Previously invested some money in Yala, so I was invited to share some technical details about Yala, including some exclusive content obtained through verification that is not covered in the official documentation.
First of all, in a nutshell, Yala is a purer Bitcoin version of MakerDAO/SKY, supporting the issuance of the stablecoin Yu backed by BTC.
Their team is led by Polychain, and includes former core members of MakerDAO.
A very understandable example is that, based on the current parameters, by collateralizing $110 worth of Bitcoin, you can issue up to $100 worth of the stablecoin Yu, thereby obtaining liquidity with Bitcoin collateral.
PS: This is quite similar to the request made by Bill, the Director of the U.S. Housing Finance Agency, for real estate companies to support Bitcoin as collateral 😂
Next, many people will ask a question: since MakerDAO also supports collateralizing WBTC to issue DAI, why would everyone consider using Yala to convert $BTC into $Yu?
This leads us to some details.
All BTC staking and issuance in the world operates in two steps:
Step 1: Where is the BTC stored?
Step 2: How is the stablecoin issued?
Step 2 is very mature, but the difficulty lies in Step 1.
For MakerDAO, the underlying real BTC of WBTC is stored in the licensed custodian BitGO in the U.S. This is an independent institution, somewhat like a 1/1, and there has been a lot of criticism in the past, which I won't delve into here.
Then, especially after rumors of BitGO's acquisition surfaced, MakerDAO has voted to prohibit the deposit of new WBTC within the system; this asset is classified as 'secondary custodial collateral' under the Endgame framework, and will be gradually phased out unless it regains minimal trust in its custodial structure.
This effectively allows Longda to relinquish a part of the market space.
As for Yala, its first step is as follows:
BTC is transferred via a cross-chain bridge, directly mapping $BTC from the Bitcoin mainnet to Ethereum, transforming it into $YBTC.
All mapping cross-chain bridges involve two fatal questions: who manages both ends of the bridge?
1. Who manages the BTC on the Bitcoin network?
This is further divided into two scenarios: ordinary users & large holders.
1.1 For ordinary users' Bitcoin, it ultimately enters a 3/5 multi-signature. Based on this multi-signature, Yala uses Cubist's secure hardware.
Note that the funds are not held in Cubist. Cubist is a provider of secure key management solutions, and they have a technology that restricts the notary's keys to only sign a specific type of signature, thereby enhancing the security of the multi-signature.
1.2 For large holders' Bitcoin, it enters a Bitcoin locking script built using P2WSH, which can be considered self-custody or a 2/2 multi-signature.
During the time lock period, these BTC need to be jointly signed by the large holder and Yala for withdrawal; after the time lock period, the large holder can withdraw independently. Meanwhile, the YBTC issued by the large holder is managed + invested by Yala.
PS: Yala is relatively candid here, as almost all BTCfi will reach private deals with large holders; this is an open secret, and Yala bringing it to the table is obviously better. Additionally, these BTC are not just lying around; these YBTC are also borrowed out to issue Yu, effectively adding liquidity to the protocol.
Moreover, the technology of P2WSH is also very interesting, and I hope to share a separate post about it in the future.
2. Who issues coins for $YBTC on the Ethereum network?
Currently, a 9/11 multi-signature is used.
These 11 individuals are the notaries of the bridge. According to Yala's description, these notaries come from large institutions, investors, node operators, clients, custodians, and centralized exchanges, primarily to verify transactions, such as whether the Bitcoin has been confirmed in 6 blocks, and then approve the issuance of $YBTC.
Currently, this notary bridge has no reward or punishment mechanism and is still in the phase of voluntary operation. However, in the future, Yala plans to evolve the bridge into a more permissionless and trustless cross-chain solution, which will also include selection/reward mechanisms based on economic security.
Step 2: How is the stablecoin issued?
Since in Step 1, BTC has already transformed into YBTC on Ethereum, the Ethereum Turing-complete EVM can implement all remaining functionalities.
Considering that this part of the code is forked from MakerDAO, after code auditing, it can be considered that its security in Step 2 is comparable to that of MakerDAO.
This includes that the liquidation module also liquidates the YBTC ERC-20 token and does not move the BTC itself on the Bitcoin chain.
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This is the entire technical framework of the Yala project;整理下来, it should be much clearer now.
Currently, Yala's TVL is about ~1200 BTC, and it has also launched a corresponding points program. Interested friends can check it out @yalaorg.
