Yala Vision Paper 2024: Connecting Bitcoin liquidity with a meta-yield stablecoin
TL;DR
Bitcoin’s original design prioritized security and decentralization over complex functionality like smart contracts and DeFi applications. Yala unlocks Bitcoin’s potential for DeFi by offering $YU, a BTC-backed stablecoin that can natively earn yield across multiple blockchain networks. Leveraging the Ordinals protocol, Yala issues $YU on Bitcoin while integrating a decentralized indexer network and Oracle via meta protocols. This allows Bitcoin assets to be directly mapped to other blockchain ecosystems for DeFi participation.
Yala prioritizes security and decentralization with robust mechanisms like federated voting Indexer (eventually build a decentralized indexer) and Bitcoin Vaults with threshold signatures. Its goal is to build a modular DeFi Yield aggregator for Bitcoin, democratizing accessibility and embracing decentralized governance through community involvement. It aims to establish itself as the preeminent DeFi Solution, driving mass adoption of decentralized finance on the world’s most resilient blockchain while upholding Bitcoin’s core principles of security and decentralization.
1. Bitcoin’s limitations for smart contracts and DeFi
Bitcoin, the pioneering decentralized cryptocurrency, was designed with a strong emphasis on security and decentralization. Its scripting language was initially intended to facilitate simple peer-to-peer value transfers, not complex financial functionalities. As the DeFi ecosystem flourished on more adaptable blockchains like Ethereum, Bitcoin faced challenges in meeting the rapidly evolving demands of DeFi applications due to its architectural constraints, such as block size and frequency limitations.
The blockchain scalability trilemma highlights the delicate balance between security, decentralization, and scalability, which are crucial for DeFi applications. Bitcoin’s prioritization of the former two has hindered its ability to meet DeFi’s high-volume, real-time requirements. This has left many Bitcoin holders needing a seamless way to generate yield or participate in the growing DeFi ecosystem, unlike users of Ethereum and other EVM-compatible blockchains.
While Ethereum explored scalability solutions like sharding, rollups, and modularity, Bitcoin remained conservative, exploring layer two solutions to increase capacity without compromising its ethos. However, to fully embrace the DeFi opportunity and provide Bitcoin holders with a way to generate yield, Bitcoin must consider the following strategies:
- Enhancing DeFi capabilities: Bitcoin could explore and leverage new techniques, such as sharding, rollups, and other scalability solutions, to enhance its DeFi capabilities while maintaining its founding principles of security and decentralization. Careful implementation and rigorous testing would ensure the network’s integrity and decentralization are not compromised.
- Embracing modularity: Modular design principles could introduce new features and functionalities tailored to DeFi without compromising the core protocol’s security and decentralization. This would allow Bitcoin to evolve and adapt to the ever-changing DeFi landscape, providing Bitcoin holders with opportunities to generate yield and participate in the DeFi ecosystem.
- Layer 2 scaling solutions: Bitcoin’s developers have focused on L2 solutions like the Lightning Network and Sidechains to enhance scalability off the main chain. However, these solutions introduce complexity and dependence on separate governance protocols. To truly embrace DeFi and provide a seamless yield-generating experience for Bitcoin holders, Bitcoin may need to explore more integrated and user-friendly solutions.
As the DeFi ecosystem evolves, Bitcoin must adapt and innovate to unlock its full potential in this realm and provide its holders the same opportunities as users of other blockchain ecosystems. By identifying and developing strategies that align Bitcoin’s founding principles with the evolving requirements of DeFi, the visionaries behind Bitcoin can shape its future as a decentralized, accessible, and financially empowering technology for the DeFi ecosystem while also offering its holders a way to generate yield and participate in the growing DeFi space.
2. $YU: BTC-backed stablecoin earning yield across chains
The rise of DeFi has opened up new opportunities for financial innovation, but Bitcoin’s architectural constraints have hindered its ability to participate fully in this rapidly evolving ecosystem. Yala’s solution is leveraging Bitcoin’s unique properties while introducing DeFi capabilities, focusing on offering a BTC-backed stablecoin that can natively earn yield on multiple chains.
2.1 The Ordinals protocol: An opportunity to Bitcoin DeFi
Inscriptions, a breakthrough innovation enabled by the Ordinals protocol, allows for issuing and managing digital assets directly on the Bitcoin blockchain. By assigning unique identifiers to individual satoshis (the smallest units of Bitcoin), inscriptions enable the creation of non-fungible tokens (NFTs) and other digital assets, including Yala’s BTC-backed stablecoin, on the Bitcoin network.
