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In the bustling city of Hong Kong, during the recent DevCon conference, Sunny Feng Han, co-founder of Elastos, captivated the audience with a groundbreaking presentation on BeL2’s latest development—a demo loan application that operates on mainnet Bitcoin (BTC) and connects the Elastos SmartWeb without the need for bridging.
This innovation not only echoes the foundational ethos of Bitcoin—promoting secure and personal banking autonomy—but also forges a path towards its seamless integration into the decentralised smart finance landscape. You can watch the demo app shared at the presentation on Elacity here!
Please note! the demo is no for public use today and will be optimised for broader use in the weeks ahead.
BeL2 Loan App Explained
The BeL2 Loan App is designed with a specific purpose in mind: to empower Bitcoin maximalists and cryptocurrency users to leverage their BTC holdings as collateral for loans while maintaining full custody of their assets. This addresses the inherent risks of centralisation and security vulnerabilities associated with converting BTC to wrapped versions like WBTC.
- BTC Locking: Users lock their Bitcoin through a bespoke transaction script, ensuring that the BTC remains accessible only under predefined conditions within an associated smart contract on the Ethereum Virtual Machine (EVM).
- Smart Contract Execution: Governed by a smart contract on the EVM, the loan’s terms are laid out, including interest rates and the conditions for collateral access or liquidation.
- Arbiter or Relayer Function: Acting as a bridge, Arbiters facilitate the communication between the Bitcoin and EVM chains, verifying transaction proofs to ensure all conditions are met for collateral release.
Let’s go through the users journey!
- Bob, the Lender: Bob deposits USDT into a BeL2 smart contract on a Bitcoin layer 2 platform, designed to facilitate BTC-backed loans with interest, leveraging the advanced capabilities of both Bitcoin and Ethereum’s EVM chains.
- Alice, the Borrower: Alice, operating on Bitcoin layer 1, discovers this lending opportunity via BeL2 and locks her 0.2 BTC into a BTC locking script. This script utilises BeL2’s cutting-edge security features, including generating a zero-knowledge proof, to ensure the integrity of the transaction without exposing unnecessary data.
- The Arbiter: An Arbiter within the BeL2 system, equipped with sophisticated cryptographic tools, reviews and validates Alice’s transaction proof into the Layer 2 smart contract. Upon successful validation, the USDT loan is released to Alice.
- Transaction Completion: Alice utilises the USDT for various services and repays the loan plus interest through the layer 2 platform. Once the loan is fully repaid, Alice can unlock her BTC from the locking script on layer 1, thereby completing the transaction cycle.
As a result, BeL2 leverages the Elastos SmartWeb to offer significant benefits to Bitcoin users. BeL2 enables direct BTC collateralization without conversion, reducing counterparty risks and preserving the asset’s integrity. It provides fixed interest rates for predictability and protection against interest rate volatility. Additionally, the loan structure is designed to protect users from unexpected liquidations, a frequent issue in traditional decentralized finance (DeFi) platforms.
So why is BeL2 so unique?
BeL2 acts as a vital Layer 2+ platform, enabling Bitcoin transactions to trigger and interact with smart contracts on other chains. This interoperability bridges the gap between the robust security of Bitcoin and the dynamic, programmable world of smart contracts, without compromising Bitcoin’s foundational principles.
While traditional Layer 2 solutions like state channels, sidechains, plasma, and rollups focus on transaction efficiency or scalability, BeL2 distinguishes itself by enabling smart contract functionalities and cross-chain interactions for Bitcoin. This not only enhances the utility of Bitcoin but also opens up a myriad of possibilities for decentralised application development using Bitcoin’s liquidity and security as a cornerstone.
Next up!
As BeL2 continues to develop and refine its functionalities, the focus will remain on enhancing the user experience and security of the BeL2 loan app, transforming it into a commercial product. Additionally, BeL2 will allow others to incorporate it’s Bitcoin Oracle into a broader array of blockchain-based applications. The upcoming months are crucial, as the platform will undergo rigorous testing and iterative improvements based on user feedback and technological advancements. Excited to learn more? Head over to the BeL2 website and follow Infinity for the latest updates!
