Decentralized Lending Protocol - sBTC Collateralized Loans

A secure decentralized lending protocol enabling users to borrow against sBTC collateral with built-in liquidation mechanisms. This contract implements core DeFi lending primitives while maintaining safety through robust collateralization checks and administrative controls.

Key Features

• sBTC Collateralized Loans

  • Deposit SIP-010 compliant sBTC as collateral
  • Borrow stablecoins/assets against collateral
  • Minimum 150% collateralization ratio

• Risk Management

  • Configurable liquidation threshold (70-95% LTV)
  • 5% liquidation rewards with safety caps
  • Real-time collateral health monitoring

• Security First

  • Pause functionality for emergency stops
  • Owner-restricted parameter updates
  • Safe arithmetic operations with overflow protection

• Transparent Tracking

  • Public view functions for positions
  • Real-time protocol statistics
  • Separate liquidation reward tracking

Contract Architecture

graph TD
    A[User] -->|Deposit| B(sBTC Collateral)
    A -->|Borrow| C(Loan Issuance)
    B --> D[Collateral Vault]
    C --> E[Debt Registry]
    F[Liquidator] -->|Liquidate| G[Under-Collateralized Positions]
    G --> H[Reward Distribution]
    D -->|Withdraw| I[Repaid Loans]
    E -->|Update| J[Protocol Statistics]

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Core Functionality

1. Collateral Management

Deposit Collateral

(deposit-collateral token-contract amount)

• Transfers sBTC from user to protocol
• Increases user's collateral balance
• Updates total protocol deposits

Requirements:

• amount > 0
• Protocol not paused
• Valid sBTC token contract

2. Loan Operations

Borrow Funds

(borrow token-contract amount)

• Checks collateralization ratio (≥150%)
• Updates user's debt position
• Increases total protocol borrows

Collateral Check:

$$(collateral * 10000) / (debt + new_borrow) ≥ 15000$$

Repay Loan

(repay token-contract amount)

• Reduces user's debt balance
• Accepts partial repayments
• Updates total protocol borrows

3. Liquidation Engine

Trigger Liquidation

(liquidate token-contract user amount)

• Available when: $$(collateral * 10000) / debt ≤ liquidation_threshold$$
• Liquidator receives: $$reward = min(amount * 1.05, collateral * 0.5)$$
• Debt and collateral reduced proportionally

Claim Rewards

(claim-rewards token-contract)

• Transfers accumulated liquidation rewards
• Resets liquidator's reward balance

Protocol Parameters

Parameter	Range	Default	Description
MIN-COLLATERAL-RATIO	150%	Fixed	Minimum collateralization ratio
interest-rate	1-100%	5%	Annual interest rate (BPS)
liquidation-threshold	70-95%	80%	LTV ratio for liquidation trigger
Protocol Fee	-	0%	Currently not implemented

Administrative Controls

Owner Restricted Functions:

(set-interest-rate new-rate)
(set-liquidation-threshold new-threshold)
(pause-protocol)
(unpause-protocol)

Safety Constraints:

• Interest rate: 100-10,000 BPS (1%-100%)
• Liquidation threshold: 7,000-9,500 BPS (70%-95%)
• Protocol pausable by owner only

Error Reference

Code	Error	Description
u100	ERR-NOT-AUTHORIZED	Unauthorized access attempt
u101	ERR-INSUFFICIENT-BALANCE	Insufficient token balance
u102	ERR-INSUFFICIENT-COLLATERAL	Collateral below minimum ratio
u103	ERR-INVALID-AMOUNT	Invalid input amount
u106	ERR-LIQUIDATION-FAILED	Liquidation conditions not met

Security Model

Key Protections:

1. Reentrancy prevention through CEI pattern
2. All token transfers use SIP-010 standard
3. Separate collateral and debt tracking
4. Arithmetic operations with overflow checks
5. Time-locked parameter changes (future upgrade)

Liquidation Safeguards:

• Maximum 50% collateral loss per liquidation
• 5% minimum incentive for liquidators
• Progressive debt reduction mechanism

View Functions

User Position Check:

(get-user-deposits user-principal)
(get-user-borrows user-principal)

Protocol Analytics:

(get-protocol-stats)

Returns:

• total-deposits: Total sBTC locked
• total-borrows: Outstanding debt
• interest-rate: Current rate in BPS

Development Notes

Testing Checklist:

1. Collateral ratio boundary conditions
2. Liquidation reward calculations
3. Protocol pause state interactions
4. Interest rate parameter validation
5. Cross-user isolation testing

Dependencies:

• SIP-010 compliant token contract
• STX blockchain v2.1+
• Clarity version 2.0