🤝Borrowing & Liquidations
A permissioned, capital-efficient model for Bitcoin-backed bvUSD
BitVault employs a permissioned, capital-efficient borrowing model designed to support institutional-grade stability while mitigating systemic risk. Although BitVault has acquired a license for the battle-tested decentralized collateralized debt protocol Liquity V2 for potential future use, bvUSD is not currently minted using Liquity V2. Instead, BitVault operates a permissioned architecture that prioritizes compliance, predictable liquidity, and Bitcoin-backed transparency.
Currently, bvUSD is a Bitcoin-backed, USD-pegged stablecoin issued directly by BitVault. Anyone can also mint bvUSD with USDC or USDT. Institutional users may borrow bvUSD at a fixed 50% Loan-to-Value (LTV) ratio against BTC, wrapped BTC (e.g., WBTC, tBTC), or Bitcoin Liquid Staking Tokens (LSTs), ensuring that each bvUSD in circulation is overcollateralized with Bitcoin-linked assets.
This permissioned approach allows BitVault to reduce risk during the rollout of its Bitcoin-backed credit layer while still providing institutional-grade yield to both BTC liquidity providers and sbvUSD holders.
🔹Institutional Borrowing
Instead of deploying an open collateralized debt protocol, BitVault manages a curated pool of institutional borrowers who hold BTC or BTC-wrapper collateral under qualified custody. Borrowing terms are established off-chain through institutional agreements and mirrored on-chain for transparency and auditability.
Key Parameters
Loan-to-Value (LTV): 50% (fixed)
Collateral Types: BTC, WBTC, bgBTC, tBTC & Bitcoin LSTs
Borrower Eligibility: Whitelisted institutional counterparties
Redemptions: Processed directly through BitVault with 1:1 USD redemption parity
This model ensures a 2:1 BTC-backed reserve ratio for every bvUSD issued, guaranteeing solvency even under extreme market conditions.
🔹Liquidations
Because borrowing is currently permissioned and collateral is maintained under qualified custody, liquidations are not automatically executed on-chain. Instead, they are institutionally triggered when a borrower’s LTV exceeds predefined thresholds (typically above 75%).
Liquidation Process
Automated Monitoring: BitVault continuously monitors collateral coverage through oracles and custodial attestations.
Margin Call: Borrowers receive an institutional notice to restore LTV to compliant levels.
Collateral Recovery: If unaddressed, BitVault may liquidate collateral under pre-approved agreements with custodians, ensuring orderly and transparent resolution.
This risk-controlled liquidation design minimizes volatility, prevents predatory liquidations, and strengthens bvUSD’s peg stability.
🔹Future Evolution
BitVault plans to integrate Liquity V2’s decentralized liquidation and redemption mechanisms in a later phase—once on-chain collateral management can be fully decentralized without compromising institutional standards. Until then, BitVault will operate under a semi-permissioned model that combines off-chain custody verification, automated monitoring, and on-chain transparency.
This architecture provides a measured path toward full decentralization, ensuring that bvUSD remains secure, scalable, and sustainable from the outset.
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