At 10101 we are preparing for the next big thing. #selfcustodial synthetic #stablecoins powered by #DLC.
It uses derivatives to stabilize #Bitcoin towards another asset of choice, for example the US dollar.
But how does that work?
To achieve a stable position in terms of USD, we utilize a #Bitcoin derivative called a perpetual inverse future.
In this mechanism, users who wish to hold a synthetic #stablecoin take a short position in a perpetual inverse future with a leverage of 1.
A counter party willing to go long takes the other side of the trade with a leverage of 1.
The chart below illustrates how this function looks like.
In the given example it shows how much BTC each party may receive depending on the USD price of BTC.
Let's have a look at an example assuming a bitcoin price of $30.000.
1. Alice wants to hold $30,000 in our synthetic stable coin.
2. She has to put up 1 BTC (โ $30,000).
3. Bob takes the other side of the trade, and also has to put up 1 BTC (โ $30,000).
Assuming the price appreciates to $60,000:
1. Alice still holds $30,000 (โ 0.5 BTC) => $30,000/$60,000 = 0.5 BTC.
2. Bob holds 1.5 BTC (โ $90,000).
Assuming the price depreciates to $15,000:
1. Alice still holds $30,000 (โ 2 BTC) => $30,000/$15,000 = 2 BTC.
2. Bob holds 0 BTC (โ $0).
Assuming the price appreciates to $1,000,000:
1. Alice still holds $30,000 (โ 0.03 BTC) => $30,000/$1,000,000 = 0.03 BTC.
2. Bob holds 1.97 BTC (โ $970,000).
If the price drops below $15,000 in this example, the short position's value will fall below the initial $30,000.
Differently said, the long position gets liquidated at $15,000. That means that the position won't be stable anymore as the counter party dropped.
If you got until here, sign up to our waiting list if you want to be one of the first ones to try #selfcustodial stablecoins on #Bitcoin.
10101 - Decentralized finance built on Bitcoin
When settling a #DLC, the #Lightning node doesn't need to know the specifics. It just needs to be instructed to collaboratively remove a custom output, splitting its coins in a particular way.
This is analogous to what happens when a HTLC is removed after a claimed payment.
Check out our latest blog post of the "Bringing DLCs to Lightning" series at 
