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FAQS

General

What is Sovryn?

Sovryn is a non-custodial and permissionless smart contract based system for Bitcoin lending, borrowing and margin trading.

What features does Sovryn offer?

Current Features


This is what you can do with Sovryn today:

  • Spot-Exchange - a low cost, low-slippage, AMM allowing instant trades between tokens.
  • Margin Trading - Creates up to 5X long/short trades, allowing users to borrow leverage from the lending pool.
  • Lending Pool - Allows HODLers to earn interest by lending tokens to margin traders and borrowers.
  • FastBTC Relay - Allows use of Bitcoin almost instantly with smart contracts and decentralized products, from any Bitcoin wallet.

Future Features


Sovryn will continue to add features and additional functionality for users. Over the next few months, you will be able to:

  • Borrow - Allows users and smart contracts to borrow tokens from the lending pool. All lending is over-collateralized.
  • Perpetual Swaps - BTC backed perpetual swaps allowing trades with up to 20X leverage.
  • Bitcoin-backed Stablecoin - users can use a USD-pegged token, backed by overcollaterilzed Bitcoin.

Can you describe some use cases for Sovryn users?

Stacking Sats and HyperHODLing


Alice, a hodler, wants to put her BTC stack to work by lending them to a margin trade.
Bob, a trader, is so bullish, he isn’t satisfied just to HODL. He wants to HyperHODL. He opens a long position on BTC, borrowing the funds from Alice.

Alice and Bob do not want to move their BTC onto a centralized service and give up control of their keys. Using Sovryn, Alice issues a peer to peer loan straight from her wallet and Bob trades straight from his. Alice is now stacking sats, and Bob is HyperHodling without compromising their privacy, control or ideals.

LegoLand


Carol is building a centralized exchange.
David is building a decentralized hedging dapp.

Both Carol and David can integrate permissionlessly with the trading, lending and liquidity of Sovryn. In doing so, they gain instant access to more liquidity, more features and can provide greater functionality for both their users and those of Sovryn.

What does non-custodial and permissionless mean?

Sovryn does not require you to send your Bitcoin to a centralized company, like BitMEX or Binance, in order to trade. With Sovryn, you send your BTC to a smart contract that allows you to keep custody of your private keys, allowing you to withdraw your funds at any time.
Sovryn is permissionless in the sense that no one can censor a transaction, ban your account or require you to undergo KYC before trading.

Are the Smart Contracts safe? Can I see the Audits?

Yes, the Sovryn protocol smart contracts are periodically assessed by independent security auditors. You can see the audits here:
Audit by Pessimistic, October 7, 2020

Trading

What assets can I trade on Sovryn?

Sovryn will allow you to trade Bitcoin against USD stablecoins.

Is there an order book?

No. Sovryn uses an automated market maker (AMM) that automatically adjusts fees in accordance with supply and demand

What is margin trading?

Margin trading has two main aspects: trading with leverage and shorting. In trading with leverage, a trader borrows assets to increase the amount of assets they are trading. By doing so, they magnify the gains or losses of their trade. The borrowed assets are known as a margin loan. To obtain the margin loan, the trader puts up assets that serve as collateral. The terms of the margin loan specify a collateral-to-loan ratio. If the trade falls below the specified ratio, the trade is liquidated and the lender is made whole using the trader’s collateral.

Margin trading also includes shorting. In shorting, a trader essentially sells assets they do not own. The short investor borrows an asset and sells it on the expectation that the assets will lose value.

What kind of leverage can I get on Sovryn?

Sovryn allows for up to 5X leveraged trades, which will be increased in the future.

How are margin calls handled?

On Sovryn, you receive a margin call when you approach the margin maintenance threshold of 15%. If your margin slips below 15% your position will be partially liquidated.

Isn't the Bitcoin blockchain too slow for this type of trading?

Since Sovryn is built on RSK (a Bitcoin side chain), it benefits from lower block times which average 30 seconds compared to the Bitcoin average block time of 10 minutes.

Can I place a limit order on Sovryn?

No, Sovryn uses an AMM (Automated Market Maker) to allow trading, similar to Uniswap. This design does not allow for an orderbook hence there are no limit orders. But in the future conditional orders will be added which will serve a similar purpose.

How is price determined without an order book?

Sovryn uses an oracles (currently Money-on-Chain and soon also Chainlink) along with an aggregate of multiple exchanges to tether the price to the market price of Bitcoin.

