Looking for thoughts on cBTC a Bitcoin-based credit and working capital protocol

Hey folks, I’m after some technical and conceptual input on this thing I’ve been working on called cBTC. The aim of cBTC is to see if we can use Bitcoin as productive capital (like working capital or credit) without relying on fiat pegs, price oracles, liquidations, or putting user funds at risk. This isn’t about selling tokens, creating a stablecoin, or a DeFi lending platform. Big picture idea cBTC is a credit protocol that’s built for Bitcoin, based on a few key principles: Everything is in BTC, no fiat involved No price feeds or liquidations, no rehypothecation, and no custodians holding user funds, just clear and conservative rules. Credit is issued through something called Minting Channels: A Bitcoin holder locks up BTC on-chain. For every 1 BTC deposited: 70% is time-locked as principal, 20% goes into a global Redemption Pool, 10% is set aside as prefunded yield. A fixed amount of cBTC is minted at a 30% loan-to-value ratio, functioning as bearer-style accounting units or a synthetic accounting unit backed by BTC. This way, there’s no hassle between UTXOs and IOUs. Key mechanics Issuance: Fixed issuance rate (no dynamic leverage), Max LTV of 30%, No refinancing or rollovers. Yield: Prefunded when the channel is created, Non-linear and time-based, Full yield kicks in after a year, Early exits lose unvested yield to the Redemption Pool. Redemption: It uses the global BTC Redemption Pool, cBTC gets burned on redemption, No principal or yield is touched, Deterministic haircuts based on reserve coverage, No liquidations, ever. Solvency: The global rule is that the Redemption Pool has to be at least 50% of the max redemption liability, Issuance will be restricted or stopped if certain conditions aren’t met, No discretion involved.

Interesting approach... The "no liquidations ever" design is bold, because most systems use liquidations as the release valve when things go sideways. I am curious how the deterministic haircuts actually play out under stress. If redemption pool coverage drops and everyone wants out at once, the haircuts could get ugly fast. The 30% LTV is super conservative which helps, but it also limits usefulness. At that ratio you're locking up a lot of BTC to get relatively little credit. Main question: what's the incentive to actually use cBTC over just selling some BTC for liquidity? The yield mechanics seem designed for lenders, but who's borrowing at these terms and why? Will look at the github. Appreciate you posting early for feedback instead of just launching and hoping.

Thanks for the thoughtful feedback — these are exactly the right questions. On haircuts: they’re intentionally deterministic and transparent. Under stress, redemptions don’t fail or cascade into liquidations; they simply clear at progressively worse rates. That’s a trade-off we’re making explicitly: ugly but predictable outcomes instead of hidden insolvency or discretionary intervention. The 50% coverage rule exists precisely to cap how bad that gets. On the “who’s borrowing?” point: that framing is slightly misleading in this model. cBTC isn’t primarily about matching lenders and borrowers. It’s closer to allowing a Bitcoin holder to issue their own Bitcoin-denominated credit unit under fixed rules. The collateral provider (CP) isn’t lending BTC to someone else — they are locking their own BTC and minting cBTC against it. The yield isn’t paid by a borrower; it’s the protocol-defined reward the CP earns (or earns back) for committing BTC as collateral for a fixed period. In that sense, cBTC behaves more like a self-issued, overcollateralized credit instrument than a loan with a counterparty. Why would someone use it instead of selling BTC? They want temporary liquidity without exiting BTC exposureThey want a Bitcoin-denominated representation that’s faster and cheaper to settle than on-chain BTCThey want to avoid taxable events tied to sellingThey want Bitcoin-denominated working capital, not fiatThey accept low leverage in exchange for no liquidation risk The conservative 30% LTV is intentional: this isn’t optimized for leverage, it’s optimized to see whether Bitcoin-native credit can exist at all without price feeds or liquidations. Totally fair if that trade-off isn’t attractive to everyone — the design is intentionally narrow.

The self-issued framing makes more sense. So it's less about who's borrowing and more about who wants BTC-denominated liquidity without selling. Tax avoidance and staying long BTC while accessing liquidity are real use cases, especially for bigger holders who don't want to trigger a taxable event every time they need cash. The question then becomes: where can you actually spend or use cBTC? Its value depends on other people accepting it or having liquid markets to swap it back. If it's just you minting tokens that nobody else wants, you haven't really gained liquidity. Is the vision that cBTC gets accepted by merchants and exchanges directly, or that there's a DEX/OTC market for it, or mostly that people redeem back to BTC when they need to exit? The redemption mechanism is clear but the "what do I do with cBTC in the meantime" part is less obvious.

cBTC only has liquidity to the extent that other people choose to accept or trade it. The protocol doesn’t assume automatic demand, and it doesn’t try to manufacture one via pegs or incentives. In that sense, cBTC has to find its own market, just like BTC did early on. The near-term assumption isn’t “everyone spends cBTC everywhere.” It’s more modest: cBTC is usable within a narrow set of contexts first (bilateral OTC, internal accounting, Lightning-style settlement, collateral reuse between known parties)Liquidity initially comes from the guaranteed BTC redemption path, not from universal acceptanceEarly holders are expected to redeem back to BTC when they want to exit, not rely on deep secondary markets If cBTC gains broader acceptance over time, that would likely happen the same way Bitcoin did: small circles → niche use → optional markets → wider adoption. Not because the protocol enforces it, but because it’s useful enough to justify holding. So today, cBTC is best thought of as: a Bitcoin-denominated liquidity instrumentwith deterministic redemption as its floorand optional market acceptance as upside, not a dependency If that market never materializes, cBTC remains a self-liquidity tool rather than a medium of exchange — and that’s an acceptable outcome for the design.