Thread by @david_seroy

/1 Bitcoin and the dollar are symbiotic. Like yin and yang they provide balance.

The path to hyper-bitcoin-ization will be paved with credit-based, #BTC-backed dollars. Specifically, permission-less, KYC free, Bitcoin backed stablecoin loans at 0% interest via DeFi. Thread 🧵:

/2 In 2014, @PierreRochard wrote Speculative Attack; aka "sell your chairs", long bitcoin, short dollar! He advocates borrowing depreciating dollars to buy appreciating Bitcoin. In this context, the dollar could be an amazing HODL…as long as it's a _liability_ on your B/S.

/3 Currently, Bitcoin companies like Ledn, HodlHodl, Unchained, etc allow borrowing dollars against Bitcoin; but respectfully, these will all become dinosaurs. Each suffer from some combo of high interest, KYC, custodial, or regulatory risk in addition to un-scalable funding.

/4 However, true DeFi _could_ have a solution. One may be @SovrynBTC's protocol Zero (fork of @Liquity), which will allow anyone to borrow dollar stablecoins against their Bitcoin with no interest (0% interest w/ ~0.5% orig. fee), no loan term, no KYC and no central authority.

/5 Effectively, #BTC becomes a personal line of credit. It's 0% interest as you are both borrower and lender. By locking #BTC collateral, the protocol mints a token which pegs it's value to the dollar. At any time you can redeem for an equivalent amount #BTC at current $ price.

/6 Users must over-collateralize the loans with #BTC by a _minimum_ of 110%. If the price drops, then you risk your #BTC collateral being liquidated to re-pay the debt, as should happen with any credit instrument, thus purging inappropriate leverage.

/7 Ultimately, this simply allows you to HODL #BTC as an asset forever and spend depreciating stablecoins as liabilities instead of your appreciating #BTC. You can read specifics more here: wiki.sovryn.app/en/sovryn-dapp….

/8 Without this product the idea of speculative attack or hyper-bitcoinization is a façade and would condemn #BTC to truly being Gold 2.0 in the worst ways; a world in which central authorities use the demand for credit to hijack our collateral & monetary sovereignty, again.

COUNTERPOINTS:
/9 Some Bitcoiner's will say "But dollars are going to be worthless in a hyper-bitcoinized world!". OK great, that's the point! That means our borrowed debt will go to zero without selling #BTC while others had to sell #BTC to finance their life-style.

/10 Others argue "Gold can't be sent through time & space, #BTC eliminates gold-like custodial risk!". This is true for xfering #BTC, but not true for creating credit. The desire to create credit is a back-door custodial risk that will push #BTC into CEX's w/o DeFi.

/11 Others will say "credit is evil"! While I agree, the reality is credit is inescapable. If the base-layer monetary asset (#BTC) cannot expand (due to 21M cap), then credit layers will be formed on-top to expand money supply to meet market demands, whether we like it or not.

/12 Others will say "People will denominate loans in #BTC"! Sorry, no chance. No one will take a loan denominated in a deflationary asset where the debt due appreciates over time when they can instead borrow a depreciating liability to not sell their #BTC.

/13 Others will say "Blockchains can only enforce #BTC!" This is not 100% true because finance, like money is purely an abstraction. Meaning it can settle and exist exclusively in the native digital realm on a ledger and thus can be fully arbitrated by Bitcoin network.

/14 Ultimately, credit is inescapable and credit money will always exist as hierarchical IOU's layered on-top of each other via double entry accounting h/t @NikBhatia. Credit creation is impossible to stop, therefore we must embrace it on our terms in using DeFi.

/15 For example, the entire Eurodollar aka off-shore system (h/t @JeffSnider & @EmilKalinowski) was born from an inability of the US$ to expand the monetary supply sufficiently post petro-dollar. That off-shore system is now estimated to be 10X+ size of Fed's B/S today!

/16 The off-shore system can create dollars as credit outside the purview or permission of a central bank; in the shadows! Dollars created in the shadows are co-mingled with dollars created by Fed/US banks and thus become a systemic risk that the Fed didn't technically create.

/17 Offshore $'s fed the the worlds insatiable hunger for dollars. But when these derivatives blew up (like 2008) there was no way to differentiate between dollar credit via Fed Dollars vs. Offshore dollars and thus the Fed was forced into a rug-pull holding the off-shore bag.

/18 The off-shore system illustrates an economy (even a #BTC one) must be able to expand the monetary supply (with credit), _while_ also being able to enforce limitations. This allows speculative money expansion, while #BTC's 21M cap limits and purges bad leverage.

