Understanding BTC L2 Stablecoin Protocol, Satoshi Protocol

Since the launch of BTC in 2009, the concept of digital gold has deeply resonated with people worldwide. Through multiple halving cycles, the global crypto market has seen rapid growth over the years. Throughout the 15-year journey of the crypto industry, BTC, as the origin of it all, was conceived to establish a new decentralized monetary system. However, as of now, BTC is still widely regarded as a digital gold asset, with its investment attributes being the most prominent value proposition. Yet, as an ideal form of currency, BTC falls short in some aspects, as it has not fully realized its superiority in a peer-to-peer payment network, which seems to deviate from Satoshi Nakamoto’s initial vision.

With the recent surge in BTC ecosystem activities, coupled with off-chain SEC approval of BTC ETFs, among other catalysts, the BTC ecosystem has entered a new cycle of rapid capital influx. The demand for Bitcoin ecosystem expansion has become increasingly urgent, with the construction of Layer 2 networks undoubtedly becoming a popular track.

BTCFi has always been a hot topic in the crypto market, but the scalability of the BTC network has long been constrained by network infrastructure limitations. The crypto industry has already identified a clear solution to truly unlock this vast potential market, which is to build a stable and efficient stablecoin protocol based on existing BTC Layer 2 networks to serve as the cornerstone of meeting the relevant market demands.

Based on this consensus, Satoshi Protocol, the first Stablecoin Protocol Satoshi Protocol compatible with BEVM, was officially launched in early March and has initiated related activities on the Testnet. This article will guide readers through various aspects of the protocol and how to participate in the Testnet activities. Hopefully, by understanding Satoshi, readers will gain a rough impression of the trends in BTC Layer 2 development.

Satoshi Protocol and BEVM - BTC Ecological Expansion and Implementation Protocol

BEVM: Bitcoin Layer2 compatible with EVM Development Experience

If cryptocurrency users are familiar with BTC Layer 2, they will take note of BEVM, which is a fully decentralized L2 solution. It introduces a mechanism compatible with the Ethereum Virtual Machine (EVM), where BTC serves as network gas and transaction data is stored on the BTC main network, with transaction validation shifted to BTC light nodes.

The approach taken by BEVM differs from Ethereum Rollups. The validation method of light nodes is more peer-to-peer during network transmission. BEVM directly utilizes public chain networks that support WebAssembly (WASM), which is faster and more efficient compared to traditional EVM virtual machines. The BTC light nodes can directly obtain corresponding data from the BTC network.

The transition from Taproot to BEVM as a Layer 2 solution provides a technical foundation for breaking through the limitations of the traditional BTC network. The focus is on breaking free from the constraints of BTC’s multi-signature setup. The new signature algorithm enables transaction aggregation, significantly reducing transaction data volume and costs.

Additionally, the combination of the MAST contract framework with aggregation signature algorithms brings more flexibility and scalability, providing Layer 2 with high programmability and expandability.

Moreover, since BEVM is compatible with the Ethereum Virtual Machine (EVM), it supports development using mainstream wallet applications such as Solidity and Metamask. This compatibility offers a user experience similar to Ethereum. Multiple Testnet projects, including Satoshi Protocol, have already been deployed on the BEVM ecosystem page.

Collateralized Debt Position (CDP)

Before introducing the Satoshi Protocol, it’s necessary to understand the CDP (Collateralized Debt Position) protocol it utilizes.

CDP stands for Collateralized Debt Position and has been utilized in various projects across different categories such as DeFi and NFTFi since its inception by MakerDAO. Satoshi Protocol also adopts this protocol, allowing users to deposit BTC as collateral and borrow stablecoin SAT. By leveraging the mechanisms of SAT itself, the protocol aims to stabilize the token’s price, enabling users to obtain liquidity while holding BTC.

Satoshi Protocol: Unlocking Liquidity in the Bitcoin Ecosystem

In the current environment where BTC has gained widespread recognition and its investment value is increasing, not only in the crypto market but also in the traditional financial system, with the recent approval of BTC spot ETFs confirming this trend. However, the original concept of BTC as an ideal currency has yet to fully demonstrate its superiority in this regard. An ideal currency should possess attributes such as being a medium of exchange, a unit of account, and a store of value.

However, the inherent value and consensus of BTC also make it a widely recognized value support for stablecoins. Therefore, a stablecoin protocol based on BTC is highly necessary. The development of BTC Layer 2 has already provided a solid technical foundation and network security for such protocols. Hence, the emergence of the Satoshi Protocol can be considered timely.

With the various features of BEVM mentioned above, Satoshi Protocol, as the ecosystem’s first CDP protocol, aims to provide liquidity for BTC. By using SAT, a USD stablecoin fully backed by BTC as excess reserve assets, Satoshi Protocol will be able to unlock diverse applications in BTCFi (Bitcoin Financial Infrastructure).

