Native BTC-Collateralized Lending System

Participants

Borrower: The party receiving the loan by using native BTC as Collateral

Liquidity Provider: Users supplying the loan through the Lending Contract

DCM (Distributed Collateral Manager): A decentralized network of operators organized into a threshold adaptor signature scheme. DCM operators sign Bitcoin 2-of-2 multi-sig transactions on behalf of the Lending Contract, with the counterparty being the Borrower. Additionally, the DCM manages Liquidated Assets in the event of a liquidation.

Lending Contract: A smart contract deployed on the Side Chain that automates the operations of the lending pool. This contract enables liquidity providers to supply assets for lending and earn rewards in return. While the Lending Contract itself does not have the capability to sign transactions, it delegates this function to the DCM, which signs transactions on behalf of the contract and in collaboration with the borrower.

Glossary

Collateral: The BTC assets pledged by the Borrower to borrow the loan

Collateral Vault: A Bitcoin Taproot address where borrowers send their BTC as collateral for lending. Each loan has its own unique vault address designated for its collateral

Principal: The original amount of assets borrowed

Maturity Time: The deadline by which the Borrower must repay the loan in full. If the Borrower fails to repay by this date, the DCM may liquidate the Collateral to recover the outstanding debt

Liquidated Assets: Collateral liquidated and sent to the DCM due to the borrower's failure to fulfill payments on the principal and interest of the loan before Maturity Time

Loan Default: The failure to repay a loan by the Maturity Time, which can result in the liquidation of Collateral

Liquidation Price: The BTC price at which a loan becomes undercollateralized, triggering the execution of CETs

Final Timeout: The specified time after which the Borrower is entitled to reclaim the collateral if the DCM or Side Chain becomes unresponsive.