Perhaps one of the hottest topics of 2020 is bringing DeFi to Bitcoin (and vice versa). We’ve covered numerous approaches here on DeFi Rate, all of which are aiming to help Bitcoin tap into the vibrant cryptocurrency lending markets.
Today, that discussion continues with the unveiling of a $2.45M seed round by Atomic Loans – a Bitcoin lending platform allowing users to lock their BTC in a non-custodial escrow in exchange for a stablecoin loan using USDC or Dai.
1/14 Excited to announce our $2.45M seed round led by @Initialized!
Also welcoming Morgan Creek & @APompliano @JoeLallouz @aaronhenshaw @rverbee @reganbozman and Mike Cohen, joining @ConsenSys
Thanks for supporting us in bringing #DeFi to #Bitcoin!https://t.co/qhZVQmauwb
— Atomic Loans (@Atomic_Loans) April 14, 2020
The round comes with strong signal, led by Initialized Capital with follow on support from ConsenSys and new investors Morgan Creek Digital – the fund led by leading Bitcoin thought-leader Anthony Pompliano.
“As remarkable as the growth of DeFi has been to date, little or none of it works natively on Bitcoin. This leaves out what is far and away the largest and most valuable crypto-asset,” said Brett Gibson, Partner at Initialized Capital. “Atomic Loans is leveraging their deep expertise in Bitcoin scripting and atomic swaps to create a useful DeFi product that works on the Bitcoin blockchain directly without requiring complex synthetics on other blockchains.”
Pomp echoed these comments stating that Atomic is using Bitcoin “as it was intended” – namely by having borrowers lock their Bitcoin onchain, rather than wrapping it and porting it to Ethereum as we’ve seen with other solutions like wBTC and tBTC.
Atomic has aggregated roughly $135k in TVL during it’s closed beta with $40k in loans originated to date. The platform has been audited by both Consensys Diligence and Quantstamp and is now opening its doors to the public.
With this, we were lucky enough to sit down with Matthew Black, a co-founder and CTO of Atomic to further dive into their approach.
How does Atomic Loans lock Bitcoin natively?
We designed a script used to lock Bitcoin into atomic loans. The borrower requests a loan and locks BTC as collateral. When they repay the loan, the lender reveals a secret allowing the borrower to unlock that collateral. The revealing of the secret is the key difference as to why and how we’re able to lock Bitcoin natively on-chain.
In short:
Lender (??) runs a bot (??)
?? Borrower ( ?? ) provides ? proof of funds to ??
???? creates ? request to lock funds
?? ?? locks ?
???? approves ?
?? ?? withdraws loan ?
?? ?? repays loan ?
???? accepts repayment ? & reveals secret
?? ?? uses secret to unlock ?
— Matthew ?lack [340-342???????] (@matthewjablack) April 2, 2020
How does Atomic compare to a Bitcoin lending solution like BlockFi?
Atomic Loans is non-custodial, meaning it’s drastically different from releasing your funds to BlockFi and hoping their risk management is done properly.
In recent weeks, we’ve seen what happens with events like Black Thursday regarding insolvency. With Atomic Loans, lenders can see where funds are and what the assets are that are backing a loan at any given time. We believe this transparency aids in solvency by providing lenders confidence that all loans are sufficiently collateralized.
The cool thing about Atomic is that when supplying stablecoins for lending, those idle assets are collecting interest on Compound. When those funds are put to use for a Bitcoin-backed loan, those rates increase.
Our current lending rates are 9% for USDC and 9.25% for DAI on all assets borrowed, with users being able to earn these higher returns by locking their stablecoins in for a longer period of time.
And what about other competitors?
If you’re using a centralized solution, you don’t know what their risk management strategy is, where they’re storing your Bitcoin, or how they might even be rehypothecating it. Other DeFi solutions simply lack the liquidity that Atomic Loans can offer by borrowing against Bitcoin on its native chain.
Seeing as other solutions need validators or backing collateral, there’s a lot of constraints around Bitcoin lending liquidity. They also introduce additional attack vectors regarding trust and smart contract risk that Atomic Loans mitigates.
What degree of technical knowledge is required to use Atomic?
Lenders run a bot that allows them to set and forget their funds after they’ve gone through a setup process. This inherently makes the process a bit more cumbersome for the lender at first – hence why we’ve kept lending as a private beta. We’re actively working on solutions that will improve this experience moving forward.
On the other hand, the borrower interface is really simple and self-serve. All it requires is a Bitcoin-compatible wallet like LEDGER and Metamask to take care of the stablecoin transactions on the Ethereum side.
Can you explain how the unlocking of collateral works?
In order for the lender to accept repayment, they need to reveal a secret. When they accept that repayment of the loan, this gives borrowers what they need to unlock their Bitcoin. In the case the lender goes offline, we’ve created an arbitor that can reveal secrets to the borrower on a case by case basis.
Why are Bitcoin backed loans important?
We’re in a climate today where the bull case for Bitcoin has never been stronger. The Fed is printing trillions of dollars which begs the question – Where do you want to have your money?
While Bitcoin is a great store of value, people today still need to be able to transact in the traditional fiat system. We’re offering a Bitcoin lending solution that allows users to get the liquidity to transact in a traditional system (thanks to stablecoins) without having to sell their Bitcoin.
And in our view, the path forward for Bitcoin backed loans is a non-custodial and decentralized approach that uses Bitcoin as it was intended.
—
To summarize, we’re quite excited to watch Atomic Loans growth in the coming months.
Outside of what we touched on in this article, it’s quite apparent that Matt and the rest of the Atomic team are very well suited to head a novel lending platform which hopes to garner support from the vast Bitcoin market.
To get a loan against your Bitcoin today, head on over to https://atomic.loans/.
Until then, stay up to date with that project via their official Twitter!
Cooper is focused on building compelling blockchain products. He currently works as the managing director at Fitzner Blockchain Consulting and is a contributor to DAOs like MetaCartel and Moloch. He is an active member of the Ethereum community and has a strong interest in for-profit businesses such as The Block Crypto and Messari.
