecoins are undoubtedly the best choice. Therefore, we have also turned our attention to bitSmiley, the first stablecoin project based on BTC over-collateralization in the bitRC-20 format. BitSmiley is expected to fill the gap in the BTC ecosystem stablecoin market and become a core component of the new round of the BTC ecosystem.

BTC's "MakerDAO + Compound"

BitSmiley consists of two core components: the stablecoin bitUSD, minted based on BTC over-collateralization, and the decentralized collateral lending bitLending based on bitUSD. Its stablecoin + decentralized lending business model is also referred to as the "MakerDAO + Compound" of the Bitcoin ecosystem.

source: https://medium.com/@bitsmiley_labs/who-we-are-92e02a0c4b27

bitUSD

BitUSD is the core of the bitSmiley ecosystem. Due to the relatively limited functionality of Brc-20, the bitSmiley team has made further optimizations based on Brc-20 to meet the business needs of stablecoins, proposing an enhanced version of the Brc-20 protocol: bitRC-20. BitRC-20 is compatible with Brc-20 and adds Mint and Burn operations to meet the needs of stablecoin minting and burning.

The overall minting logic of bitUSD is similar to that of MakerDAO. First, users need to over-collateralize BTC on the Bitcoin mainnet. Then, oracles will transmit information to L. The bitSmileyDAO deployed on L2 will, after receiving the oracle information and consensus verification, relay the Mint bitUSD information to the validators on the Bitcoin mainnet, thus achieving the minting of bitUSD on the Bitcoin mainnet.

source: https://github.com/bitSmiley-protocol/whitepaper/blob/main/BitSmiley_White_Paper.pdf

The redemption logic is similar to the minting logic; when users retrieve their collateral, the corresponding bitUSD will also be burned.

source: https://github.com/bitSmiley-protocol/whitepaper/blob/main/BitSmiley_White_Paper.pdf

If the collateralization ratio falls below the threshold, bitSmiley will also initiate a liquidation process to auction off the collateral assets. Similar to MakerDAO's liquidation mechanism, bitSmiley's liquidation will also adopt a Dutch auction format, starting bidding at a high price and gradually decreasing. BitSmiley will also use 90% of the stable fee revenue and auction proceeds as a liquidation buffer to ensure the overall system's safety. Additionally, when the liquidation buffer cannot offset the debt, bitSmiley will use the platform's future income as collateral for debt auctions, ensuring that bad debts are minimized and better resisting extreme market fluctuations that could harm the platform.

source: https://github.com/bitSmiley-protocol/whitepaper/blob/main/BitSmiley_White_Paper.pdf

The implementation idea of MakerDAO's decentralized over-collateralized stablecoin has been validated by the market. BitSmiley cleverly references MakerDAO's implementation approach and has made more refined innovations in token standards and liquidation mechanisms, thereby better meeting the stablecoin market demand in the Bitcoin ecosystem.

bitLending

In addition to the demand for stablecoins, bitSmiley has also keenly noticed the need for liquidity lending among Bitcoin users. Therefore, bitSmiley can also provide native decentralized lending services for Bitcoin.

The implementation idea of bitLending is similar to other peer-to-peer lending protocols in the ecosystem. Lenders can post loan offers on bitLending, including the types of bitRC-20 tokens they are willing to provide, the amount of tokens, loan duration, and interest rates. Borrowers can choose to accept their desired offer. After matching, bitLending will generate a multi-signature address for fund transfers. Borrowers and lenders need to transfer assets to the multi-signature address and confirm network consensus. Once confirmed, borrowers can withdraw the loan.

Due to the long block time limitations of the Bitcoin network, bitLending cannot use oracles for liquidation like other lending protocols. If the collateral asset price of the borrower significantly drops, the borrower may refuse to repay, resulting in substantial losses for the lender. To address this issue, bitLending introduces lending insurance. Both borrowers and lenders must first transfer an insurance fee to the multi-signature address before transferring the lending funds and collateral. Guarantors can receive the insurance fee in the multi-signature address and choose to guarantee the lender's losses. If a default occurs, the funds in the guarantor's multi-signature address will be used to compensate the lender, thus protecting the lender's interests.

source: https://github.com/bitSmiley-protocol/whitepaper/blob/main/BitSmiley_White_Paper.pdf

As the protocol matures, bitSmiley also plans to further optimize the lending mechanism of bitLending, allowing it to support the splitting and merging of orders to further improve capital efficiency. Additionally, bitSmiley plans to introduce CDS credit default swap products for bitLending, bringing more complex traditional financial strategies into the Bitcoin ecosystem.

In summary, bitSmiley not only brings stablecoins and lending into the DeFi ecosystem but also refines the optimization of stablecoins and lending protocols according to the unique characteristics of the Bitcoin network. With the rollout of BTC L2 and the gradual maturation of bitSmiley's business, the combination of stablecoins and lending in bitSmiley is expected to become the liquidity hub of the Bitcoin network, further consolidating liquidity in the Bitcoin network, improving capital utilization efficiency, and injecting ecological vitality into the Bitcoin network. BitSmiley's first-mover advantage may allow bitUSD to become a hard currency for value exchange in the Bitcoin network and, through continuous expansion of its network advantages, form its own ecological barriers, thus achieving a dimensionality reduction attack on other products.

Recent Developments

In addition to having a quality founding team and excellent product capability, bitSmiley's strengths in market promotion, momentum building, and event operations cannot be overlooked. Recently, bitSmiley has been ramping up its promotional efforts, successively announcing financing institutions and partners on Twitter, actively participating in organizing AMAs and Twitter Spaces, and discussions about bitSmiley in the community are gradually increasing. To further enhance community engagement, reward early supporters, and attract more new users, bitSmiley has also launched a series of NFT activities.

First, bitSmiley launched a limited edition of 100 OG NFTs: bitDisc-Gold, specifically distributed to Bitcoin OGs and industry leaders. Users who own bitDisc-Gold will be invited to a private Bitcoin OG club and gain priority access to the full suite of bitSmiley products and more benefits in the future.

Secondly, bitSmiley has also launched a limited edition of 10,000 bitDisc-Black NFT series to reward ordinary users, early supporters, and contributors. Users who own bitDisc-Black NFTs will also enjoy a series of benefits, including priority experience of bitSmiley products and potential airdrops.

source: https://medium.com/@bitsmiley_labs/btc-leading-protocol-introduces-og-nft-bitdisc-6b3684a59615

Currently, bitSmiley has taken a snapshot of the first 1999 community followers, and the remaining whitelist will be distributed through subsequent activities. KOLs on Twitter have also begun to launch retweet campaigns for whitelist draws. Additionally, bitSmiley has initiated a new round of Discord active user whitelist lottery, where users can join the bitSmiley Discord community, actively comment, and qualify for the whitelist.

Conclusion

After in-depth research and analysis, we at MT Capital are very optimistic about bitSmiley's development potential and have participated in bitSmiley's recent round of financing. BitSmiley has keen insights into the blank market for stablecoins and lending products in the Bitcoin ecosystem. By launching innovative native Bitcoin over-collateralized stablecoins and decentralized peer-to-peer lending products, they have successfully achieved a perfect product-market fit. Furthermore, bitSmiley's stablecoin not only provides a new value anchoring standard and value exchange medium for the Bitcoin network but also opens up new application scenarios and value domains for these stablecoins through its lending products. We believe that, leveraging its first-mover advantage in the market, bitSmiley will quickly build a strong ecological barrier and, with its unique combination of stablecoins and lending products, become a leading DeFi product in the Bitcoin ecosystem.