Lygos Finance unveiled what it calls the primary actually non-custodial bitcoin -backed lending platform, aiming to remodel the crypto credit score market with institutional-grade design.
The platform is constructed on Discrete Log Contracts (DLCs) developed by Atomic Finance, which Lygos acquired earlier this 12 months.
DLCs implement bilateral lending agreements straight on Bitcoin’s base layer, with an exterior oracle testifying to details like BTC-USD costs, however not controlling the funds. Debtors and lenders signal Contract Execution Transactions, that means settlement occurs completely on the Bitcoin blockchain with out custodians or smart-contract threat.
“True non-custodial means precisely this,” CEO Jay Patel stated in an emailed announcement on Thursday. “No participant apart from the borrower and lender can transfer the funds.”
Lygos helps as much as $100 million, with BTC collateralized in a local 2-of-2 script and USDC/USDT issued on Ethereum. The mannequin avoids wrapped bitcoin or artificial collateral, maintaining custody native on each side of the transaction.
In the course of the 2021 crypto bull market, centralized lenders resembling Celsius Community, Voyager Digital and BlockFi drew billions in deposits by promising excessive yields. However these returns had been usually constructed on dangerous, interconnected loans.
The system unraveled in 2022, when the collapse of the Terra-Luna stablecoin and the chapter of hedge fund Three Arrows Capital (3AC) left most of the main lenders uncovered. Mass withdrawals adopted, forcing companies to freeze belongings and file for chapter. Prospects misplaced a lot of their deposited funds, and the popularity of bitcoin lending took a extreme hit.
By implementing agreements straight on the Bitcoin layer 1, Lygos stated it may well restore confidence with clear, enforceable contracts and no reliance on custodians. The debut marks a contemporary try and reimagine bitcoin credit score markets, this time with non-custodial rails.
