A new project built on the Bitcoin sidechain RSK is gunning to advance decentralized finance (DeFi) on Bitcoin’s ecosystem.

Sovryn, a self-billed “decentralized platform for trading and lending Bitcoin,” launched today with $2.1 million at its back – a symbolic number representing Bitcoin’s total supply. Crypto venture capital firm Greenfield One led the funding round, which also saw contributions from Collider Ventures and Monday Capital.

A 2-in-1 decentralized exchange and derivatives market, Sovryn will offer traders borrowing and lending service in bitcoin, USDT and RSK’s dollar on chain (DOC) stablecoin; they can also long or short bitcoin on the platform with up to 5x leverage.

“RSK was a natural fit for Sovryn,” said Edan Yago, Sovryn project lead. “The team behind it share our vision for a borderless and censorship resistant digital currency. This runs right to the core of the system where transactions are secured by bitcoin miners. Now, with the addition of a smart contract layer, deploying on RSK has meant we can provide the same or better functionality than centralized services, but in a decentralized way.”

The market is the second DeFi platform to come to RSK, a year behind the DAO-like stablecoin market Money on Chain. Cloning yet another DeFi product, Sovryn plans to launch a governance token which mimics Compound Finance’s model in Q1 of 2020 with its SOV token sale.

What is a Bitcoin sidechain?

A Bitcoin sidechain is a scaling solution for Bitcoin that offloads transactions onto a network that operates independently from the primary Bitcoin network, using a 1-for-1 tokenized version of bitcoin as a native currency. These systems are sometimes called “federated networks” because they sacrifice decentralization in favor of efficiency increases like transaction speed.

Read more: RSK Is Changing How It ‘Pegs’ Bitcoin to Its Sidechain

For RSK, a group of signatories oversee the peg-in and peg-out process to convert BTC into RBTC, RSK’s tokenized version, though RSK is in the process of revamping this design. RSK processes transactions through a “merge mined” process, wherein Bitcoin miners also contribute hashrate to RSK in return for RBTC transaction fees.

DeFi on Bitcoin

Sovryn’s launch comes shortly after RSK’s MakerDAO-esque stablecoin market Money on Chain introduced liquidity mining last week. 

These software rollouts have RSK sinking its teeth further into the market designs that made DeFi so hot in the summer and early fall of 2020. These financial products, a mishmash of derivatives markets, lending markets and everything in between, have found a home on Ethereum, whose programming language can accommodate more flexible smart contracts than Bitcoin’s own. 

“Sovryn, Money on Chain and RIF Dollar only represent the beginning of the Bitcoin DeFi ecosystem,” said Diego Gutierrez Zaldivar, IOVlabs CEO and RSK co-founder.

“Other than the RSK-Ethereum bridge being utilized more often, by MakerDAO and Aave for example, 2020 showed the Bitcoin ecosystem is the strongest one and where users want to be. That has led to many developers and entrepreneurs to understand they should, at the very least, create interoperable solutions to Bitcoin’s open finance protocols like RSK. Bitcoin is the future of the Internet of Value, and we’re excited to participate and lead it.”

Read more: Forget Ethereum, DeFi Is Being Built on Bitcoin

Sidechains like RSK have often been billed as a way to bring Ethereum-like smart contract capabilities to Bitcoin. Greenfield One partner Jascha Samadi told CoinDesk that Sovryn is definitely a “short- to mid-term play” to capture some of the lending and derivative markets volume that occurs on Ethereum-native DeFi and even centralized exchanges.

But the long play is about more than active crypto users; it’s about the crop that doesn’t have skin in the game yet.

“The long term play for DeFi on Bitcoin could be significantly larger with users (both retail and institutional) that are not in crypto yet,” Samadi wrote over email.

“At some point obviously, all these users will want to interact with DeFi applications as well, and with products like Sovryn, this will be possible right where they entered the ecosystem,” meaning in Bitcoin, rather than “having to educate them [on how to move] their BTC to Ethereum or some other ecosystem.”

Supply chain startup ShipChain is taking on water fast.

The U.S. Securities and Exchange Commission ordered ShipChain to cease and desist operations Monday and pay a $2.05 million penalty for violating securities laws in 2017. ShipChain, which had raised $27.6 million through its SHIP token initial coin offering (ICO), agreed to the penalty and quickly settled the suit.

“The penalty represents substantially all of ShipChain’s net assets,” according to the order. ShipChain has further opted “to cease all operations,” the order said.

The development spells an end for a token project that’s long tacked through stormy seas.

ShipChain had sought to build an automated ledger for international trade atop the Ethereum blockchain. It sold 145 million SHIP tokens to over 200 investors in late 2017 through early 2018. An early project whitepaper explained that proceeds would power research, development, marketing, legal – basically, all operations.

That caught the early ire of U.S. securities regulators. Shortly after the ICO wrapped up, South Carolina state securities regulators ordered ShipChain to cease operations. It alleged SHIP to be unregistered security in violation of state law. But ShipChain fought back. South Carolina ultimately vacated the case and the project sailed on.

