Sustainable Yield
Version 2.0
Bitcoin is widely regarded as digital gold, primarily used by long-term holders as a store of value. However, most BTC sits idle in wallets, offering limited opportunities for yield generation compared to other cryptocurrencies like ETH or stablecoins. This underutilization constrains BTC holders to depend largely on price appreciation, leaving Bitcoin’s full potential untapped. The approval of Bitcoin ETFs by the SEC in Jan 2024 has led to a broader adoption of Bitcoin among financial institutions. Major financial entities are now integrating Bitcoin into their portfolios. This trend signifies a shift towards mainstream acceptance of cryptocurrencies in traditional finance. With the increasing adoption of Bitcoin, there is a rising demand for financial products based on Bitcoin. Michael Saylor, the founder of MicroStrategy, has suggested developing Bitcoin-based products that provide lower volatility, downside protection, or dividends to attract more investors.
GOAT Network aims to unlock Bitcoin’s untapped potential to benefit all BTC holders. By leveraging innovation such as decentralized sequencers, multi-coin PoS, BitVM2 and zkVM, GOAT Network transforms BTC from a passive into an active asset, ensuring enhanced security and rewards for all BTC holders. Security:
A natural question at this stage for any reader is where the yield comes from. In a nutshell, participants of the network share in the following fees or rewards. Gas Fees:
Sequencer Revenues/Rewards: Sequencers ensure network integrity and security, receiving revenues in the form of BTC gas fees and mining rewards for sequencers above. goatBTC Mint/Redeem Fees:
While GOAT Network focuses on unlocking Bitcoin’s potential, the lack of yield generation also affects other large-cap, fully decentralized coins like Dogecoin. GOAT Network’s yield-generation strategy can also be applied to Dogecoin, allowing holders to supply Dogecoin to decentralized sequencers to earn sustainable returns – “Supply Doge, Earn BTC!”. By expanding to other fully decentralized coins, GOAT Network strengthens its position as the sustainable BTC yield chain for the People’s coins (see Section 2).
In the following sections, we explain GOAT decentralized sequencers, multi-coin PoS, and the functions, rewards, incentives, and risks associated with each key GOAT Network participant3. Section 7 introduces the concept of a BTC-based decentralized financial market. Finally, we will outline Phase 2 of GOAT Network in Section 8, explaining how GOAT Network leverages technological innovations to enhance the network’s capabilities, improve liquidity, and build a robust economy.
The sequencer system lies at the heart of our network, ensuring that transactions are processed efficiently and securely4. GOAT Network pioneers the integration of decentralized sequencers (D Seq) within L2 solutions.
D-Seq not only enhances network security but also generates real sustainable yield for investors who supply BTC or DOGE in D-Seq. GOAT network’s unique multi-coin PoS innovation enables sustainable yield generation with D-Seq. It starts with BTC and DOGE as PoS assets. As shown in the chart below, investors supply BTC or DOGE into D-Seq to earn D-Seq rewards (gas fee in BTC and mining rewards in GOAT tokens).
In the future, the GOAT community will vote for which other coins can be used as PoS assets in GOAT D-Seq. We call those PoS assets the People’s Coins which are
By enabling the People’s Coins to earn yield, GOAT Network helps millions of users unlock more value from their holdings. It’s about making crypto work for everyone, from long-time Bitcoin supporters to Dogecoin enthusiasts and much more. With GOAT, the potential of People’s Coins is realized.
Sequencer operators’ role is crucial in maintaining decentralization, optimizing network performance, and supporting BTCFi applications. The functions, rewards, additional incentives, and risks for sequencer operators can be summarized as follows:
GOAT Network’s sequencers are whitelisted to ensure network stability and security. As the network matures, it will transition to an open market where anyone can become a sequencer operator, as long as that party can successfully handle the tech requirements and PoS provision required to run a GOAT Network sequencer node. This shift will create a competitive environment for decentralized sequencers, driving innovation, improving services, and ensuring a fairer distribution of rewards. Investors will have the flexibility to switch to more efficient operators as they see fit.
As discussed in the introduction, our aim is to create an ecosystem that enhances the value of all BTC or Dogecoin holders and allows generation of sustainable yield in this ecosystem. In particular, we note that while currently Bitcoin or Dogecoin miners earn good returns, retail investors can’t participate directly in the mining business due to the technical complexity and significant capital requirements involved. GOAT Network addresses this gap in the Bitcoin/Dogecoin ecosystem by allowing retail investors to engage in the ecosystem through mechanisms that simplify access to L2 mining rewards. By locking BTC or DOGE into a sequencer node, stakers can generate yield and contribute to the network’s overall stability and growth.
There are two ways to bridge BTC onto GOAT Network and earn sequencer revenues. (1) BTC holders supply goatBTC to a sequencer node through a smart contract on BTC L2: no time lock; see the chart above.