/19 For Austrians, @Mises describes this as commodity vs. circulation credit. Circulation == no backing, i.e. fractional reserve, VS. commodity credit where the credit is fully backed by savings in hard assets aka #BTC as the pristine collateral. h/t @CaitlinLong @GeorgeGammon

/20 Commodity credit allows leverage on #BTC to create dollars, but doing so without creating more dollars than we actually have _savings_ for. The difference is DeFi enables us to facilitate this credit creation in a credibly transparent way with enforceable terms.

/21 DeFi has provable, proof-of-reserves. Instead of pleading with CEX's to give us un-enforceable attestations or weak and opaque assurances of backing, we can actually verify contracts and outstanding credit ourselves. h/t @NicCarter Proof of Reserves.

/22 DeFi uses smart contracts to assure individuals can actually redeem for their underlying collateral without a counterparty (See Nixon Shock). DeFi is also non-custodial, therefore reducing risk of your #BTC collateral being seized by the nation-state (see Order #6102).

/23 DeFi is KYC free thus removing regulatory authorities who have historically used their power over the financial system to undermine the population. See operation choke-point in addition to Treasury Wars and Confessions of Economic Hitman.

/23 DeFi may also represent @Halfin's 2010 prediction of Bitcoin backed banks (h/t @GeorgeSelgin's work free-banking work). With DeFi this vision could be realized without the pitfalls mentioned above.

/24 Credit goes to where it feels most secure. Today, US Treasuries serve that purpose. Most dollars are created with treasuries as collateral via Repo. In the future, DeFi will perform the same function but with #BTC as 'pristine collateral'. h/t @RaoulGMI @ColoradoTravis

/25 Bitcoiner's need to understand if we want to become heir apparent to the $100T+ bond market which mostly serves the role as collateral, then we must embrace being the pristine collateral for dollar liabilities to be issued against. You can't have your cake and eat it too.

/26 Further, #BTC backed loans via DeFi will flip the paradigm from credit money being created by banks & financial institutions via RePo to individuals issuing their own credit, thus re-distributing credit creation as individual responsibility, without the socialized risk.

/27 Alternative crypto-backed loans may exist short-term, but eventually credit consolidates to where it feels most secure. Above all else, #BTC owns market on decentralization and store of value, the most critical and idyllic traits for collateral usage.

/28 #BTC will win as collateral, but the medium or service by which we leverage our #BTC is TBD. I believe the winning solution will be whichever DeFi can most closely replicate Bitcoin's base-layers trust assumptions and maximize it's ability to serve as collateral.

/29 All DeFi eventually will scale via roll-ups & modularity. Therefore, whichever solution has most trustless peg and greatest collateral assurances will win. DeFi of the future naturally has to trend as close to #BTC (as reasonably possible) if it wants to out-compete others.

/30 The importance of decentralized #BTC backed stablecoin loans via DeFi cannot be understated. It's the bridge that will link disparate parts of the ecosystem together with Bitcoin as the singularity. I do not believe Bitcoin will reach maximum success without this realization.

/31 As the long term debt cycle comes to an end, govts will force someone to the $ bag. They will clamp escape valves wherever possible. That likely means heavy regulation and control of CeFi, while taxation is used as a to quell inflation (as descibed by MMT proponents).

/32 During times of extreme govt intervention, simply #HODLing #BTC is not sufficent for most individuals. Borrowing against #BTC can be used as a non-taxable event. For many individuals with no savings, dollars are a necessity and any loan under 50% is a god-send. @Gladstein

/33 In the future this we will see these #BTC backed stablecoins flying around on Lightning networks via @RGB and @Synonym. We see individuals around the world using dollars that can redeemed for #BTC outside the control of central authorities @Gladstein.

/34 Pegs and Fiat: We will see more trust-less pegs such as @tBTC, or @drivechains, and hopefully one day base-layer ZKP verification enabling scalable DeFi via roll-ups with ZK-S(T)NARK's. We will see improved DEX fiat ramps from @bisq and @TBD via DiD (@mikebrock)

/35 Some of this may takes years and is an up-hill battle, but there is a path. Even better, there will be no altruism required. DeFi combined with #BTC provides a truly superior experience and people will naturally use the features. The future is there.

36/ The ultimate proliferation of #BTC will be made possible by embracing dollars and DeFi. #BTC will be our SOV and the dollar will be our SOD. The is the end-game for a _credible_ Bitcoin Standard and it's beautiful.

/end

/37 P.S.

Caveat Emptor! Most things mentioned above thread are speculative and/or not yet released nor battle tested and simply my personal views. The safest thing you can do with your Bitcoin is always deep cold-storage and anything else is generally considered experimental.

/38 DeFi in particular is riddled with holes including mis-information, hacks, deception, rug-pulls, etc. However, these are exciting times and there are honest builders making good faith efforts to build amazing things. Ultimately #DYOR!

Half my @ tags are incorrect because I forgot to swap them out after drafting the thread. Whoops.😩