The basic model of the SAT token allows users to collateralize BTC in excess within the protocol and borrow the stablecoin SAT, which is pegged to USD 1, for unrestricted use. This initiative targets the potential trillion-dollar liquidity in the BTC ecosystem. If successful, the market outlook is immense, and SAT stablecoin is just the cornerstone of the first step, providing users with liquidity while holding BTC.

Operation Mechanism of SAT Stablecoin

The operation of SAT is composed of excess collateralization, liquidation mechanism, and arbitrage mechanism, which are also common features of most stablecoin protocols in the DeFi space. However, it is the first time such features have been implemented within the BEVM ecosystem.

Excess Collateralization:

Users must maintain a collateralization ratio of over 110% when opening a position to avoid liquidation. In other words, when borrowing 100 SAT, users must lock in BTC worth more than 110% of the borrowed amount as collateral, i.e., 110 SAT worth of BTC in total.

Of course, BTC’s price will fluctuate with market movements. If the value of the collateral decreases due to a drop in BTC price, triggering a collateralization ratio below 110%, the liquidation mechanism will be activated. The protocol will use SAT from the Stability Pool (SP) to purchase the liquidated collateral at a discount to repay the borrower’s debt.

Stability Pool (SP):

The SP is a crucial mechanism for ensuring the stability of the Satoshi Protocol and providing liquidity. Users who deposit SAT into the stability pool provide corresponding liquidity. If any user’s collateralization ratio falls below 110%, triggering liquidation, the process of selling BTC collateral at a discount to obtain SAT is funded by the Stability Pool.

Users providing SAT liquidity in the stability pool can purchase liquidated BTC collateral at a discount. The protocol then uses the SAT obtained from the liquidated collateral to repay the debt, ensuring that the protocol is always over-collateralized.

SAT Exchange and Redemption:

When the price of SAT is less than USD 1, arbitrageurs can buy SAT on the market and use Satoshi Protocol’s redemption mechanism to redeem SAT for USD 1 worth of BTC assets at any time and sell them for arbitrage. This arbitrage strategy comes into play when the SAT price is below USD 1, increasing demand for SAT and pushing its price back to $1.

When the price of SAT is higher than $1.1, arbitrageurs can mortgage BTC on the Satoshi Protocol to lend out SAT, thereby selling in the market to gain profits, forming corresponding selling pressure and pushing SAT back below $1.1. All users can mint SAT by depositing BTC as collateral and paying a fixed annual interest rate of 4.5%.

The aforementioned are the basic mechanism characteristics of the Satoshi Protocol. The prerequisite for implementing these functions is the technical support provided by the BEVM ecosystem regarding the BTC Layer2 solution. SAT, as a USD stablecoin based on BTC, requires effective scalability solutions from the BTC network for various derivative DeFi and trading scenarios.

While various stablecoin protocols have existed in the crypto market for years, USD stablecoins based on BTC have not performed as well as expected in the past few years. There are many reasons for this, including limitations of the BTC network itself and the positioning of BTC in the crypto market. However, it cannot be denied that BTC was initially conceived as an ideal form of currency. Therefore, Satoshi Protocol the protocol’s future of BTC’s characteristics in this regard is an exploration of its vision, and it represents a recent achievement in the existing crypto industry. Perhaps it will truly unlock the trillion-dollar market liquidity inherent in BTC itself.

BEVM Main-net Will be Launched Soon

At present, Satoshi Protocol has confirmed that it has received investment from the BEVM Foundation, and many top VCs in the industry will also participate. The official Tweet of the project has also been forwarded many times by BEVM’s official tweet.

Currently, Satoshi Protocol is expected to launch the BEVM Mainnet in mid-March, and there is news of a possible airdrop. It is also one of the first projects to be confirmed to be launched on the BEVM ecosystem Mainnet. It has attracted a lot of attention. Testnet activities and Galxe activities are taking place at the same time.

The ongoing activities of the Satoshi Protocol represent different paths of activities within the same period, each offering different rewards. However, they can be seen as a phased warm-up for the project before the launch on the BEVM mainnet.

Participation in different activities can yield rewards in the form of OAT (Original Art Tokens) and NFTs (Non-Fungible Tokens). Currently, the specifics of these benefits are not clear, but they are likely related to SAT (Satoshi Protocol stablecoin) airdrop benefits or fee reductions on the platform, which is a common strategy adopted by many DeFi projects in the past.

However, what sets the Satoshi Protocol apart from previous DeFi projects is that BTCFi is currently a hotly contested field with clear future expectations, and its associated BTC Layer2 solution construction is steadily advancing. Similar to popular fields in 2024 such as ETH Layer2 and DePIN, BTC Layer2 solutions are also areas worth paying attention to. Additionally, BTC-based stablecoins represent an untapped market segment in the industry. Satoshi Protocol offers a set of market-validated operational mechanisms, which is expected to lead to a significant surge in activity after the launch on the BEVM mainnet.

