Mintlayer is a 2nd layer solution that will allow users to build a decentralized finance ecosystem rooted in the established network of the Bitcoin blockchain. It sounds cool, but few regular people understand the possibilities that DeFi on Bitcoin creates.
The best way to explain the power of Mintlayer is to give you an idea of what projects and applications we can build on the Mintlayer platform.
The basic building blocks of DeFi are currently smart contracts. Smart contracts are programs stored on the Mintlayer blockchain that will run when predetermined conditions are met, or a user initiates them.
They are most commonly used to automate the execution of agreements without a trusted third-party.
The extent of smart contract capabilities is yet to be determined. It’s possible that we could integrate smart contracts into every aspect of our lives in the future. Developers have already programmed most financial instruments and contracts into smart contracts.
Mintlayer’s tokenization system and development of special output types allows users to engage in DeFi development without having to code smart contracts. While Mintlayer retains the ability to store and execute smart contracts, they aren’t necessary for deploying a new token.
Payments with Crypto
In March 2021, the Dallas Mavericks started accepting Dogecoin as payments for tickets and merchandise. In the first year, fans made over $100,000 worth of transactions using the popular meme coin.
These early instances of crypto based payments proved the concept, but there wasn’t widespread acceptance. Gas fees, processing capacity, and friction created by the technology have limited widespread adoption.
Mintlayer will offer users the ability to complete micro transactions via the Lightning Network, a peer-to-peer network that increases the scalability and speed of transactions while decreasing the cost.
There are currently no proven alternatives that can compete with the Lightning Network when it comes to speed or cost.
Today, the median on-chain Bitcoin transaction fee was around $0.963, which is just above the two-year low. Comparatively, the median Lightning Network base fee was $0.000000281. Transactions on the Lightning Network are practically free.
Merchants can pay up to 10% of their gross revenues completing small transactions on the VISA network (2.9% + $0.30). For a $2 cup of coffee, a $0.96 transaction fee is nearly 50%–but the Lightning Network’s median fee equates to a 0.000015% transaction cost, which is a fraction of the cost of all existing solutions.
Mintlayer’s integration of the Lightning Network will marry a user-friendly platform for development with payment processing capabilities that are orders of magnitude greater than existing solutions.
DEX- Decentralized Exchange
At the core of decentralized finance is the concept of a decentralized exchange. Traditionally, to run an effective exchange, an intermediary would connect buyers with sellers. To allow for faster transactions without an active third-party, a decentralized exchange uses a smart contract to create liquidity pools.
A decentralized exchange allows users to maintain self-custody while also trading assets quickly and efficiently.
The bankruptcies and subsequent losses of customer assets by centralized platforms such as FTX, BlockFi, Celsius, and Voyager Digital underscore the importance of self-custody.
Developers will likely build many decentralized exchanges on Mintlayer in the first few years. A robust and secure DEX is essential to build out many other DeFi applications (dapps) that will come later.
Mintlayer will feature an embedded token creation feature. Unlike Ethereum, which requires a deployer contract, anyone will be able to generate tokens for use by their organization or project.
Companies like Travala, Crypto.com, and the Brave Browser use utility tokens as user rewards. These tokens can redeem products or services directly from their company.
Governance tokens like MKR from MakerDAO grants holders’ future decision-making powers within the organization.
Stablecoin tokens like USDT and DAI are used to integrate fiat currencies into digital ecosystems.
Users will mint all kinds of tokens (utility, governance, security, etc.) quickly and affordably with Mintlayer.
Security tokens represent external assets that can be traded under existing financial regulations as security. They can represent properties, bonds, stocks, real-estates, property, and other real-world currencies.
There are some existing security tokens (SIA funds and Blockchain Capital are examples), however existing government regulations make issuing them burdensome and expensive.
Mintlayer offers several features, including the MLS-02 token, and access control lists that will aid companies in the technical aspect of this process.
Non Fungible Tokens
Non-Fungible Tokens, or NFTs, have gained a lot of attention in the world of digital art and collectibles, but the potential use cases for this technology extend far beyond that. In the future, we could use NFTs for a wide range of applications, including:
- Census taking
- Record Keeping (Birth Certificates, Deeds, etc.)
- Healthcare Records
We built Mintlayer from the ground up with a privacy token (MLS-02) and access control lists that help facilitate regulatory requirements and mitigate privacy concerns.
The image shows Four out of 10000 unique VeKings. VeKings are a collection of 9,999 unique non-fungible tokens (NFT) stored on VeChains digital ledger (blockchain). CC0 License
Mintlayer is at the forefront of regulatory requirements, making it a promising platform for governments and organizations that wish to be at the cutting edge of these new technologies.
As digital artists and game developers start minting NFTs through Mintlayer that represent unique art and other digital assets, there will be a need for an online marketplace to sell or trade those assets.
In 2022, creators using the OpenSea marketplace earned over $1 Billion dollars. As the value of digital assets like items or skins in a video game stabilizes, the need for open source NFT technologies like the ones available through Mintlayer will continue to grow.
Marketplaces are used to trade all kinds of unconventional tokens, such as derivatives, NFTs, and other types of tokens that aren’t as well suited for exchanges.
