The biggest market in crypto, even today, is still Bitcoin. It’s the only truly decentralized digital asset. But Bitcoin, by itself, isn’t enough – it needs to have smart contracts for uses like lending and currency hedging. A trillion dollars of Bitcoin capital is waiting to use native Bitcoin in smart contracts.
Why is Bitcoin so important? It’s the only truly safe, decentralized digital asset. Bitcoin builds on decades of cryptographic research so it’s more resistant to hacks by far. Think about it, where would you rather put your savings: into something that was developed by the best of the best in academia over decades, or into something that was built quickly and with a small engineering team? Even in the early days of crypto that we’re living in today, hacks and other custodial mistakes have led to over $40Bn in losses. Imagine what that will look like once the sector grows 100X.
Since Bitcoin is digital, it does have a programmable interface. But today, in order to use it for DeFi, you have to wrap the Bitcoin, meaning that you entrust a third-party with its custody. Governments and large corporations are keen to use Bitcoin in more ways but can’t risk it, since even the most reputable custodians are subject to human error and hacking.
The way to get around this is through escrow contracts. In the finance world, secure transactions require escrow to eliminate counterparty risk. And that escrow needs to be trust-minimized, so the escrow contracts themselves need to be decentralized as well. Discreet Log Contracts, or DLCs, are the missing piece.
DLCs are 2-of-3 multisig wallets where one of the parties is an oracle that independently referees the outcome. Smart contracts lock and unlock Bitcoin by communicating with these oracles. As DLC.link, we provide the infrastructure that runs this layer. To make it decentralized, we’re building a network where independent node operators run the oracles and get paid in our token.
This layer enables new types of non-custodied DeFi applications that just weren’t possible before. As one example, we’re now working with Arkadiko to build the world’s first stablecoin that is backed by self-custodied BTC. Our escrow lets Arkadiko lock Bitcoin in escrow to mint a stablecoin. A smart contract tracks price fluctuations and can initiate liquidations when needed. The user locks Bitcoin to mint the stablecoin and burns the stablecoin to unlock the underlying Bitcoin. This capability is so transformative that their founding team called our pilot a “bet the company” moment for them.
Our broader vision is to use this layer to connect all blockchains to smart contracts on Bitcoin. Every chain will want to use native Bitcoin in their systems, which for us leads to tremendous network effects. Similar to how Chainlink captured market share for price feed oracles, we’ll grow to be the dominant force for DLC oracles on Bitcoin.
In traditional finance, escrow is a financial primitive that powers the global derivatives market worth $1 Quadrillion, so we’re talking about an addressable market for escrowed apps in the Trillions. There are hundreds of use cases for escrow in traditional finance, and each of these use cases are multi-Billion dollar markets in their own right, meaning that we see thousands of applications to be built on top of our infrastructure.