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Reflecting on Our Journey: Beyond Sidechains

December 11, 2023
min read


In 2021, the Sovryn Blackpaper was posted: a declaration of independence from traditional finance. It heralded our ambition to forge an open, fair, and transparent financial system for the world. This vision—grand in its scope and revolutionary in its essence—was not just a distant dream but a concrete roadmap for the decade ahead. It would begin with building decentralized financial functions on an existing bitcoin sidechain. But it would not end until we had achieved a full-stack financial operating system on bitcoin using rollup technology, open and available to all. Reflecting on our journey almost three years later, we realize the path has been both enlightening and challenging. We have gained some important insights that are reshaping our approach.

The Vision and the Path

The Blackpaper was clear in its focus—to build a full-stack financial operating system. This ambitious project was structured in four stages:

  1. EVM Compatibility and Trustlessness: Capitalizing on previous experimentation and proven technology, ensuring interoperability and security in transactions
  2. Trading, Lending, Borrowing, and Margin Trading Tools: Implementing the foundational elements of any robust financial system
  3. BTC-Backed Stablecoins: Enabling access to the value of bitcoin without the need to liquidate
  4. Data Security and Privacy: Safeguarding user information and transactions

Successes and Learnings

As we embarked on this journey, we have celebrated several successes. We’ve built EVM-compatible trading (spot and margin), lending, and borrowing tools. We’ve launched a BTC-backed stablecoin system. And we’ve built smart contracts that have been audited and vetted several times over and have accumulated a track record of success. In the process of building these tools, we’ve improved performance, enhanced security, and created a community that believes in our vision. However, the path has also been marked by challenges and learnings. Some of the key lessons are:

  • The Need for a Diverse Ecosystem: Any platform that is built must support a multitude of dapp builders, fostering an ecosystem rather than a single application.
  • Platform First, Applications Later: Sufficient infrastructure must precede the applications—a lesson that has been central to our development strategy.
  • Aligning Apps with the Platform: A synergy must be pursued between the applications and the underlying platform for a seamless experience.
  • Expanding Beyond Bitcoin: While the philosophy of Sovryn is rooted in bitcoin, the project must attract users from the broader crypto space, catering to a diverse set of needs and preferences.
  • The Quest for Trustless Bitcoin Transactions: Our community seeks the security and trustlessness of bitcoin, not just federated pegs or transactions limited to sidechains.
  • Community Building: The nurturing of a community around the project is a key pillar for our growth.
  • Incremental Progress: Even small steps forward must be embraced as valuable progress in the journey towards perfection.


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Limitations Exposed

From the beginning we understood that bitcoin has limitations—by design. It was meant to be electronic cash, not a full-stack financial system. Bitcoin Script provided bitcoin with some flexibility, but it was deliberately limited to non-Turing-complete capabilities to reduce the attack surface. These limitations increase the reliability and security of bitcoin as money. But these same limitations make bitcoin more like digital gold—a great store of value but difficult to use for timely and scalable transactions. They limitations also create a challenge for anyone who desires to build other capabilities that use bitcoin as an asset or tap into the security and trustlessness of bitcoin. 

The limitations of bitcoin led us initially to the best option available at the time—a bitcoin sidechain. With a sidechain we could use a pegged form of bitcoin as the base asset. We could also deploy very flexible smart contracts that required a Turing-complete language for their implementation. Sidechains opened a whole world of opportunities that could not obviously or readily be built on bitcoin itself.

Our experience also led us to an important realization—sidechains, while useful, have inherent limitations.They restrict the scalability, security, and interoperability that a system like ours requires to truly thrive and meet the evolving needs of our users. With the current implementation of bitcoin core, sidechains require a federated—and therefore not fully trustless—peg. They also have limitations of speed and scalability, and they do not partake fully of the security of the bitcoin blockchain itself. 

Unfortunately, the lack of a trustless peg has hindered the growth of defi on bitcoin. The need for the scalability and security compromises of a sidechain have made financial solutions on bitcoin less attractive. The activity on other chains demonstrates the massive interest in and current demand for decentralized finance. Imagine what can happen if the world’s best monetary asset can serve as the foundation for uncompromised scalability, security, trustlessness, and permissionlessness in decentralized finance? The opportunities before us are massive. This vision for the future has been pivotal in our ongoing development strategy.

Looking Ahead

Sovryn will continue to experiment, learn, and build. Our focus is on creating an ecosystem rich in tokenized assets, one that transcends the limitations we've encountered. The future we envision is one where the principles of security and trustlessness of bitcoin are not just ideals but the foundation of our platform. We will not stop until we have achieved our original goal—a full-stack financial operating system on bitcoin.

In the Sovryn journey so far, we have seen our share of both triumphs and trials. All of these experiences have shaped our understanding of what is required to revolutionize the financial system. We are on the verge of entering our next phase. The insights we've gained point toward a horizon beyond the realm of sidechains. We invite our community to join us as we continue to explore, innovate, and redefine the boundaries of decentralized finance built on a bitcoin foundation.


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