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The Zero Protocol

RootStock is a Bitcoin sidechain that enables solidity smart contracts to be deployed within the BTC ecosystem. For many of the Bitcoiners that wish to see a fully fledged financial system built on the technology and ideology of this powerful asset, this sidechain is incredible.

It already hosts a number of platforms that are starting to test what can be done within it, and many interesting projects are emerging from this. From all of those, certainly one of the most exciting is the ZERO protocol by Sovryn.

Sovryn is a DEFI platform on Bitcoin seeking to empower its users by creating a suite of services that are decentralised, permission-less and censorship proof. This includes borrowing and lending, yield farming, limit orders and much more.

They have recently released the ZERO protocol on a closed beta. I’ve had the privilege of testing it and it could very well be a complete game changer for Bitcoiners everywhere.

At its essence the protocol allows for users to deposit Bitcoin and in exchange issue stable coins. These coins are a “loan” you issue to yourself. As such there is ZERO% interest rate and no deadlines for repayment. At any moment in time one could simply put back the same amount of stable coins and retrieve the underlying collateral.

What this means is that we get to access the value of our Bitcoins without actually selling them. We get the USD-pegged stablecoins, which we can use for our daily needs, and the colateral (our bitcoin) can patiently wait and keep growing in value. Whenever we are ready, we only need to return the same USD value we took, nothing more (there are small fees when creating the loan and when closing, at the moment 0.5%) to get it all back.

The important thing to note here is that when we deposit our collateral, we can choose how much USD value we loan ourselves. The catch is that there should always be at least 110% collateral for any given line of credit. If the value of Bitcoin were to fall below the threshold, we enter the risk of liquidation. So it is very much advisable to keep a close eye on the collateral ratio and always keep more than what we think is necessary, as Bitcoin is still a volatile asset.

The first thing I thought was that, of course, I’ll be careful and not get close to the danger zone. But I must assume that many people using the platform will be reckless. The beautiful design of ZERO is that it absolutely takes this into consideration.

Basically, you can play two different roles. Issue a line of credit to yourself and go about your way. Or, you can also provide funds to the stability pool, and then you get to close the loans that fall below 110% collateral ratio, earning all the BTC that was acting as collateral. This accomplishes many things.

Firstly, it means people can punish and profit from those who take unnecessary risks, this alone is a huge shift in the way lending platforms work, specially when compared to centralised ones. Take Celsius for example, they were investing their users colateral in other platforms and losing money left and right. When they eventually collapsed, the users were the ones bearing the costs. Here the situation is completely different, all the collateral stays in the smart contracts until reaching the point of liquidation. If you do your job properly you should never be near it. Then, there are users incentivised to close the lines of credit below 110% as quickly as possible, the sooner they do it the more they earn from it (since they would take the remaining colateral), while preventing the platform from getting under collateralised as well.

So in this system, prudent players can stay safe, where the reckless ones get punished. At the same time, since it is all on chain, the information is available to everyone. We can clearly see how many lines of credit are open at any given time, and how many of them are getting close to the zone of liquidation. All this acts as a signal for those who wish to benefit when imprudent actors start taking more risks, making closing the credit lines that more appealing.

It is an incredible feat of engineering, which delivers a product orders of magnitude above anything else in the market.

We are witnessing the building of a true financial infrastructure that anyone in the world can participate in, and no one can manipulate. A fairer system, open and transparent built on the back of the greatest asset known to mankind.

I cannot wait to see how this new protocol Sovryn developed on the Rootstock blockchain will forever change the way we exchange value. And how Bitcoiners will get access to the value of their coins without ever having to sell another sat.

ZERO is not yet open for the general public but it is getting closer, stay tuned for more information and never sell your Bitcoins again.

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The Art of Tomas
The Art of Tomas

A busker who performs in the streets of Sydney, born in Argentina delighting audiences of all ages with my music, drawings, poems, books and comics

Poems and thoughts
Poems and thoughts

I sometimes like to rhyme when I think, when the pen hits the sand, Where thoughts and soul combine, It is silly I know, but sillier would then be, to hear the siren song, and wilfully blind, refuse to answer the muses call. so here you can search and here you shall find wanderers of time and space collected all in on small place the feeling I once had the writings of mad creative man you might call it scribbles others might call it Art for me it's little more than an exercise to let my mind run wild.

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