The SEC action revives those charges and swiftly wraps them up. SHIP’s buyers could reasonably expect a return on their investment deriving from ShipChain’s business efforts, SEC argued. That’s known as an investment contract – a security. Companies must register securities offerings with the SEC.

ShipChain never did. It now joins the graveyard containing the wrecks of other ICO projects sunk by Chairman Jay Clayton’s SEC.

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It is no understatement that currently our global financial system is structurally unsound and unsustainable. This is primarily the result of how we approach money and banking: The highly centralized bank-debt structure of money, the way money is inevitably issued and distributed and the astonishing gap between financial and ecological flows raise significant questions about the status quo. Yet, what tangible alternatives are there to reinvent this system? 

Over a decade on from its inception, cryptocurrency is still the most promising tool available to reboot the financial system. Bitcoin and the wider cryptocurrency space has revitalized political economics, spurred us to rethink the organization of people, institutions and the social contracts that enable markets to exist. 

This post is part of CoinDesk's 2020 Year in Review – a collection of op-eds, essays and interviews about the year in crypto and beyond. Ethan Buchman is CEO of Informal Systems and co-founder of Cosmos.

Cryptocurrency is still very much an experiment – a global community asking how we reinvent governance, finance and economics – but one tending towards a more sustainable society. This capacity for experimentation is important. But how do we move from socio-economic tinkering to a responsible, load-bearing infrastructure across the globe?

Although 2020 was a flagship year for the blockchain industry, it is still very much in an early adopters phase. To move forward, distributed ledger technologies (DLT) need to be integrated into local communities where they offer tangible benefits to citizens. We need to look beyond the casino like experiments of decentralized finance (DeFi) that currently only offer speculation and “get rich quick” schemes. The industry needs to engage with existing social and political institutions rather than playing lip service to bag-holders. 

A greater focus on how DLT can benefit citizens at a local level will be key to the success of a healthy and revamped financial system in the long term. Soundness and sustainability are strongly associated with localism, with greater self-sufficiency in communities, shorter supply chains and more democratic decision making and ownership. 

There have always been alternative localist financial services: mutual credit systems and credit unions, complementary currencies, time banks, lending circles and mutual aid. But historically they’ve struggled to scale. Scaling a financial system is a matter of scaling trust across communities. Blockchains and cryptocurrencies provide the most credible foundation yet for attacking this problem of formulating and scaling new money systems. 

The industry needs to engage with existing social and political institutions rather than playing lip service to bag-holders.

Vast swathes of the existing financial system are currently being rebuilt on more transparent and accessible infrastructure. Access to financial opportunities like derivatives or contracts are now available to groups beyond Wall Street insiders. Now, anyone can write and access such opportunities on the Ethereum blockchain. However, in doing so we need to make sure that we do not repeat the failings of our existing financial infrastructure. 

One of the central problems of our economy over the last few decades, was that it became hyper financialized. That meant value creation was completely abstracted from real world wealth and sustainability, while traders made money from crazy financial products without generating any real value for society. And as finance ate the world, value became synonymous with U.S. dollars. 

This needs to change at a fundamental level. We need to build technology that allows structures to demonstrate real economic well-being, and improve quality of life by promoting innovative solutions that challenge mainstream thinking on economic, environmental and social issues. 

See also: NLW – COVID-19 and the Mass Surveillance Machine, Feat. Maya Zehavi

As for blockchains, money is the killer app. Our goal with this technological revolution must be to evolve a more sound and sustainable international financial regime that bridges the gap from local to global money and back. We are in the very early days of this transformation. 

We’re working our way from simple, global cryptocurrencies to more application specific and local ones. Already the underpinnings of this system are coming together: Bitcoin is the definitive store of value of the 21st century. Ethereum is a materially transformative technology that has unleashed invaluable experimentation in political economics. Cosmos makes Ethereum’s transformative tech more accessible through interoperable sovereignty, providing the philosophy and tools for building, operating and interoperating more local financial infrastructure.

Money is the killer app

Localism is necessary for both technical and social scalability. There will be many, many blockchains and cryptocurrencies. Together they will form an “internet of blockchains” with a dynamic topology. Chains and currencies will be created and destroyed, grown and shrunk, split and merged. Each chain or cryptocurrency represents a different community and set of values. They provide a mechanism for stakeholders to coordinate via an explicit state machine to scale trust across their communities, and compete with incumbent, centralized powers.

Global stablecoins and CBDCs are an important step in the right direction, but also a distraction. More important will be municipal and neighbourhood currencies tied directly to local sustenance and generated by local mutual credit reflecting real trade. Projects like Grassroots Economics are most inspiring in that regard, but others like Circles and Union Protocol also seem to be on the right track.

As we witness the latest exciting proliferation of new blockchain platforms, applications and bullish sentiment, we must not lose sight of the end goal and keep on track to building a fair and sustainable financial system for citizens across the globe.