Thanks to Bitcoin, anyone in the world is free to transfer money over a peer-to-peer network without having to go through a financial institution. Money that cannot be censored by authorities, devalued by governments, monopolized by corporations, or stopped by borders.

However, when it comes to trading, going through a trusted third party still remains necessary. Why is that a problem? Because trusted third parties always have been, and continue to be, security holes.

Bitcoin Trading Is Broken

Individuals and financial institutions alike rely on trusted third parties such as clearinghouses and exchanges to clear their Bitcoin spot and derivatives transactions.

“Banks must be trusted to hold our money and transfer it electronically, but they lend it out in waves of credit bubbles with barely a fraction in reserve.” – Satoshi Nakamoto, 2 Nov 2009

Sound familiar? Yes, that’s exactly what happened during the 2022 contagion event where Celsius, Terra, Three Arrows Capital, BlockFi, Voyager, FTX and many more collapsed. Most of the time, end users, who trusted these third parties, lost everything.

Centralized exchanges are inherently insecure because funds can be pooled together without any oversight. Trading and custody should never, ever be mixed.

Looking at the above list of bankruptcies, one may feel helpless and declare Bitcoin trading a no go. Instead, we took a second look and wondered: does Bitcoin trading really need to take place in the books of a trusted third party? Certainly not. And Bitcoin itself provides the solution!

Bitcoin is a complex and dynamic system that has not yet found its equilibrium, and no one can predict the ultimate role it will play. Defining Bitcoin is challenging because it intersects multiple domains. Some view it as a financial asset, others as a currency, a network, or even as an ideological manifesto.

As developers of innovative trading solutions, we are particularly interested in one dimension: Bitcoin as a technical infrastructure. This technical dimension is the least visible, probably due to its relative complexity, yet we find it one of the most fascinating aspects of this Unidentified Financial Object (UFO).

And we firmly believe that Bitcoin the protocol provides the ideal building blocks for the development of sound financial services.

Building The Future Of Trading On Bitcoin

Bitcoin’s code consists of operations that, when assembled, form a script. This list of available elementary operations evolved over time, with the addition of new operations to enable more complex scripts. These evolutions are often slow, but this gradual pace helps preserve the stability and security of the protocol.

The simplest script, of course, is the peer-to-peer transfer of a unit of value. The first trading platforms were built by integrating this functionality: it became possible to transfer funds directly from a wallet to a platform for processing.

The Lightning Network is an application built from a more complex script. It allows for the risk-free and instantaneous transfer of BTC. LN Markets was the first trading platform to integrate this new protocol into its core development.

Targeting the retail market, its value proposition is an extreme simplification of the trading experience: it takes only a few seconds for a user to handle everything from account creation to collateral transfer, all done instantly from a Lightning wallet. The value proposition of instant trading brought more than $2 billion cumulative trading volume.

Building on this success, it was only natural for us to turn our attention to Discreet Log Contracts. A DLC is a native “smart contract” built on Bitcoin which enables the delivery of a payoff depending only on the publication of a price by an oracle.

Today, we think it’s time to build on the DLC protocol to enable full trustless trading and put an end to the pooling of funds by trusted third parties.

Trust Minimized Trading On Bitcoin Is Now A Reality

Over the past few months, we have been building in stealth mode a trustless OTC derivatives trading platform designed to meet the needs of crypto financial institutions: DLC Markets.

Any kind of financial instrument can be traded on DLC Markets with almost no counterparty risk: Bitcoin futures and options, products on hashrate and blockspace, and potentially any asset in the world.

Traditionally, trading for institutions has always been centralized and standardized. At some point, a clearinghouse (CCP) takes control of the funds and manages settlement. Paradoxically, despite technological advancements, Bitcoin trading is much riskier than traditional trading: no regulation, trading and custody in the same place, conflicts of interest, numerous risks, and frequent bankruptcies.

DLC Markets aims to address these issues. Drawing inspiration from traditional OTC trading, we are developing a marketplace where participants can meet and transact. Similar to an ISDA/CSA agreement, collateral is exchanged directly between peers.

To manage settlement, a smart contract (DLC) acts as a CCP. This smart contract is unique to each transaction, ensuring segregated fund management, complete transparency for transaction participants, and confidentiality from external actors.

