Remember Chainspace? After being acquired by Facebook, this technology research and development company, which was once located in London, became the Libra project team, which attracted widespread attention in the industry. After leaving, several early founders of Chainspace founded today's top projects in the crypto field, including Celestia (founded by former Chainspace member Mustafa Al-Bassam) and Sui (co-founded by former Chainspace member George Danezis). Therefore, the original team of Chainspace is highly praised in the crypto world, just like the "Paypal gang" in the Web2 era.
The project recently released its white paper, and we specially invited Dave Hrycyszyn, the former CTO and co-founder of Chainspace and current co-founder and CTO of Side Protocol, to give us his exclusive sharing.
Project Background:
The project was founded in 2023 and began to enter the Bitcoin ecosystem in 2024. It is co-led by Dave Hrycyszyn, former technical director of Chainspace, and Shane Qiu, former researcher of Binance Labs. The team has received millions of dollars in funding from institutions including Hashkey and Symbolic Capital in past financing. The project test network is nearing completion and the main network is about to be launched.
The following is the full text of the conversation:
Thank you for accepting our interview! Before co-founding Side Protocol, you served as CTO of several outstanding projects. Could you please introduce yourself first? Also talk about how you entered this industry and eventually joined Side Protocol?
Dave: My name is Dave Hrycyszyn. In my nearly 30 years of technical career, I have run a software company in London for a long time and successfully completed hundreds of software projects. In 2015, I began to pay attention to the crypto field and focused on the research of blockchain expansion protocols. Later, I co-founded Chainspace and served as CTO. The project was acquired by Facebook because Facebook wanted to leverage our technical strength in high-performance chain research. My partners then founded Sui and Celestia respectively, and after realizing that I was not suitable for the culture of a large company, I left Facebook and joined Nym, a zero-knowledge privacy protocol similar to Tor, and I served as CTO to lead its development. After obtaining financial support from institutions such as Binance, a16z, and Polychain, Nym successfully launched the mainnet. In those years, I led the technical team to complete the core technical work and successfully formed a team that I was very proud of until I finished my work last year. This year, I realized that the outbreak of the Bitcoin ecosystem has just begun, joined Side Protocol, and led the team to turn to the Bitcoin ecosystem, committed to expanding the new possibilities of Bitcoin.
Q: Can you give us a brief introduction to Side Protocol?
Dave: If Bitcoin's goal is to replace fiat currency and gold, then Side Protocol's goal is to play the role of a bank in a world dominated by Bitcoin. What is the core business of a bank? It is lending. As an on-chain banking protocol for Bitcoin, Side's core product is Bitcoin's native non-custodial liquidity lending protocol, and it provides a variety of supporting applications around this core. From a product perspective, we have developed a complete set of DeFi services and ecosystem development infrastructure, including native lending + sidechain + cross-chain bridge + DEX.
Q: For many people, they have not seen such a special positioning project in the Bitcoin ecosystem. Most Bitcoin ecosystem projects are still related to L2 and LSD. Can you elaborate on your products? What are the unique features of these products?
Dave: Of course, Side Protocol’s core product, Side Finance, is the safest and most native BTC liquidity lending protocol on the market. It leverages Bitcoin’s native technologies, such as Discreet Log Contracts (DLCs) and Threshold Adaptor Signatures, to enable non-custodial lending when BTC is used as collateral, meaning that users only lose control of their collateral when liquidation occurs, allowing them to more confidently take out their Bitcoin for lending. It is worth emphasizing that Side Finance is not a traditional P2P lending model, but is based on a liquidity pool design, which is an innovative move. Referring to Ethereum’s DeFi ecosystem, the emergence of automated liquidity protocols has truly driven the explosion of DeFi, while the P2P model is inefficient and requires user matching. Similar to the mechanism by which banks lend by absorbing deposits to form a “liquidity pool”, Side Finance will bring higher efficiency through liquidity pools and become Side Protocol’s core source of income.
In addition to the lending protocol, we also provide a series of infrastructure and supporting services, of which Side Chain is an important part. Side Chain uses the high-performance consensus engine CometBFT as its core architecture. This architecture supports fast transaction finalization and high throughput, which is very suitable for applications that require fast confirmation. Smart contracts on Side Chain are executed in the Wasm virtual machine and written in Rust, which has performance and security advantages. Rust's memory safety and Wasm's compatibility reduce the risk of vulnerabilities such as reentrancy attacks that are common in Ethereum smart contracts. In the future, Side Chain can also serve as a modular settlement layer for Bitcoin, supporting one-click deployment of various rollups and connecting to other ecosystems through the IBC protocol to obtain rich asset liquidity, including native USDC and USDT assets. Compared with the lending protocols deployed on some Bitcoin side chains, we are not only safer and more native, but also support native stablecoins. We have also made great improvements in user experience. Side Chain is fully compatible with Bitcoin, and users can operate without changing the address format. It currently supports address formats such as Taproot and Native Segwit, and can use Bitcoin wallets such as Uniswap to directly sign operations. Compared with Bitcoin expansion solutions based on EVM addresses and wallets on the market, Side Chain has significantly improved user experience.
In addition, Side Protocol has also launched a number of supporting products: Side Hub provides native DEX services; Side Bridge is a multi-signature cross-chain bridge based on TSS technology that is jointly controlled by the nodes at the head of Side Chain. It supports BTC and Rune cross-chain and serves more trust-tolerant users; Side Wallet is a Bitcoin and Side wallet that does not require custody, providing users with a smoother interactive experience when switching between the two chains.
Q: We noticed that the v1 white paper has been released. This version mainly introduces Side Finance. Due to the high technical threshold, many people do not quite understand the difference between Side Finance and other lending protocols. Can you explain the special features of Side Finance in a simpler way?