Fees

Summary of Fees

  Collected by Sovryn Collected by Lenders Collected by LPs
Trades 0.15%   0.1%
Loan Origination 0.09%    
Loan interest 10% 90%  

Trading Fees

Fees collected by LPs
Liquidity Providers can provide liquidity to the Sovryn Swap AMM. Unlike most other AMM’s, such as Uniswap, LP’s are not required to deposit both assets into a pool, they can add only one or both. Sovryn Swap uses oracles to rebase the ratio between tokens, eliminating most of the possibility for “impermanent loss”. Sovryn Swap collects a fee on each side of the swap, which is distributed to the LPs. Currently this fee is set at: 0.1%

Fees collected by the Sovryn Protocol
The Sovryn protocol collects a fee on each trade that is performed. This fee is currently set to: 0.15%

Lending and Borrowing Fees

Fees on Borrowing
The interest rate paid by borrowers to lenders is set dynamically based on supply and demand - the ratio of supply to loans. The Sovryn protocol collects an origination fee on every loan, currently set to 0.09%

Interest paid to Lenders
Interest payments made by borrowers are distributed to lenders. The Sovryn Protocol collects 10% of interest for the insurance fund, which exists to protect lenders in the possible case of a loan defaulting.

FastBTC Relay

How many confirmations are required per transaction?

We require at least one confirmation for all transactions. For most transaction sizes, even this is overkill. For very large transactions, we will require more confirmations on a risk-adjusted basis. Only the very largest transactions would require more than 3 confirmations.

Is the FastBTC Relay centralized?

It is indeed centralized right now. This will change soon as we add a federation and then further steps to decentralize it. In particular we will be linking it with lightning network, so that transfers can happen instantaneously.

Technical Architecture

What smart contract platform is Sovryn built on?

RSK, which is a Bitcoin layer 2 smart contract protocol. Learn more about RSK here.

What is RSK?

RSK is a Bitcoin layer 2 sidechain that provides for smart contract functionality using Bitcoin as it’s native asset. RSK is the most permissionless and censorship-resistant Bitcoin sidechain:

  1. RSK is permissionless and its consensus mechanism is merge-mined PoW with about 40% of Bitcoin’s hashpower currently mining RSK. This means that RSK is mined by more hashpower than any other chain, except Bitcoin itself.
  2. RSK’s two-way peg mechanism (called PoWpeg) is probably the most secure peg and multisig system in the cryptoworld. It uses a combination of HSMs and SPV proofs with multiple different functionaries. It layers PoW (through SPV proofs) over HSM security, providing additive security and decentralization. 3. Unlike Liquid, it is permissionless and highly censorship resistant.
  3. RSK sidechain is constantly improving the two-way peg. In the next iteration, Bitcoin miners will directly participate, making the peg even less federated and even more tightly coupled with Bitcoin PoW.

Will RSK have the same scaling issues and high fees as Ethereum?

RSK has a number of efficiencies over Ethereum, primarily with regards to storage handling and data structure (more info here). We however do not believe that these represent an order of magnitude difference. The main benefit in terms of scaling for RSK, is its ability to adopt those scaling solutions that prove viable in the future on Ethereum (rollups for instance). We have said that “Ethereum is our testnet” - and this is one reflection of that.

How is Bitcoin on RSK different from Bitcoin on Ethereum?

Bitcoin on RSK has decisive advantages over tokenized Bitcoin on Ethereum (such as wBTC, renBTC):

  • RSK is not a competing chain, it is Bitcoin Layer 2.
  • RSK is Bitcoin native. You don’t need any other token other than bitcoin to use it and all fees are paid in bitcoin. This is the first DeFi dApp where Bitcoin is the only “gas” you need to power it. This reduces the user friction of buying an altcoin so you can trade another.
  • RSK is non-custodial. It is not an IOU (like WBTC) and maintains censorship- resistance. tBTC is also non custodial, but is very expensive to make the conversion - and is likely to get more expensive in their new model (higher collateralization ratios). More generally, fees are much lower on RSK than on Ethereum.
  • RSK is secured by Bitcoin PoW, no need to understand or trust a different model. No need to be concerned that Bitcoin value on Ethereum could exceed ETH value.
  • BTC has the advantage of being the base asset on RSK. The loan to collateral ratios Sovryn will offer will be far superior to what is being offered for tokenized Bitcoin on Ethereum.
  • With the FastBTC relay, it is faster, cheaper and easier to move Bitcoin onto RSK than any of the Ethereum BTC-tokens. This alone is a 10X improvement. This will also be integrated with the lightning network, which is important to many Bitcoiners.

SOVRYN IS POWERED BY BITCOIN PRIVACY (is our) POLICY