Introducing SatoshiDAO, a Decentralized Reserve Currency Protocol Backed by Bitcoin
Phil Champagne has described the nature of Bitcoin, in the preface of his masterpiece ‘The Book of Satoshi’, as a large number of individuals involved in a cross-time collaboration to achieve a shared goal, while still maintaining their uniqueness. This nature can also be extended to a guideline of establishing a system in which the Web3.0 citizens can earn with bitcoin in a different and more profitable way. That’s where SatoshiDAO is starting from. It is about the belief in bitcoin, the time value of an asset, the game theory, and the community consensus over time.
What’s the problem?
There’s no efficient way for bitcoin to earn as high or multiple yields compared to other assets in the DeFi world.
Have you ever thought about why the bitcoin network was Turing incomplete? The explanation given by Satoshi Nakamoto is that complexity is the natural enemy of security. Therefore, to ensure extreme security, the whole system was designed like what we see. Accordingly, the other side of the coin turns out to be the lack of programmability, thus leading to the difficulty of building applications on the bitcoin network, not to mention the financial ones that can help bitcoin holders earn yield.
So for a long time, those who wanted to pursue additional income beyond the rise in the price of bitcoin itself could only deposit their bitcoin assets to centralized platforms, such as crypto exchanges, like Binance, Huobi, and OKEx, or other crypto finance services providers, like BlockFi, Celsius, and Nexo.
The emergence of the DeFi ecosystem and the BTC-pegged tokens which can bridge BTC from the bitcoin blockchain to Ethereum created more yield-earning options for bitcoin holders. Since then, BTC has been deposited as collateral in lending protocols like Compound and AAVE, been traded in DEXs like Curve and SushiSwap, and be used in farming aggregators like Yearn and Harvest, hence the bitcoin holders can enjoy the interest on deposit, the LP rewards, and the compounded yields.
The problem faced by the centralized way to earn with BTC mainly manifests in two aspects:
- Irredeemable risk
- Poor returns
Strictly speaking, any centralized system is subject to the risk of non-redeemability no matter how reputable they are. It’s barely impossible for the bitcoin holders to make sure that the assets they deposited in the system can be withdrawn at any time, in any amount.
Despite the trust issue, the fact that the majority of yields earned from these platforms can only be 3% or so turns out to be the biggest problem. The chart below demonstrates the annual percentage yield (APY) of the mainstream BTC deposit options on some popular platforms.
As to the DeFi approaches, they do contribute to the security of assets, and also enhance capital efficiency, but still retain two outstanding defects:
- High frictional costs
- Unstable returns
Anyone who has ever been distressed by the high gas fees when interacting with DeFi protocols can quickly get what the high frictional costs mean. If a farmer wants to maximize the yields and play the LEGO game through multiple protocols, the cost can be even higher. Besides, some DeFi protocols, like Curve, are not that easy to access, especially for the BTC holders who are newcomers to the DeFi world, the time and energy paid to learn these products should also be considered as another kind of frictional cost.
Then how about the returns? Undoubtedly, there are a variety of delicate tokenomics in the DeFi world that managed to incentivize users in a better way, whereas the performance of BTC-related pools (or more precisely the BTC-pegged tokens pools) still falls behind other assets.
Although adding the bonus of each platform’s governance tokens, the yields of Aave V2 and Aave Avalanche for BTC-pegged tokens can only be 0.26% and 1.83% respectively, and the deposit interest of WBTC in Compound is only 0.23%. In Curve, the platform which has locked the most value and liquidity of BTC-pegged tokens, currently the most profitable pool goes to ibBTC, which can provide at most 12% APY based on CRV rewards in addition to the base APY around 0.05%. In terms of farming aggregators, the average APY of BTC-related pools goes to 2%, with few ones reaching 10% or more. (The data mentioned above was collected in December).
Another non-ignorable point is that these protocols tend to distribute more rewards to newly-added assets, which means the APY of BTC-related pools is not only lower than other mainstream assets but also unstable and unsustainable.
How are we addressing this problem?
SatoshiDAO is building a consensus-driven, permission-less, frictionless, and easy-to-access organization that helps people earn more with BTC in a DeFi2.0 way.
It has been proven that neither the centralized platforms nor the DEFI LEGO stack can create an effective way to earn more with BTC. How can we make a breakthrough?
What if we establish a virtuous wealth creation system that can accumulate liquidity and accrue value to its treasury, and then allocate the value to all stakeholders who make a commitment to the system?
It’s time to dump the old pattern and embrace a new world in which BTC holders no longer need to rely on other protocols to bring yields. The new world itself can provide the participants with attractive incomes as long as they are willing to stake the currency circulating into the new world.
This idea is also in line with the spirit of bitcoin: a large number of individuals are involved in a cross-time collaboration to achieve a shared goal. And that’s why the decentralized autonomous organization can be built and well-operated. Everyone commits to abide by bitcoin rules to ensure the maximum benefit of the bitcoin system, and at the same time, to safeguard their interests. Likewise, the participants in the new system, namely SatoshiDAO, who collaborate to maximize the benefit of the system, will ultimately benefit from the system.
And it is the heart and soul of SatoshiDAO’s vision to become a consensus-driven, permission-less, frictionless, and easy-to-access organization that allows every participant to be a party to the yields generated from the organization itself as well as the growing future of Bitcoin.
Here are two principles of SatoshiDAO.
Principle 1: Everything at SatoshiDAO revolves around the community at its focus.
From policies to strategy, SatoshiDAO is dedicated to building a protocol that grounds up with the community and makes sure that at every step, it’s the interest of the community that is being served.
Principle 2: Every community member will have an equal chance to participate and benefit from the growth of the protocol.
No realSatoshi left behind. Our primary goal is to promote equal participation in owning and benefiting from the treasury. All you have to do is be a realSatoshi and take part in good governance from time to time.
The following articles will focus on the mechanism of SatoshiDAO and the calculation of the estimated yields of this system. You will be provided with detailed statistics of how SatoshiDAO works and how it can make you earn more with BTC. Stay tuned.
Innovations are happening all the time in the blockchain universe, you should be a part of it.