Mechanism:
Rewards: They earn a share of sequencer revenues, and the return generated by yBTC (for example earning swap translation fees by providing liquidity to goatBTC/yBTC trading pair in a DEX). See next section for detailed description of yBTC.
Risks:
GOAT Network supports not only native BTC from the mainnet but also considers accepting wrapped versions of BTC. Due to the inherent risks of wrapped BTC, GOAT Network is highly selective, accepting only those with a solid reputation and a proven track record. Currently, we accept BTCB for sequencer supplies.
(2) BTCB holders can bridge their BTCB to GOAT Network and supply those BTCB to a sequencer node through a smart contract on BTC L2: no time lock.
Since yBTC and yBTCB are similar assets on GOAT Network, we will use yBTC for simplicity throughout the remainder of this paper.
The user journey for Dogecoin holders will mirror that of BTCB holders. GOAT Network will initially accept Dogecoin on BSC, allowing users to bridge Dogecoin from BSC to the GOAT Network, supply it to decentralized sequencers, and receive yDoge in return. GOAT Network aims to accept Dogecoin directly from the Dogecoin mainnet by end of 2025.
Key benefits to BTC or DOGE holders can be summarized as follows:
Before addressing the remaining parties in the GOAT ecosystem, we would like to further discuss the tokenization of sequencer rewards. This is important because rewards to our ecosystem are closely related to the tokenization of sequencer rewards. Everything discussed about BTC in this section also applies to Dogecoin. For simplicity, we will focus the discussion on BTC.
As discussed in the previous section, investors can supply their goatBTC to a sequencer node to mint yBTC (via a third-party platform), a yield-bearing token that accrues sequencer rewards. yBTC is 1:1 pegged with goatBTC. This process tokenizes the sequencer rewards, making them tradable. Note that yBTC is issued by a sequencer or a sequencer league, not by GOAT Network. This is because sequencers are the entities that collect sequencer rewards, and only they have the capability to tokenize these rewards.
yBTC can be further locked in a decomposition pool to mint additional tokens. The chart below illustrates the creation of two synthetic assets that are contingent on yBTC, namely pBTC and yToken. pBTC is the principal token, while yToken is the yield-bearing token that holds sequencer rewards from yBTC for a specified period. See below for details.
Note that pBTC and yToken can have specific maturity dates, i.e. 3 months, 6 months, 1 year, or even perpetual. For example, yBTC may be decomposed into pBTC and yToken with a 3-month maturity period.
This mechanism creates an innovative BTC yield market through yBTC, which stands apart from traditional lending and borrowing markets by deriving the equivalent of yields from sequencer revenues. This new yield market will interact with BTC and other BTC yield products, generating a multitude of trading opportunities for BTC suppliers, hedgers, arbitrageurs, and speculators.
It is important to note that GOAT Network is the first to enable the creation of different yield-bearing tokens with varying maturity periods. This is possible because the rewards to yBTC are native to our network and not tied to just sporadic airdrops or other limited-time-only events. As discussed above, our network design makes the rewards in yBTC permanent, as long as the BTC holder shares in the sequencer rewards.
The profits generated by sequencers, primarily from gas fees, are distributed to users through yBTC. As transaction volume increases, gas fees rise, leading to higher profits for sequencers, which creates a positive feedback loop. The feedback loop that we discuss below not only enhances the utility and value of yBTC and yToken; it also drives the growth and sustainability of GOAT Network. By aligning the incentives of participants with the network’s growth, GOAT ensures a thriving ecosystem that benefits all stakeholders.
Additionally, as the network develops, there will be various DeFi products (see Section 8) built by third parties on GOAT Network. These products generate more transactions, thereby contributing to the feedback loop, ensuring sustained growth and a robust ecosystem.
The GOAT Foundation and its treasury play important roles in supporting ecosystem development and ensuring the long-term sustainability of GOAT Network. By strategically managing resources and fostering innovation, these entities help to create a robust ecosystem.
The Foundation funds dApp teams and ecosystem partners through grants and incentives, driving innovation and attracting users. It also supports marketing and outreach to expand network adoption. Managed by the Foundation, the GOAT treasury fund supports liquidity provision and staking programs, offering incentives to participants who contribute to the network’s liquidity pools. By doing so, the Treasury ensures that there is ample liquidity for transactions and trading activities, making the network more attractive to users and investors alike.
Ecosystem Partners and dApp Teams are also critical to GOAT Network’s growth. They receive support and funding from the GOAT Foundation, which helps them develop and integrate innovative applications on the network. This creates a dynamic ecosystem where new services and products continuously enhance the network’s value proposition. As these dApps and services attract more users, transaction volumes increase, generating more fees and rewards for all participants. This positive feedback loop ensures that everyone—from Sequencer Operators and Investors to Ecosystem Partners and dApp Teams—benefits from the network’s success.
We have discussed GOAT Network’s BTC yield market in Section 4. We anticipate seeing more BTC-related financial products (built by third parties) on GOAT Network such as stablecoins, synthetic assets, insurance products, derivatives, etc. Essentially, a BTC-Based Decentralized Financial Market can be established on GOAT Network, secured by BTC, based on BTC, with yield collected in BTC, and more.
