Thread by @muneeb

The ultimate Bitcoin lending app will be 100% trustless. Your BTC will never leave the main Bitcoin chain.

How can this work? Tweet thread👇

1/ Bitcoin lending is already a multi-billion dollar market. You can currently divide the market into (a) wrapped assets and (b) custodial lending.

Wrapped assets themselves can be custodial with more decentralized versions like Keep in the works.

2/ For wrapped assets, like WBTC, a synthetic asset is issued by a custodian on a separate tech stack.

Three issues:
a) Potential tax hit on BTC to WBTC conversion and back. 
b) Risk of companies in the middle.
c) Risk of blockchains other than Bitcoin.

3/ Custodial lending companies like BlockFi are great for the Bitcoin ecosystem. Bitcoiners may limit their exposure, given counterparty risk, or may not use it for privacy reasons.

There will always be a market for 100% trustless BTC lending without any humans or companies.

4/ Can this be implemented? Yes, let's explore.

Clarity lang, on Stacks, has direct access to Bitcoin state. This means developers can build BTC lending where BTC never leaves the main BTC chain.

No KYC, no custodians, no middlemen.

5/ A Clarity contract can hold the collateral, say in a digital dollar stablecoin with 150-200% collateral.

The Clarity contract can detect when BTC moves, so a loan can be initiated by providing loan terms (amount in BTC and time in BTC blocks) to the contract.

6/ Party A sends a BTC transaction to Party B (the borrower), and the Clarity contract auto starts the timer on loan, expressed in BTC blocks.

If the BTC does not come back to a specified BTC address by the given BTC block, the contract will auto-release Party A's collateral.

7/ The lender needs to be comfortable with the logic/code of the contract.

This is where Clarity language's decidability plays a critical role: you can have formal proofs that the contract can only release the collateral and do nothing else.

Trust math, not people.

8/ The lender is not trusting some other blockchain for consensus. Stacks settles transactions on Bitcoin; Bitcoin as the ultimate source of truth.

BTC movements are pure BTC transactions. The digital dollar transaction for a loan default is on Stacks that itself settles on BTC.

9/ Bitcoin lending in a 100% trustless way is possible today.

Your BTC never leaves the BTC chain. No third parties, wrapped assets, or needless tax complexity.

Pure BTC lending is one of several reasons I'm thrilled for Bitcoin smart contracts. Early days!