Investors want to maximize their capital efficiency to generate the highest possible returns, and there are few better avenues for doing so today than in the world of decentralized finance.
The DeFi industry has given birth to dozens of novel financial instruments over the years, but none are quite as ambitious as the concept of โuniversal yieldโ, which allows investors to generate multiple revenue streams from the same capital investment.
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Universal yield makes it possible for investors to lock up their capital in a smart contract and secure dozens of different blockchains and applications simultaneously, generating rewards from each one. It means their investment is effectively recycled many times over, reinvested into numerous protocols at once, taking advantage of the unique way in which cryptocurrency transactions are processed and verified.
Many blockchain networks today use a consensus mechanism known as โproof-of-stakeโ, which is a more energy-efficient alternative to Bitcoinโs famous โproof-of-workโ, where powerful computers compete against each other to solve complex mathematical problems to earn the rights to verify transactions and mint new coins. With PoS blockchains, instead of using massive amounts of computational resources, individual users can โlock upโ tokens in smart contracts, and in return, they earn the right to participate in validating transactions and generate rewards. Their โstakedโ capital provides economic security for the blockchain, with the basic principle being that the more funds there are locked up, the more difficult it becomes for hackers to subvert the network.
The best-known PoS blockchain is Ethereum, which is secured by billions of dollarsโ worth of staked ETH. This makes it essentially unhackable because the economic cost of pulling off a 51% attack, where someone controls more than 50% of the network, allowing them to manipulate transactions, is more expensive than any returns they could gain from doing so. But not every PoS blockchain can say the same, for there are many others backed by substantially less capital.
A New Security Model
This is where the idea of universal yield comes into play. With PoS systems, when a user commits tokens to secure the network, those assets become idle. Theyโre locked up in smart contracts and canโt be used for anything else so long as they remain there.
But universal yield layers reverse that dynamic, enabling the economic security provided by those deposits to essentially โfan outโ across multiple networks, without diluting its effectiveness. In other words, they provide smaller PoS networks with a way to leverage the security of much bigger, more established blockchains that already boast iron-clad defenses.
Itโs as if theyโre all sheltering under the same umbrella, and itโs set to have major implications in terms of the โcold startโ problem, where new projects face a kind of catch-22 when they first launch. To obtain sufficient security, they need to entice users to lock up their funds, but nobody wants to make the first move, because new networks are extremely vulnerable when they donโt have any capital behind them.
For investors, the attraction of universal yield is clear โ each new project that takes shelter under the same โumbrellaโ adds to the rewards they receive for locking up their tokens, meaning their return on investment can potentially be multiplied many times over.
The Strongest Foundation
When it comes to blockchain security, no network is more robust than Bitcoin, the worldโs oldest decentralized ledger. Launched in 2009, Bitcoin has been up and running for more than 16 years now, and in all that tim,e it has never been hacked or compromised. Its enormous network of miners has transformed it into a digital fortress โ one estimate from GoBitcoin suggests it would cost more than $168 billion to pull off a 51% attack at BTCโs current valuation.
This makes Bitcoin the ideal foundation for a universal yield layer, and that is exactly what SatLayer is attempting to create. SatLayer sees Bitcoin as the new gold standard for the digital age and aims to leverage its robust foundations to secure a new economy powered by blockchain, DeFi, and real-world assets. It has taken on the challenge of transforming Bitcoin into a universal yield layer, building a shared security platform that enhances its programmability so BTC holders can invest their coins in the security of decentralized applications and protocols through โBitcoin Validated Servicesโ.
SatLayerโs framework enables Bitcoin holders to collaborate with BVS developers and a group of โoperatorsโ, who provide the technical hardware for BVSs to run. It can be thought of as a three-sided marketplace that provides benefits for each stakeholder. Bitcoin holders can deposit BTC with any BVS they choose, enhancing their security in return for rewards. Developers can launch new services that are highly secure from the get-go, as they inherit the security foundation of Bitcoin itself. Meanwhile, operators can earn a share of the rewards for providing the necessary infrastructure and technical expertise.
To guarantee security for BVSs, SatLayer expands the programmability of Bitcoin to implement โslashing conditionsโ, which are meant to ensure that operators play nicely. Operators must also put up their own BTC as collateral, and should they try to manipulate transactions for their financial gain, SatLayer is able to penalize them by โslashingโ those deposits. Itโs like a kind of digital carrot and stick โ users are incentivized to act honestly, with the prospect of a harsh punishment should they try to do the opposite. Itโs for this reason that BTC holders are required to do their homework, because the collateral they deposit in any BVS can also be slashed, along with that of the operators.
SatLayer gives developers quite a bit of leeway in terms of establishing the slashing conditions, so they can create a BVS with whatever security standards they feel are appropriate. Should any funds be slashed, the developer can choose to redirect this capital back to the SatLayer protocolโs treasury, where it can be used for the good of the broader ecosystem, or else โburnโ those funds by sending them into the digital aether.
The Security Layer For A New Economy
The capital efficiency of universal yield layers is unprecedented, even in the convoluted world of DeFi protocols, where โyield farmingโ strategies have been all the rage for years. Projects like SatLayer open the door for investors to combine their collateral and secure an entire universe of decentralized applications while multiplying their rewards many times over.
The implications of this development will be a game-changer in terms of capital efficiency, but they go far beyond investor yield. Bitcoin, the worldโs most valuable crypto asset, is poised to create a new paradigm for DeFi, providing the impenetrable security blanket needed to secure trillions of dollars in value and potentially bring the entire global economy on-chain.
