Discussing Bitcoin Lending Protocols With Arcus BTC Founder Justin Gaffney

14 Jun 2024

The emergence of BRC-20 tokens demonstrates the potential of Bitcoin's underlying technology (blockchain) to be adapted for new functionalities beyond peer-to-peer transactions, such as facilitating DeFi applications. As a testament to this development ,there has been a growing number of Bitcoin lending protocols, which can potentially boost the liquidity of Bitcoin.

These protocols allow users to lend and borrow Bitcoin, making it a more versatile asset. In this interview with Justin Gaffney, Arcus BTC founder , we discuss the rise of Bitcoin lending protocols and how they can potentially shape the future of Bitcoin.

Mr. Gaffney, can you tell us about your route to web3?

Attending high school during the 2008 crisis created a deep skepticism towards central banks and a growing appreciation for Austrian economics and the concept of hard money. In 2017, I ventured into the world of cryptocurrency trading, starting with Ethereum and Stellar. Became a blockchain developer through online bootcamps and classes in 2021 and have been attending hacks and building projects since then with my latest venture in Bitcoin Lending.

What are BRC-20 tokens? What are they used for?

BRC-20 tokens are fungible tokens on Bitcoin. BRC-20 tokens are built using Taproot and Ordinal tooling, which can write data directly to the Bitcoin blockchain! With further upgrades to BRC-20 and Bitcoin, BRC-20 tokens can be used as LP tokens, stablecoins, rewards tokens, memecoins, and more.

Does the emergence of Bitcoin lending protocols undermine Bitcoin’s philosophy?

Bitcoin lending is a balanced mix of store-of-value and p2p services, both envisioned by Satoshi in early writings. Bitcoin lending aligns perfectly with these foundational principles.

It facilitates P2P financial interactions and banking services, providing individuals the option to opt out of traditional central banking systems. This evolution is not a deviation from Bitcoin’s philosophy but a realization of its full potential, empowering users with financial autonomy and decentralized solutions.

As the founder of Arcus BTC protocol, what can you tell us about it?

Having been a DeFi power user for many years, I often found myself yearning for more user-friendly applications that could be accessible to both everyday users around the world and large institutional liquidity providers. My personal experience taught me that the more seamless the process—without the need to wrap or bridge assets—the more frequently I used the services and felt secure. This insight, coupled with the advent of ordinals, inspired me to take action.

I envisioned a DeFi platform built directly on Bitcoin's Layer 1 (L1), allowing users to access DeFi yields without the need to wrap or bridge their BTC. This approach not only enhances security but also significantly improves user experience. My goal was to create the most intuitive Bitcoin Bank app possible, making it accessible and easy for everyday people to use.

Additionally, I wanted to bridge the gap between decentralized finance (DeFi) and traditional finance (TradFi) by incorporating institutional-grade reporting and compliance tools. This fusion of DeFi and TradFi aims to create a seamless financial ecosystem, bringing the best of both worlds together.

In your opinion, how will Bitcoin lending protocols impact the overall liquidity of Bitcoin?

Bitcoin lending protocols have the potential to significantly enhance Bitcoin’s overall liquidity. Big businesses traditionally leverage collateral and lending from major banks, which in turn borrow from central banks. Compliant Bitcoin lending options can seamlessly integrate into the portfolios of hedge funds and family firms, providing them with access to tokenized and hard assets while maintaining liquidity.

For retail users, the availability of peer-to-peer banking options using native BTC will accelerate demand across diverse regions globally. This democratization of financial services will empower individuals with more direct control over their assets, fostering increased participation in the Bitcoin ecosystem. By bridging the gap between decentralized finance and traditional financial systems, Bitcoin lending protocols are poised to transform the landscape, enhancing liquidity and driving broader adoption of Bitcoin.

Can you briefly explain how Arcus protocol works?

Arcus offers one-click Bitcoin loans powered by lending pools. Users can deposit their BTC or BRC-20 tokens to earn yield. These assets can also be used as collateral to create a loan. One of the standout features of Arcus is its flexibility—there are no fixed lock-up periods or repayment schedules, allowing users to manage their loans on their terms.

Each user is assigned an Arcus Credit Score, enabling them to easily track the health of their loan at all times. The Bitcoin lending pools, which aggregate user deposit funds, are always over-collateralized to ensure security and stability. Additionally, liquidations are managed automatically through our collaboration with our Automated Market Maker (AMM) partner, utilizing Replace-by-Fee (RBF) and indexer triggers for efficient and timely execution.

Do you think the emergence of Bitcoin lending challenges the stance of Bitcoin maximalists?

I believe we can all agree on the shared goal of widespread Bitcoin adoption. While there is often intense debate about the principles of money, Bitcoin ultimately represents freedom. This freedom means that people can build and use Bitcoin in the ways that best suit their needs. Bitcoin lending exemplifies this freedom, allowing users to explore innovative financial solutions while still adhering to Bitcoin’s decentralized ethos. No one owns the protocol, we all do.

Beyond borrowing and lending, what other DeFi functionalities do you envision for the Arcus protocol in the future?

Arcus will maintain its focus on Bitcoin lending as its core offering, beginning with a retail lending and borrowing product for BTC, BRC-20 tokens, and RUNES on the Bitcoin network. To enhance user engagement and provide additional benefits, we will introduce an Ordinal NFT OG Pass, which offers fee discounts, yield multipliers, and more.

In the future, we plan to expand our offerings to include BTC staking into the Safety Module. This will allow users to earn a safe and secure return on their native BTC while contributing to the security of the Arcus protocol. Our vision is to create a comprehensive DeFi ecosystem centered around Bitcoin, continually enhancing our services to meet the evolving needs of our users.

Apart from price volatility, what other risks are associated with Bitcoin lending protocols?

Thanks to being Bitcoin-native, there is less protocol risk compared to most Layer 2 DeFi offerings. However, users should still be aware of risks such as liquidity risks and the potential for liquidation if collateral values drop significantly. At Arcus, we prioritize security and capital efficiency. Our focus on over-collateralization and transparent credit scoring further mitigates risks, providing users with a safe and more reliable Bitcoin lending experience. Looking ahead, we plan to incorporate insured pools and other innovative strategies to further strengthen our platform and the Bitcoin finance ecosystem as a whole.

Any parting words?

Imagine unlocking the full potential of your Bitcoin, earning yields, and accessing financial services without ever leaving the security of the Bitcoin network. Arcus—assimilating traditional finance, one Bitcoin loan at a time.