Security & Technology
LiquidSat is designed from the ground up for self-custodial security and deterministic automation. It eliminates bridge and custody risks by locking BTC directly on Bitcoin while executing loan logic on EVM networks through verified proofs.
The architecture is built around four coordinated layers that together ensure every transaction—borrow, lend, repay, or liquidate—is secure, transparent, and verifiable.
🧱 1️⃣ Bitcoin Collateral Layer — “Your BTC Never Leaves Bitcoin”
At the foundation, every borrower interaction begins and ends on Bitcoin.
BTC Script Lock: Borrower locks BTC using a multi-condition script that defines two possible unlock paths:
Repayment Path: BTC released back to borrower upon proof of repayment.
Default Path: BTC released to lender/pool after expiry or undercollateralization.
No Wrapping or Custody: BTC is never bridged or tokenized on another chain.
Auditability: Each collateral lock generates a verifiable Bitcoin transaction ID linked to a LiquidSat loan ID.
Security is rooted in Bitcoin’s native consensus — not a wrapped asset.
⚙️ 2️⃣ EVM Contract Layer — “Loan Logic & Market Mechanics”
On supported EVM networks, LiquidSat deploys modular smart contracts that manage two parallel lending systems:
Peer-to-Pool Module
Aggregates stablecoin liquidity from multiple lenders into standardized pools (7, 30, 90 days).
Tracks pool balances, utilization, and yield distribution.
Handles automatic disbursement of stablecoins to verified BTC borrowers.
Maintains fixed-rate configuration per pool instance.
Peer-to-Peer Module
Hosts borrower-created custom loan offers (amount, duration, APR).
Allows lenders to accept or counter offers directly.
Synchronizes loan state with collateral verification on Bitcoin.
Each module is governed by a shared Loan Registry that maintains unique loan IDs, collateral mappings, and repayment states.
Whether a loan comes from a pool or a peer, both follow the same settlement rules and risk management logic.
🧠 3️⃣ Risk Engine Layer — “Autonomous Enforcement & Settlement”
The on-chain risk engine monitors and enforces all lending activity:
Collateral Health Tracking: Uses price oracles to monitor BTC/USD value in real-time.
Liquidation Triggers: Initiates settlement if collateral value < LTV (e.g., 50%).
Pre-Signed Transaction Execution: Broadcasts the correct unlock transaction (borrower repay or lender claim) and settles loans when they expire.
Unified Registry: Maintains consistent loan data across all EVM chains and Bitcoin scripts.
Risk is managed algorithmically, not administratively — ensuring full transparency.
🔗 4️⃣ Messaging & Verification Layer — “Bridge-Free Cross-Chain Proofs”
LiquidSat introduces a proof relay layer that observes Bitcoin activity and updates EVM contracts without ever bridging assets.
Event Observers: Watch Bitcoin for specific script events (lock, repay, expiry).
Proof Relayers: Submit cryptographic proof of events to EVM contracts.
State Updates: Verified proofs trigger smart contract state transitions — e.g., releasing stablecoins or finalizing settlements.
Bridge-Free Design: No wrapped tokens, no custodians, no multi-sig middle layers.
Information moves cross-chain — assets do not.
🧩 Architectural Summary
Bitcoin Collateral
Secure BTC locking & settlement
Bitcoin Script, Taproot-compatible multi-path spends
EVM Contracts
Manage pools, P2P offers, and repayment
Solidity smart contracts
Risk Engine
Health checks, expiry, liquidation
On-chain automation + price oracles
Verification Layer
Cross-chain event confirmation
Lightweight proof relay
🔐 Deterministic Settlement Paths
Each loan has two pre-signed transactions at creation:
Repayment Tx — Returns BTC to borrower when repayment confirmed.
Default Tx — Transfers BTC to lender or pool if loan defaults or expires.
The correct transaction is broadcasted automatically, based on on-chain proofs—removing any trust assumptions between parties.
🧭 Architectural Highlights
Dual Lending Contracts: Separate modules for P2Pool and P2P, governed by a unified Loan Registry.
Unified Collateral Registry: Every BTC lock is traceable to a single loan or pool.
Composable SDK: Developers and wallets can plug in to query loans, monitor risk, or visualize BTC collateral.
Oracle-Verified Risk: Collateral health tracked by reliable BTC/USD oracle feeds.
Bridge-Free Synchronization: Message proofs connect Bitcoin and EVM logic, not synthetic tokens.
Deterministic Liquidation: Enforced entirely by pre-signed logic; no admin key intervention.
🧾 Transparency & Auditability
Every user action—lock, borrow, repay, claim—is permanently verifiable:
Bitcoin explorers show collateral locks.
EVM explorers show loan and pool events.
APIs expose unified loan status (collateral ID ↔ loan ID mapping).
Nothing is off-chain or hidden — every interaction is verifiable from both ends.
📄 Further Reading
For detailed technical documentation and protocol specifications:
🔗 Whitepaper: LiquidSat Security & Architecture (PDF)
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