Apr 7, 2023
Introduction
Liquidium is a groundbreaking solution for Ordinal lending on Bitcoin that leverages the power of Discreet Log Contracts (DLCs) and Partially Signed Bitcoin Transactions (PSBTs) by partnering with DeepLake. Unlike existing protocols that rely on bridging Ordinals to other blockchains, Liquidium allows users to borrow and lend native Bitcoin against native Ordinals as collateral in a trust-minimal and custodian-free solution.
The Rise of Ordinals
Ordinal Inscriptions are a new form of digital assets created by inscribing data on satoshis, the smallest unit of Bitcoin (BTC). The Taproot upgrade on the Bitcoin Network enabled new ways of encoding Bitcoin transaction data, allowing for more flexibility and privacy. Thanks to this upgrade, Ordinal Inscriptions were possible.
Ordinal Inscriptions are similar to NFTs (non-fungible tokens) on other blockchains such as Ethereum. NFTs are unique and indivisible digital tokens representing ownership of various digital or physical assets, such as art, music, games, collectibles, etc. Nonetheless, Ordinal Inscriptions have distinctive features that differentiate them from NFTs.
First, Ordinal Inscriptions inscribe data directly on the Bitcoin blockchain without relying on any intermediary layer or protocol. Therefore, inscriptions inherit the security and decentralization of the Bitcoin network, considered the most robust and resilient blockchain. This results in Ordinals being immutable and scarce by nature because of Bitcoin's limited block size and limited supply.
Second, Ordinal Inscriptions are ordered by when they were inscribed. The first Ordinal Inscription was index #1, the second index #2, and so on. This creates a natural scarcity and rarity for Ordinal Inscriptions based on their ordinality. The lower the index number, the more valuable and prestigious an Ordinal Inscription is likely to be.
Third, Ordinal Inscriptions can contain any data encoded in binary format. This includes images, videos, text, audio files, software applications, and more. With all of these unique characteristics, Ordinals are gaining demand from users across all blockchains.
Fourth, Ordinal Inscriptions can be inscribed on to different Satoshis, hence increase the value of the Ordinal itself. Sats are defined as as follow.
Recently, a new type of Ordinal Inscription has joined the market called BRC-20, which allows for Fungible Tokens on Bitcoin using the principle of Ordinal Inscriptions.
More than 10 million Ordinals have been inscribed since February 2023.
The Challenge of Accessing Liquidity for Ordinal Owners
Ordinals continue to grow in volume and value, with some pieces selling for millions of dollars. However, Ordinal owners face a significant challenge: how can they access liquidity without selling their precious assets? Fortunately, Liquidium provides a groundbreaking solution for Ordinal lending on Bitcoin. Ordinal lending locks inscriptions as collateral to borrow Bitcoin, or other cryptocurrencies, while retaining ownership and exposure to their Ordinal.
The Current State of NFT Lending
NFT lending is a proven concept. It has been successfully implemented on Ethereum for several years. In fact, NFT lending has a total borrow volume of just about $2Bn on only Ethereum-based NFT lending platforms.
Recently, there has been a surge in NFT lending due to more big NFT companies joining the space, such as Blur.io with their Blend P2P NFT lending platform and most recently even Binance with a P2Pool NFT Lending protocol. The biggest NFT Companies are onboarding NFT lending solutions due to its massive demand.
Ethereum NFTs account for the majority of the volume and value in the NFT space across all blockchains - mostly because Ethereum is the largest NFT-capable network by market cap. Given that Bitcoin has a larger market cap than Ethereum, this gives reason to believe Ordinals will have a significant role and impact. Therefore, a lending solution enabling Ordinal owners to lock inscriptions as collateral is needed.
Liquidium: The Solution for Ordinal Lending on Bitcoin
Our protocol enables users to access liquidity quickly, cheaply, and securely while retaining full control over their assets. Liquidium is not another workaround. Our novel and innovative solution operates solely on the Bitcoin blockchain in a secure and transparent peer-to-peer manner for lending and borrowing digital assets.
Unlike existing solutions that rely on bridging Ordinals to other blockchains, Liquidium allows users to borrow and lend native Bitcoin using their native Ordinals as collateral without intermediaries or custodians. This has several advantages over current workarounds:
Users can use their borrowed Bitcoin to buy more Ordinals or any other asset on the Bitcoin network without switching between different wallets, blockchains, or platforms.
Users do not have to wrap their Ordinals to another chain, which introduces additional risks and fees. Liquidium uses DLCs to create trustless contracts between borrowers and lenders enforced by oracle signatures.