Testnet and Galxe activities

Testnet activities

Event participation page: https://app.satoshiprotocol.org/nft

Satoshi Testnet received the announcement: @satoshi-protocol"">https://medium.com/@satoshi-protocol

Event participation reward: Genesis Spark NFT

Event start and end time: 3.6 22:00-3.18 22:00 (UTC+8)

According to the official website, as long as you qualify for the test and complete the position creation, and then deposit SAT into the Stability Pool, each address can receive Genesis Spark NFT qualification once, with no total quantity limit.

Steps to participate in the event:

1. Join BEVM’s official Discord channel to gain access to test BTC;

1. Use the Metamask wallet and switch to the BEVM test network (Satoshi will guide the automatic switch);

1. Go to the Position page and click Create Position;

1. Deposit test BTC and borrow SAT –Please ensure that the collateralization ratio is above 110% and borrow at least 18 SAT;

2. Select and click Approve to confirm the wallet signature;

1. After Approve is successful, click Create Position;

2. After successfully borrowing SAT, please go to the Stability Pool page;

3. Enter the corresponding SAT deposit amount, and then click Deposit to confirm;

1. Go to Campaign after completion;

2. After completing the above steps, you have completed the test network activity and obtained Mint NFT qualifications. Click Mint to obtain Genesis Spark NFT;

The Genesis Spark is the first NFT officially launched by the Satoshi Protocol, named and designed to convey the inherent characteristics of BTC as digital gold. Despite 15 years of development, BTC has been limited by network constraints, preventing the effective implementation of its P2P payment network. However, with technological advancements and iterative scaling solutions, peer-to-peer transactions with BTC have become feasible. As the fourth halving approaches, the market demand for BTC and the development of its related ecosystem are poised for significant growth. The BTC-backed stablecoin propelled by the Satoshi Protocol is set to become one of the driving forces behind BTCFi development. Therefore, acquiring the Genesis Spark NFT early on may prove to be a wise long-term investment decision.

Galxe Events

Event participation page: https://galxe.com/YwrNUBkpFyTpkRJTcKmZcX

Event participation reward: 25,000 Satoshi Pioneer OAT

Event start and end time: 3.7 12:00-3.18 22:00 (UTC+8)

In addition to Testnet activities, Satoshi Protocol has launched multiple participating activities on the Galxe platform from February to March. The most recent is Satoshi Pioneer. By completing multiple designated tasks, you can obtain a limited number of 25,000 Satoshis. Pioneer OAT and Galxe activities are related to Testnet activities. Including past Galxe activities, a total of 4 phases of OAT have been launched. The task setting is more complicated, and the purpose is to filter out real active users.

Users participating in the event can use Metamask to log in and enter the Satoshi Pioneer OAT event page. Since this activity is associated with the Testnet activities, it includes various community social media tasks such as X, Discord, and Telegram. Participants need to join the official community of the project and interact with the Satoshi contracts already deployed on the BEVM Testnet. Therefore, the activity path is relatively diverse, and the corresponding rewards differ from the NFTs available in the Testnet activity. Participants can receive limited Satoshi Pioneer OAT tokens.

Currently, the specific benefits of Satoshi Pioneer OAT tokens in the Satoshi Protocol project have not been announced, maintaining a somewhat mysterious status. However, Galxe OAT tokens, as commonly distributed reward tokens, can be associated with a wide range of benefits. Therefore, acquiring them early in the project can be quite advantageous.

Summary

Recently, Satoshi Protocol has been making significant moves in the market. As the first stablecoin protocol in the BEVM ecosystem, it aims to unlock liquidity worth trillions in BTC. Currently, the project is also one of the key highlights in the BEVM ecosystem. Being an effective scalability solution for BTC Layer2, BEVM has been considered a promising ecosystem in the crypto market. Therefore, a stablecoin protocol like the Satoshi Protocol, based on effective technical support and possessing efficiency and flexibility, may create waves in the future market.

After all, a market gateway based on the BTC network, with greater diversity and liquidity, has been opened, making it the best time to get involved.

Satoshi Protocol The test network and community social media activities are ongoing and will last until March 18th. After completing various tasks, you can obtain NFT and OAT rewards. Early participation will enjoy more special and continuous rights in the future.

Disclaimer:

1. This article is reproduced from [TechFlow], the original title is “Understanding the BTC L2 Stablecoin New Protocol Satoshi Protocol in One Article”, the copyright belongs to the original author [Satoshi Protocol], if you have any objection to the reprint, please contact Gate Learn Team, the team will handle it as soon as possible according to relevant procedures.

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