Building upon this foundation, Meta Protocols (BRC-20, BRC-100, BRC-420, and so forth) enable the integration of indexers on the Bitcoin network, paving the way for a truly decentralized DeFi ecosystem on Bitcoin.
2. 2 Yala’s BTC-backed stablecoin: earning yield across chains
Yala’s modular approach to Bitcoin allows for introducing programmable smart contracts and DeFi applications, including a BTC-backed stablecoin that can natively earn yield on multiple chains. Please read Yala’s whitepaper for detailed technical design. By leveraging the robust security framework of EVMs like Ethereum or No EVM like Solana, Yala’s stablecoin offering will incorporate lending/borrowing protocol, liquidity pools, and governance contracts, all backed by formal verification to ensure mathematical correctness.
With Yala’s solution, holders of the BTC-backed stablecoin can seamlessly participate in DeFi opportunities across various blockchain networks, earning yield on their Bitcoin holdings without sacrificing the Bitcoin network’s security and decentralization principles.
2. 3 Robust security and decentralization
Yala’s solution prioritizes security and decentralization, aligning with Bitcoin’s founding principles. The indexer network enabled by federated voting diminishes centralization risks in centralized BRC-20 indexing, while strict data verification and consensus protocols ensure the reliability and integrity of maintained token balance information. It is worth noting that the federated voting indexer is an interim solution, and Yala is committed to build a decentralized indexer.
Collaboration with Nubit provides additional data availability validation for honest indexer behavior, and the BRC-20 black/white module separation enforces robust security principles for deposit/withdrawal transactions.
2. 4 Execution layer and oracle network
At the execution layer, Bitcoin asset management leverages Bitcoin vaults using threshold signatures for robust security without single points of failure. Yala’s decentralized Oracle network also provides tamper-resistant real-time price data, which is critical for managing liquidations and maintaining the stablecoin peg.
By introducing a BTC-backed stablecoin that can natively earn yield on multiple chains, Yala is unlocking Bitcoin’s potential in the rapidly evolving DeFi ecosystem. This approach combines Bitcoin’s robust security and decentralization with the innovation and flexibility of DeFi, creating a powerful and user-centric blockchain ecosystem for a diverse digital economy.
3. Build a true DeFi ecosystem for Bitcoin
At Yala, our vision is to create a thriving, open ecosystem that unlocks the full potential of DeFi on Bitcoin.
- Unleashing the untapped potential for Bitcoin assets: Yala is committed to unlocking the full potential of DeFi on Bitcoin. With Bitcoin-backed $YU stablecoin, we will offer meta-yield from all other chains for Bitcoin holders.
- Democratizing DeFi accessibility: Our vision revolves around democratizing access to DeFi, enabling individuals and organizations to participate in a transparent, accessible, self-sovereign, decentralized financial system. We aim to foster an open ecosystem where diverse DeFi applications can seamlessly interoperate and compose, driving innovation, collaboration, and shared value creation.
- Embracing decentralized governance for the lending protocol: At the core of our endeavor lies a commitment to decentralization and community governance. We strive to transition our lending protocol’s governance structure into a Decentralized Autonomous Organization (DAO), empowering the broader community to shape the Yala ecosystem’s evolution actively. We aspire to create a self-sustaining, resilient, continuously evolving DeFi ecosystem on Bitcoin through inclusivity and collective ownership.
- Pioneering Bitcoin’s DeFi landscape: Yala’s ultimate goal is to establish itself as the preeminent DeFi infrastructure for Bitcoin. We envision a future where individuals and organizations can access a wide array of secure, transparent, and decentralized financial services, products, and opportunities within the Bitcoin ecosystem.
Together, we will build the true DeFi ecosystem for Bitcoin, unlocking a world of possibilities and driving the mass adoption of decentralized finance on the world’s most secure and resilient blockchain network.
About Yala
Yala connects Bitcoin liquidity with a meta yield stablecoin. Designed as both a potent asset and a liquidity enhancer, the stablecoin, $YU, operates across various ecosystems, increasing efficiency without the need for bridges or relocating the underlying Bitcoin. Yala empowers Bitcoin holders and ecosystem participants with expanded utility, all while maintaining the security of Bitcoin’s infrastructure.