Users can benefit from Bitcoin's security, scalability, and privacy, as Liquidium uses PSBTs to create flexible and composable transactions that multiple parties can sign.
Liquidium already launched an NFT lending protocol on Stacks as an MVP and is about to be the first Ordinal lending marketplace on native Bitcoin, enabling Ordinal DeFi. Our MVP facilitated over 67 loans and $20k in borrow volume and our current waitlist for Ordinal Lending gained more than 15k submissions in less than 24 hours.
Terms
Borrower - An ordinal inscription holder looking to collateralize their inscriptions in a loan.
Lender - A BTC holder looking to earn yield on their BTC or receive a discounted Inscription in the scenario of a loan default.
Loan Request - A loan with a set amount, duration, interest rate set, and signed PSBT by the Borrower.
Loan Default - The event when a loan is not paid back in time
Mechanism
Summary
Using Partially Signed Bitcoin Transactions, Liquidium facilitates a P2P lending marketplace on the Bitcoin network. Borrowers request loans by setting their desired loan terms (interest, duration, amount) and locking their Ordinal(s) as collateral. Users browse requests to search for terms they are willing to accept. To become a Lender, users will send the loan amount to the borrower and the loan fee to Liquidium; this will initiate the loan. Borrowers must repay both the loan amount plus interest to the Lender within the set duration to retrieve their Ordinal. If the Borrower does not repay in full on time, the loan defaults, and the Ordinal is sent to the Lender. The DeepLake Oracles validate loan outcomes by examining on-chain activity, which minimizes the need for trust in the process.
PSBT (Partially Signed Bitcoin Transaction) Participants
Borrower
Lender
Deep Lake Oracle
Loan Initiation
The Borrower signs part of a PSBT and sets their desired amount, interest rate, and duration. These values are stored on DeepLake oracles.
Borrowers can cancel their loan request anytime before the lender initiates the loan.
The loan request is now viewable on Liquidium, and anyone can become a Lender (liquidity provider) by lending BTC to the borrower. Borrower’s wait for a Lender to choose their loan request.
To initiate a loan, the Lender signs part of the PSBT and then broadcasts the transaction to the Bitcoin network. Two things happen from this transaction:
The Borrower’s inscription is locked in a mu
The Lender’s BTC is transferred to the Borrower
Repayment
An ongoing loan can be repaid at any point in time within the loan duration.
If an ongoing loan isn’t repaid within the loan duration, the loan defaults.
All repayments are in full.
Borrower calls Deep Lake Oracle and request the repayment signature
If the loan has not expired, the Oracle reveals the signature
Borrower uses the signature to sign a new PSBT for repayment and broadcasts to the network.
The Borrower’s inscription is unlocked and returns to their address
The Borrower transfers the loan amount plus all of the interest for the loan term
20% of the interest is sent to the public Liquidium BTC address as a service fee.
Defaults
If an ongoing loan isn’t repaid within the loan duration, the loan defaults.
Lender calls Deep Lake Oracle and requests the default signature
If the loan has expired, the Oracle reveals the signature
Lender uses the signature to sign a new PSBT for default and broadcasts to the network.
The Borrower’s inscription is unlocked from the escrow and transferred to the Lender’s address.
Conclusion
Ordinals, a new form of digital assets created by inscribing data on satoshis (smallest unit of Bitcoin), are revolutionizing the digital asset landscape. These unique and scarce tokens, enabled by the Taproot upgrade, are similar to NFTs but have distinct advantages, such as being directly inscribed on the Bitcoin blockchain and inheriting its security and decentralization.
Liquidium has arrived at the perfect moment to fill a significant gap in the market by offering a revolutionary Ordinal lending solution on Bitcoin. By leveraging the unparalleled security and decentralization of the Bitcoin network, Liquidium provides a trust-minimized and custodian-free platform for accessing liquidity.
As the natural next step in the evolution of NFT lending, Liquidium is leading the charge with a solution that caters specifically to the needs of Ordinal owners. By offering a P2P Bitcoin lending platform that uses Ordinals as collateral on Layer 1 Bitcoin, Liquidium enables true Bitcoin DeFi and Ordinal DeFi. It eliminates the need for cumbersome and expensive workarounds while taking advantage of the robust and resilient Bitcoin infrastructure.
With our extensive experience and traction, including our MVP and our waitlist of more than 16.5k submissions, we're the right ones to enable true Ordinal Lending & DeFi. Let’s redefine the lending landscape and provide much-needed access to liquidity for the rapidly growing world of Ordinals.
Links
Website: https://liquidium.fi
