Sovryn explained: DeFi on Bitcoin’s side-chain
A detailed overview of Sovryn’s tech, services and decentralization
Launched in April 2021, Sovryn is the first financial application on Rootstock and one of the first permissionless financial apps bridged with Bitcoin, the Lightning Network, Ethereum and Binance Smart Chain.
What’s unique about Sovryn in the DeFi landscape is that its services are denominated in BTC and bridged with the Bitcoin network. Sovryn currently offers a variety of on-chain DeFi applications: Trading, lending, staking and liquidity farming.
The smart-contracts running Sovryn’s applications are hosted on Rootstock, a side-chain linked to the Bitcoin network (more about Rootstock later). Sovryn is part of the new generation of permissionless financial applications that offer cross-chain activity.
Launched: April 13th, 2021
Tech overview: Sovryn uses EVM smart contracts on the RSK blockchain. It’s bridged with the Bitcoin and Lightning networks, as well as on Ethereum and BSC. Most of Sovryn’s functionality is inspired by protocols on Ethereum and part of the codebase was built using reworked and audited forks.
- BTC leveraged trading
- AMM trading (ETH, BTC, SOV, BNB)
- ‘Zero’- Bitcoin backed lending of USD stablecoins with 0% interest
- Overcapitalized token lending and borrowing
- An aggregated native stablecoin
Bridging services: Sovryn currently provides two non-custodial bridges:
In addition Sovryn provides FastBTC, a quick, custodial solution for sending BTC from Bitcoin to Rootstock and back.
Funds locked: According to Sovryn’s website, at the time of writing, Sovryn’s lending, AMM and other DeFi conracts hold Bitcoin and other tokens currently worth $95.3 million. An additional $420.6 million worth of SOV is hosted in Bitocracy DAO’s staking contract.
Trading volume: According to the Sovryn Wiki, from January 23rd to Febaury 1st 2022 the average daily trading volume of Sovryn’s AMMs was around 65 BTC or around roughly $2.5 million a day on average.
What is Rootstock?
Rootstock or RSK for short, is a fork of the Ethereum protocol, similar to other EVM compatible blockchains such as Arbitrum and BinanceChain. What’s unique about Rootstock are its 2-way peg connecting it with the Bitcoin network and that it is merged-mined with Bitcoin.
Merged-mining is the process whereby Bitcoin miners can mine RSK at the same time as Bitcoin, using the same mining algorithm and earning ‘extra’ RSK coins for securing the Rootstock blockchain. Approximately 52% of Bitcoin miners currently mine RSK, making it one of the most secure blockchains in the world.
( A simple technical explanation of how merged mining works can be found here.)
The 2-way peg or ‘bridge’ from RSK to Bitcoin is controlled by an automated 5 out of 11 multi-signature federation. This signature federation, the RSK Federation, is a group of 11 businesses in the Bitcoin industry including Xapo, Prycto and Collider Ventures, who each hold one key to the 2-way peg.
Rootstock has recently upgraded the 2-way peg to a system named PowPeg, which aims to decrease the power of the federation over the signing process and make it more tamper-proof.
How decentralized is Sovryn?
“Decentralization is the removal of a central point of control from a system and replacing it with many points of control, without downgrading the integrity of the system. In cryptocurrency, this sums up to:
A) trustlessness — complete transparency and strong predictability, including resistance to being shut-down.
B) permissionlessness — anyone can enjoy the service without being limited by a specific jurisdiction.”
Contracts: All Sovryn’s ownable contracts are currently controlled by the Exchequer multisig — an anonymous group of key holders, except Staking and FeeSharingProxy which can be updated according to the votes of SOV stakers.
Changes to all contracts and the project’s codebase can be voted on in Bitocracy DAO, with the right to vote given to stakers of SOV tokens. Decisions can be made with a majority stake vote. All Sovryn contracts have been audited by OpenZeppelin.
Price Oracle: Sovryn currently uses Money-on-Chain, an RSK native oracle which supplies aggregate prices from multiple exchanges. For SOV’s price, Sovryn uses an internal oracle feed from its AMM. Sovryn plans to integrate ChainLink as an additional oracle.
The UFO test: Using Sovryn does not currently require identification, allowing everyone, even UFOs, to enjoy all of Sovryn’s services.
Sending Funds to Sovryn
There are currently 3 options for sending funds to Sovryn:
A) Directly depositing BTC using the FastBTC subservice and receiving rBTC in Sovryn’s wallet.
C) Deposit SOV, ETH, BNB or stablecoins using the RSK — Ethereum and BNB bridge.
(Sovryn supports several crypto wallets including Portis, Liquality and MetaMask)
Sovryn Services — Financial Apps
Overview of the financial apps provided by Sovryn
A) Leveraged trading: Trade Bitcoin in a non-custodial environment
Sovryn’s Apps provides a leverage trading interface to trade rBTC/xUSD as well as SOV and BPRO with up to 5X leverage
B) DEX: Non-custodial spot trading
The DEX offers swaps between 11 assets such as rBTC, rUSDT, BNBs, ETHs and SOV, among others, in the fashion of EVM AMM’s, like Uniswap and Bancor.
C ) Yield farming: Provide liquidity to Sovryn’s DEX and earn SOV
Providing liquidity to Sovryn’s DEX liquidity pools yields a range of returns. The BTC/XUSD and SOV/BTC pools currently yield between 50% to 70% yearly in SOV, while for the BTC/USDT pair the yield is currently around 10%. Yields and pools are updated live here.
D) Lending and borrowing
Borrowing BTC using stablecoins requires 130% overcollateralization, or over 300% overcollateralized with BPRO or SOV token. This currently costs an additional 5.3% a year and yields 2.1% to lenders.
Borrowing stablecoins (DOC or XUSD) requires 150% collateralization in BTC or BPRO, the other stablecoin or SOV. It costs 11% — 13% per year and lending yields between 4% — 5% per year.
Staking SOV tokens requires no lock up time and yields rewards for up to 3 years, with an average early yield of 21%.
Withdrawing Funds from Sovryn
1) Use the Defiant App to exchange rBTC back to BTC.
2) Use BabelFish’s stablecoin bridge to Ethereum or Binance Smart Chain.
3) Deposit rBTC or SOV into an exchange (rBTC is traded on Bitfinex and KuCoin, and SOV on KuCoin, Ascendex and Gate.io)