One noteworthy aspect is the collateral market. The BTC collateral market is currently small and inactive due to security issues and the lack of reliable sources for generating returns on BTC. However, GOAT Network’s solution of enhanced security and yield generation aims to invigorate the BTC collateral market. BTC-based collateral products include but are not limited to:
GOAT Network can use smart contracts to significantly enhance the collateral market (see the GOAT Network full Econpaper for an example). We truly believe that our BTC-based decentralized financial market is not merely mimicking traditional finance but enhancing it. Our approach goes beyond lowering counterparty risk and intermediary fees; it fundamentally enables financial engineering that is not easily accommodated in traditional finance. By leveraging the unique capabilities of blockchain technology and minimizing adverse selection problems through smart contracts, we are opening new avenues for financial engineering, diverse cross-market innovation, and efficiency in the digital financial sector. This allows us to create useful products and services that are secure, transparent, and accessible to a broader range of users (BTC suppliers, hedgers, arbitrageurs, speculators, etc.). By leveraging the full potential of BTC, GOAT Network will pave the way for a more inclusive and efficient financial future.
GOAT Network Phase 1 provides a secure Bitcoin Layer 2 solution, enabling BTC to safely enter the DeFi world. Through decentralized sequencers, BTC holders are offered sustainable yields. Additionally, by tokenizing sequencer revenues, these can be traded and split, not only providing more liquidity to the market but also establishing an innovative BTC yield market. As more BTC flows into Layer 2, we anticipate seeing more BTC-related financial products such as stablecoins, synthetic assets, insurance products, derivatives, etc. In essence, a BTC-Based Decentralized Financial Market can be built on GOAT Network.
One of the limitations of current L1 and L2 solutions is that applications are often siloed within a single network, limiting their utility and interaction with other ecosystems. In Phase 2, GOAT Network plans to implement Entangled Rollup (ER) technology, which will enable efficient cross-chain transactions, ensuring that native assets can move seamlessly between different blockchains while maintaining high throughput and low fees. This fosters innovation and expands the network’s utility, establishing unified liquidity for GOAT Network.
This unified liquidity will allow for a more interconnected and fluid ecosystem. This enhancement will also significantly improve liquidity and trading volumes within GOAT Network, fostering a more dynamic and efficient market environment. The open ecosystem provides incentives for dApps to partner with GOAT Network, as they won’t have to readapt to different L1s. Enhanced liquidity mechanisms will also support more sophisticated financial products and services within the network. As more L1 blockchains are connected to GOAT Network, we anticipate a proliferation of dApps and increased liquidity across the ecosystem. This expansion will result in a larger and more dynamic decentralized financial market. With more dApps and liquidity, sequencers will be able to earn more gas fees, leading to higher returns for those supplying with sequencers. This increase in gas fee revenue creates more sustainable yields, which further incentivizes participation and investment. By fostering a collaborative environment where all participants can thrive, GOAT Network aims to create an economy that benefits everyone involved.
GOAT Network’s economic model leverages advanced technological innovations to address the key challenges faced by existing BTC L2 solutions, particularly in the areas of security and yield generation. By integrating BitVM2, zkVM technology, and decentralized sequencers, GOAT Network inherits the robust security of the Bitcoin mainnet, while returning BTC from a passive to an active asset and creating a sustainable yield on BTC through essential network activities, such as gas fees and mint/redeem fees.
GOAT’s decentralized sequencers not only ensure the network’s integrity and security but also generate substantial returns for BTC holders. This innovative approach includes the creation of a BTC yield market through the tokenization of sequencer revenues, offering diverse trading opportunities and enhancing liquidity. As more BTC flows into Layer 2, a wider range of DeFi products can be developed, enabling the construction of a BTC-based decentralized financial market on GOAT Network. GOAT decentralized sequencers accept multiple assets for PoS. This allows GOAT Network to generate sustainable yields for BTC holders and holders of People’s coins, such as Dogecoin. It positions GOAT Network as the sustainable BTC yield chain for the People’s coins. The GOAT Network ecosystem is meticulously crafted to foster mutual cooperation and shared incentives among all participants, including Sequencer Operators, Investors, the GOAT Foundation, Ecosystem Partners, and dApp Teams. Each participant plays a vital role in ensuring the network’s efficiency, security, and growth, thus creating a thriving and dynamic environment. As the network evolves, the introduction of a universal L2 solution for any L1 network in Phase 2 will further enhance interoperability and liquidity across chains, elevating the benefits and capabilities of GOAT Network. This will solidify GOAT’s as a pioneering force in the blockchain ecosystem, providing a secure, efficient, and rewarding platform for all participants.
In summary, GOAT Network not only addresses the immediate needs of BTC L2 solutions; it also lays the groundwork for a scalable, secure, and interconnected blockchain future.
