The Ducat Protocol

The Ducat Protocol will govern the issuance and redemption of the UNIT Collateralised Debt Position (CDP).

The Protocol's governance token, DUCAT, is a Bitcoin-native governance token in the form of Bitcoin Runes. Governance will be enabled via zero-knowledge proof circuits memorialised on Bitcoin ordinal inscriptions.

Why Ducat?

A truly decentralised economy has always required truly decentralised money -- which, in turn, requires decentralised, native collateral.

Today, the stablecoin market exists almost entirely on the Ethereum and Tron blockchain networks, with collateral ultimately taking the form of bank-custodied US Treasuries (USDT, USDC, etc), a mix of Treasuries, Ethereum, and bridged BTC under highly centralised management (DAI), or CEX-custodied perp basis trading positions under highly centralised management (Ethena & co.) All of these models share high exposure to centralised custodians, and thus unlimited regulatory liability, as well as varying degrees of internal-control and principal/agent liability.

The Ducat Protocol leverages major advances in Bitcoin programmability enabling BTC-native, permissionless smart contracts for the first time. The time has finally come for a BTC-native decentralised unit of stable account, which fuses BTC’s censorship resistance with robust exogenous collateralisation, and a responsible degree of capital efficiency.

As Bitcoin programmability has neared liftoff, the BTC-Fi TVL hockey stick has begun, with 100% month-over-month and 300% YoY growth. However, Bitcoin is urgently in need of liquidity solutions, i.e., stablecoins and Collateralised Debt Positions (CDPs), whose collateral management is responsible, decentralised, and conservative all at once.

Why Now?

Due to historical programmatic constraints, the BTC economy has existed in extreme isolation from the broader economy. 1% of BTC exists within the custody of multi-sig bridges (BTC), and centralised exchanges hold 10%. Thus, 89% of BTC has shunned proof-of-stake DeFi and any form of leverage, which we believe illustrates Bitcoin holders' unique preference for "self-custodial maximalism."

However, a budding ecosystem of Bitcoin L2s and native protocols has finally unlocked Bitcoin's programmatic potential, while staying true to Bitcoin's self-custodial maximalism. BTC-Fi's TVL is growing +100% month-on-month and +300% year-on-year to over $400M, with infinite headroom. 89% of BTC—$1.3 trillion in market cap—is completely unleveraged. There's a huge opportunity to offer BTC-native leverage to that $1.3 trillion.

We know the stablecoin market doesn't need more competitors for offshore tokenised Treasuries (USDT), onshore tokenised Treasuries (USDC), or tokenised CEX-custodied perp basis trading (ENA etc). The centralised custody of collateral inherent in all these models squanders everything that makes Bitcoin unique. We also know that large BTC owners place extremely high value on self-custody. Thus, we believe established stablecoin collateralisation models (which all reject self-custody) will prove less compatible with BTC user preferences.

BTC can't be bridged to other, more programmable chains without sacrificing this custody, so historically, Bitcoin holders faced a binary tradeoff between integrating their Bitcoin with the wider world, versus maintaining self-custody. That era is now behind us.

Why USD?

Based on our own prior experience & research, the only stablecoin PMF is USD-based. The USD has >99% stablecoin market share. Furthermore, the BTC economy doesn't need someone to reinvent the wheel of trying to clone the USD's myriad real-world integrations with businesses and consumers. However, the BTC economy does require a flexible, credible unit of stable account to facilitate the flow of funds between BTC-denominated assets and USD-denominated costs/liabilities.