Unlocked Possibilities
By tokenizing mining contract and bringing Bitcoin to L2 as the medium of distributing the mining yield, there are several use cases made possible such as:
For lending protocol, Loka NFT can become the yield provider for the borrower. The scenario can be:
- Bob borrows against his bitcoin in a certain period of time
- Protocol automatically mint Loka NFT mining contract based on the contract period and locked the yield in their smart contract
- 50% of bitcoin mining yield then used to repay the loan principal and reducing the LTV
- 50% of bitcoin mining yield can be withdrawn immediately
Mining contract can be locked and the yield can only be withdrawn by the end of the contract period. This way, utilizing option mechanism, we can create 2 different vault that complement each other;
- Bull Vault
- collecting the premium from Bear Vault
- getting even more BTC when bitcoin price is going up or plateau by the end of the contract
- when the price drop, some of the locked BTC will be delivered to Bear Vault
- Bear Vault
- paying premium to Bull Vault
- getting less BTC when bitcoin price going up by the end of the contract
- when the price drop, it is insured in dollar value — and get compensated by more BTC from the Bull Vault
A simple modeling based on how much BTC user will get in different type of contracts:
- Contract price = $3,000
- Period = 6 months
- BTC price when contract started = $30,000
Btc price after 6 months | Vanilla Contract | Bull Vault | Bear Vault |
|---|---|---|---|
$30K (stays the same as contract started) | 0.12 BTC ($3,600) | 0.13 BTC ($3,900) ROI 30% | 0.11 BTC ($3,300) ROI 10% |
$36K (+20%) | 0.12 BTC ($4,320) | 0.13 BTC ($4,680) ROI 56% | 0.11 BTC ($3,960) ROI 32% |
$24K (-20%) | 0.12 BTC ($2,880) | 0.1 BTC ($2,400) ROI -20% | 0.14 BTC ($3,360) ROI 12% |
By using locked BTC in the Contract Vault that is increasing each day from the mining yield, user can utilize their BTC as collateral to mint stablecoins.
This schema will vastly decrease the risk of liquidation since the LTV will decrease each day, due to the increasing BTC in the vault from mining yield.
User can also leverage it further by using the stablecoins to buy mining contracts; and this scenario can be automated as autocompunding features, but with real yield.
