Atomic Loans is launching a decentralized finance (DeFi) product that is likely to be the closest to a direct implementation on Bitcoin’s (BTC) chain. It doesn’t quite avoid using an external smart contract platform, but it allows directly using Bitcoin for collateral.
The startup announced on April 14 that it had raised $2.45 million in seed funding in a round led by Initialized Capital and with participation from ConsenSys, Morgan Creek Digital and Joe Lallouz and Aaron Henshaw from Bison Trails.
Simultaneously, it is launching the Bitcoin side of its DeFi platform as a public mainnet beta.
Atomic Loans works in a way similar to MakerDAO or Compound. A borrower must lock up his BTC collateral in a special multi-signature contract on the Bitcoin blockchain. Smart contracts on Ethereum then read that data and provide the loan through stablecoins on the other blockchain.
The co-founder and CTO of Atomic Loans, Matthew Black, noted to Cointelegraph that the system does not mint its own stablecoins, making it closer to Compound than Maker.
Like on other DeFi platforms, there is a minimum collateralization requirement below which the lender can trigger liquidation. For BTC, it was set at 140% — just 10% below what Maker requires for Ethereum, but 7% more than the same percentage on Compound.
Motivating the decision, Black said that they looked at these competitors and “decided to go somewhere in the middle.” The team felt that Bitcoin “was a much more stable asset” and could withstand slightly lower parameters.
For liquidators, the discount on Bitcoin market price amounts to 7%, which is higher than Compound’s 5% and Maker’s 3%. Black explained that this is due to the longer block times on Bitcoin, which could create additional uncertainty for arbitrage.
Not yet permissionless
Like many cross-chain solutions working on Bitcoin, there is an element of trust involved, as Black noted:
“There’s two main points of trust within the system. One is oracles…