Tokenized derivatives are financial instruments that represent a contract or a claim on an underlying asset, such as a stock or a commodity, that is represented by a token on a blockchain platform.
Users can buy and sell these tokens on digital asset exchanges, just like traditional derivatives, but with the added benefits of increased efficiency, transparency, and accessibility that come with blockchain technology.
Users can customize tokenized derivatives to include various features, such as smart contract-based automation and decentralized governance, that are not found in traditional derivatives.
Theoretically, users could create tokens on Mintlayer that represent any asset they’d like. This could include stocks, properties, bonds, shares in a business, etc.
With the ability to mint derivative tokens comes the ability to create funds that have exposure to many asset classes. Instead of investing in a mutual fund that only includes equities from the S&P 500, users could create a token that represented shares in real estate investment, shares in a small business, investment property, a wrapped Bitcoin token, and fractional ownership of artwork.
An existing platform called Balancer helps users engage in an automatic rebalancing asset allocation that also generates fees from liquidity on the Ethereum blockchain. For instance, funds exist that contain 20% WBTC, 20% WETH, 20% UNI, 20% LINK and 20% USDC. As the value of one asset increases, Balancer trades portions of that asset for another asset that has not seen a price increase yet.
With other derivatives, users could use a balancing protocol to create a diversified portfolio that represents any asset allocation they wish (i.e. 60% stocks, 40% bonds).
This strategy helps maintain the users’ risk management and investment goals. Since Balancer supplements operation by providing liquidity for a DEX, they do not charge users a fee like traditional automatic rebalancing services. Instead, users will accrue fees as interest.
Decentralized lending is one of the most popular use cases in DeFi. By requiring over-collateralization and imposing algorithms to monitor and liquidate positions when margin calls are missed, developers have been able to create some very interesting projects that provided lending users with oversized returns compared to traditional banking.
Projects like Celsius and BlockFi were popular for a while, but their centralized nature and movement toward a more traditional business model proved fatal. Protocols like AAVE that are decentralized have continued to operate despite market conditions.
The first lending projects built on Mintlayer will have the benefit of hindsight; understanding what works and what becomes a liability as volatility increases. They will also enjoy direct access to Bitcoin, which is the largest pool of liquidity that has largely remained untapped by DeFi.
Once developers launch some of the most basic dapps on the Mintlayer ecosystem, other developers will integrate them into more complex projects that require the functionality of an oracle, DEX, or other dapp.
For example, developers have been able to distill financial projects like Bitcoin and Ethereum call and put options into a simple dapp that doesn’t require a trading account to use.
Hegic introduced one-click options trading to the Ethereum blockchain. Users can purchase calls and puts for time frames between 7 and 90 days with just a few mouse clicks, straight into their crypto wallet.
The options are tokenized, and users can redeem or sell their tokens later.
With Hegic the same developer created Whiteheart, which is more like an options insurance policy against short-term losses in USD for Bitcoin and Ethereum. Users can wrap their ETH and WBTC into WETH and WHWBTC. Users pay a fee depending on the lockup time, and are paid the difference if the underlying asset falls below a specified price floor.
These simple and effective financial products are powered by smart contracts, and do not require a brokerage or bank to purchase. Mintlayer is an obvious choice for developers that want to create revolutionary DeFi versions of existing financial instruments, but want to build on/with Bitcoin. Developers will port many existing projects from other blockchains to Mintlayer with the help of our accelerator program.
Asset Management Applications
As users add liquidity to the Mintlayer ecosystem, they will need applications to manage their assets and to analyze their use.
The first application developed for Mintlayer was the Mintlayer mobile wallet. This application will allow users to send and receive ML.
A block explorer for users to view transactions in real time will be one of the first applications developed in conjunction with the Mintlayer blockchain.
The Zerion web app allows users to connect their DeFi wallet, analyze, and manage their assets anonymously. Similar projects will be built on Mintlayer to help users analyze and manage their assets.
Mintlayer’s browser extension will bring all the functionality of Mintlayer’s mobile wallet to desktop computers.
The Mintlayer ecosystem will bring many opportunities for developers to create applications that facilitate, analyze, and manage the activity that other dapps engage in.
One project class that is often overlooked in DeFi is infrastructure projects such as on-ramps and oracles that allow the entire ecosystem to work.
Projects like Chainlink opened up endless opportunities for DeFi applications that need information that isn’t present on the blockchain to operate. Conversely, The Graph allows external applications to query data from the blockchain.
Mintlayer will require on-ramps, oracles, and other pieces of infrastructure to realize its true potential. By connecting investors with the most talented developers through our ecosystem fund, we hope that some of our infrastructure projects will grow into projects that find usefulness all across the technology sector.
Mintlayer is a blank canvas and extensive color palette that other artists will use to create their own masterpieces. Many companies will port their existing projects from other blockchains, and many others will develop their own unique ideas.
We have developed an ecosystem fund to help nurture both types of project. Our incubator program is aimed at new, exciting projects and our accelerator program is aimed at existing projects that could use an extra push.
If you have a novel idea about a project that should be built on Mintlayer, we’d love to hear about it! We may even help fund it, or match you with existing investors that already committed to supporting Mintlayer based projects. You can fill out our incubator program form here.