Solution Design: Native Bitcoin Lending

Bitcoin lending in Side Protocol allows BTC holders to lock their assets in a timelocked contract as collateral and borrow other assets from liquidity pools on Side Chain. The protocol features an automated on-chain liquidation mechanism in which the locked BTC may be forfeited if pre-signed conditions are fulfilled and attested by the protocol’s oracle.

Unlike traditional Bitcoin lending solutions that rely on custodial wrappers, bridges to external networks, or peer-to-peer contracts, Side Lending is built directly on Bitcoin’s UTXO model and native scripting capabilities. This design enables users to borrow against their native BTC in a fully non-custodial manner—without custodians, without rehypothecation—while maintaining compatibility with DeFi primitives and composability on Side Chain.

Most Frequently Asked Questions

Does my BTC leave my custody once locked?

No. When you lock BTC to borrow on Side, it remains in a self-custodial Bitcoin script. You do not transfer custody to Side or any third party. Your BTC stays under your control, and any movement of funds requires your approval.

However, because lending involves liquidation risk, you must pre-sign transactions that authorize the protocol to liquidate your position if you fail to repay on time or if the BTC price falls to your liquidation threshold. This protects our liquidity providers while while keeping custody in your hands.