> For the complete documentation index, see [llms.txt](https://liquidsat.gitbook.io/liquidsat/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://liquidsat.gitbook.io/liquidsat/documentation/introduction/security-and-technology.md). # 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 | Layer | Responsibility | Technology | | ---------------------- | --------------------------------------- | ---------------------------------------------------- | | **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: 1. **Repayment Tx** — Returns BTC to borrower when repayment confirmed. 2. **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)**](https://drive.google.com/file/d/18FjOfj7A4YcN7VZ1w5aexxAN3JbXFO20/view?usp=drive_link)