At dawn, I was going through this DLC comparison chart and got stuck on a line from the Babylon Trustless Bitcoin Vaults whitepaper, because it captures something people often miss.
Most people treat Bitcoin lending’s biggest problem as a technical one: “it cannot work without trust.” But protocols like Lendasat and Side, which use DLCs, can already settle in a trustless way. The real pain point is the repayment stage.
In a DLC setup, Bob can only recover the collateral after obtaining a secret that is revealed only when repayment happens. The catch is that the party controlling that revealLarrycan simply refuse to disclose it, even after Bob has repaid. That creates what protocol designers call a free option: the lender gains a right they can withhold at will, while the borrower is left waiting.
Side tries to work around this by using a committee, but that still brings trust back in through the side door. The borrower now has to trust that the committee will honestly reveal the secret when repayment is done.
A simple analogy: imagine you have already paid your rent, but the landlord still holds the key to your deposit refund and can decide, whenever they like, whether to hand it back.
TBV’s idea is different. Instead of relying on one party to reveal a secret, both sides hold an obfuscation circuit that can extract the other side’s secret. If someone cheats, their own secret gets exposed and they get caught. No single party’s cooperation is needed anymore.
What stood out to me most in this chart is that Larry’s settlement path is actually trustless, and that is easy to overlook. Most discussions focus on the borrower getting stuck, but the deeper issue is that the system technically works it just gives one side too much control.
That kind of bottleneck is common: the technology can do it, but the incentive design makes people avoid it.
@BabylonLabs_io #baby $BABY
Most people treat Bitcoin lending’s biggest problem as a technical one: “it cannot work without trust.” But protocols like Lendasat and Side, which use DLCs, can already settle in a trustless way. The real pain point is the repayment stage.
In a DLC setup, Bob can only recover the collateral after obtaining a secret that is revealed only when repayment happens. The catch is that the party controlling that revealLarrycan simply refuse to disclose it, even after Bob has repaid. That creates what protocol designers call a free option: the lender gains a right they can withhold at will, while the borrower is left waiting.
Side tries to work around this by using a committee, but that still brings trust back in through the side door. The borrower now has to trust that the committee will honestly reveal the secret when repayment is done.
A simple analogy: imagine you have already paid your rent, but the landlord still holds the key to your deposit refund and can decide, whenever they like, whether to hand it back.
TBV’s idea is different. Instead of relying on one party to reveal a secret, both sides hold an obfuscation circuit that can extract the other side’s secret. If someone cheats, their own secret gets exposed and they get caught. No single party’s cooperation is needed anymore.
What stood out to me most in this chart is that Larry’s settlement path is actually trustless, and that is easy to overlook. Most discussions focus on the borrower getting stuck, but the deeper issue is that the system technically works it just gives one side too much control.
That kind of bottleneck is common: the technology can do it, but the incentive design makes people avoid it.
@BabylonLabs_io #baby $BABY