Dave: When a user uses BTC as collateral, it will be locked in a multi-signature address jointly held by the user and DCA (a component called Distributed Collateral Agent). This is a "2/2" multi-signature model implemented through DLC technology, that is, unless there is a liquidation situation, the user must agree to spend the BTC. This ensures that the user has control over the collateral during the lending process. Whether the asset is liquidated is determined by an external oracle, and the oracle itself is only responsible for providing the asset feed price, but not involved in the management of the asset, which avoids conflicts of interest. And we have a set of oracle distributed systems developed specifically for this purpose to ensure that the oracle operator has extremely low motivation and extremely high cost to mess up. So which chain are the assets borrowed by users, such as USDC? It is placed on the Side Chain we just mentioned. The liquidity pool protocol is deployed on this side chain in the form of a smart contract. Because there are no assets like USDC on the Bitcoin main chain, and such contract functions are not technically supported, the only way out for Bitcoin lending is such a cross-chain lending. In order to ensure that various assets are available on our chain, we will integrate through multiple interoperability protocols, including CCTP, IBC, Wormhole, Axelar, etc. As long as the assets are transferred to our chain through these protocols, they can be stored in the liquidity pool for BTC holders to lend.
After understanding the working mechanism, we can compare the main ways of Bitcoin lending:
- Centralized finance: borrowing and lending through centralized platforms, but this means that you need to trust the platform’s custody. In the past, there have been many cases of centralized institutions going bankrupt, and the security of user assets is difficult to guarantee.
- Cross-chain bridge multi-signature solution: Generate BTC voucher tokens on chains such as Ethereum through a cross-chain bridge, or through WBTC, and then lend on platforms such as Aave. However, this method still requires Bitcoin holders to give up control of their assets and rely on the integrity of multi-signature holders.
- DLC-based P2P lending: There are indeed DLC-based P2P lending protocols on the market, but they are all peer-to-peer models. Users need to wait for matching of lending needs, which is inefficient.
- Native stablecoin protocol: We are also optimistic about the future development of the stablecoin track, but the adoption of a new stablecoin requires a relatively long period of time. In addition, we not only want to do stablecoin lending, we hope to allow BTC holders to borrow various mainstream crypto assets by pledging BTC.
In general, although the Bitcoin lending field has developed for so many years, it still lacks a product that can be both "non-custodial" and "liquidity pool". Side Finance is the first protocol to do so. It does not require users to trust others, can provide an instant lending experience, and unlock more DeFi combination opportunities.
Q: What is the market prospect of the entire Side Protocol and its subsidiary Side Finance?
Dave: If we view Ethereum’s DeFi protocol as a “sandbox” for the development of Bitcoin DeFi, we can roughly estimate the market opportunity for the leading lending protocols on Bitcoin. Assuming Bitcoin’s TVL reaches $250 billion, accounting for 15% of its market cap (similar to Ethereum), then referring to Aave’s 22% share of Ethereum’s total TVL, the TVL of the leading lending protocol on Bitcoin could reach about $55 billion. Based on Aave’s TVL to FDV ratio of 4, this means that the FDV potential of this lending protocol could be close to $15 billion.
Therefore, the prospect of lending protocol revenue alone is extremely huge, and this does not include the market expansion space brought by the further growth of Bitcoin's market value. We hope to become the "super bank" of the Bitcoin world, so in addition to lending services, we will also provide other services to bring more protocol revenue, such as cross-chain services, transaction services, and gas fee income as the underlying infrastructure. The opportunities in this market are so huge and clear, but the competition is not fierce. We are very confident to become an early practitioner.
Q: Who are Side Protocol's target users? What are their actual usage scenarios?
Dave: Different products will serve different user needs. First, let's talk about the lending protocol we mentioned earlier. This is for all user groups who hold Bitcoin but do not want to sell it but need funds, including miners, institutions, and individual users. For example, miners can use this protocol to obtain the financial support needed for operations; institutions or individual users can meet leverage needs while avoiding the trusteeship of Bitcoin collateral to a third party. In addition, for some on-chain DeFi players, when they can obtain higher returns than the borrowing cost of this platform through combined strategies in other protocols, they will also choose to use this product. Such diversified scenarios will effectively stimulate a wide range of user needs and promote the continued development of the protocol.
In addition, our Side Chain provides smart contract support for the development of a variety of applications. Although our initial focus was on promoting our own DeFi products, over time, developers will gradually join the ecosystem to develop products on Side Chain, further enriching the ecosystem. Including the current popular tracks, such as AI, DePIN, NFT, etc., can all be realized on our platform.
Q: What are your plans next?
Dave: At present, we have completed the testnet stage and conducted three rounds of testnets with a total of hundreds of thousands of users participating. We have integrated our self-built Signet and tested it on Bitcoin Testnet3. The stability of the current system has been significantly improved. The mainnet will be launched in a phased manner. Side Chain and its related products will be launched first. After the chain operates stably, the lending protocol Side Finance will be released. In order to attract lending users, Side Finance will start liquidity mining activities and subsidize borrowers. and lenders, which are expected to bring rapid growth to TVL. The protocol’s revenue will also increase during this stage and be used for token buyback and destruction, which is expected to be realized in the first quarter of 2025.
As Side Finance moves towards a more mature stage, we will begin to shift from focusing on application development to focusing on the ecosystem. Side Chain will begin to attract more decentralized applications around Bitcoin and launch developer incentives to promote the construction of a large number of applications on top of us. During this stage, we will see a gradual increase in the proportion of gas fees in protocol revenue, further enriching the application scenarios of the Side ecosystem.