Market participants can chat and submit bilateral requests for quotes (RFQ) to each other. Upon mutual agreement for a trade, they confirm the trades parameters and submit the initial margin to a smart contract on the Bitcoin blockchain. Throughout the life of the trade, margin calls, liquidation, and settlement may take place and unlock the corresponding outcome in the smart contract. The computation of any settlement is contingent solely on the publication of an independent oracle.

The oracle is a trusted third party to verify certain events accurately. Unlike an escrow, the oracle is not tasked with interpreting or executing the contract. No explicit approval is required from the oracle to establish or unilaterally settle the contract. The only requirement is the use of data published regularly by the oracle, which is both freely available and shareable.

While traditional DLCs can be cumbersome to implement, we introduce a novel approach with a coordinator to solve the free-option dilemma when the DLC is initiated. This approach also makes it possible to integrate margin calls, liquidation and netting in the DLC process.

Time flow chart of margin call steps and hedged period for DLC with most expected transactions format

For a technical deep dive on our solution, check our white paper.

The Future Is Now

DLC Markets represents a paradigm shift, offering a trustless and secure alternative to the centralized exchanges that have long dominated the financial sector. You can already sign up to try out our Beta!

To accelerate Bitcoin as an infrastructure, we have completed the raise of a $3 million seed round led by ego death capital, along with Lemniscap and Timechain, joining our current investors Arcario, Bitfinex and Fulgur Ventures. We’re very excited to partner with investors who share our belief that bitcoin-native companies will change the world.

Welcome to a new era of transparency, efficiency, and resilience in derivatives trading.

More info: https://lnmarkets.com/ & https://dlcmarkets.com/

This is a guest post by LN Markets. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.

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Welcome to Latam Insights, a compendium of the most relevant crypto and economic development news from Latin America during the last week. In this issue, Bolivia passes a law to sell gold for dollars, the Central Bank of Argentina bans fintech companies from using crypto, and Fitch improves El Salvador’s credit rating.

Bolivia Passes Law to Sell Gold for Dollars

Bolivia recently passed a law that will allow the government to sell up to 50% of its gold reserves in dollars, easing the internal scarcity of dollars. The law gives faculties to the government to negotiate the sale of 22 tons of gold out of the almost 44 available in the local reserves.

The initiative had been presented back in 2021, but it was only recently rescued and passed by the Congress, which is dominated by the party of Bolivian president Luis Arce. Jorge Richter, a presidential spokesperson, explained the objective of the swift approval of the law. He stated:

The country has a tool so that these events and situations of the past days that we have known are not repeated, difficulties in the production of North American currency.

Almost all Bolivian banks had previously established a $300 daily withdrawal limit for their users, and the Central Bank of Bolivia had to organize direct sales to satisfy the local demand for foreign currency.

Central Bank of Argentina Bans Fintech Companies From Using Crypto

On May 4, the Central Bank of Argentina issued a communication banning certain fintech providers from using cryptocurrency assets or offering services linked to digital assets or other assets “not regulated by the competent national authority and authorized by the Central Bank of the Argentine Republic.” to their customers.

The measure would only affect fintech companies that provide direct payments accounts, including Ualá, MercadoPago, Personal Pay, DolarApp, Nubi, and MODO, among others. Bitcoin Argentina, a national NGO, rejected this measure, stating that it “is surprising and unconsulted. It is not understood what objective the central bank is seeking by prohibiting an activity that today is entirely satisfactory and useful for the clients of the local exchanges.”

Fitch Ratings Improves El Salvador’s Credit Rating

Fitch Ratings, one of the big three credit rating agencies, upgraded the credit rating of El Salvador, even with the adoption of bitcoin as a legal tender. Fitch upgraded El Salvador’s rating from CC to CCC+, stating that this was the consequence of “successful completion of the exchange and payment of significant global bond write-downs early in the year, and reflects Fitch’s view that another event of default no longer appears likely.”

Salvadoran president Nayib Bukele celebrated the change, explaining he could not wait for Fitch wait to “upgrade it even more, once we announce our budget surplus for 2024.”

What do you think about the developments in Latin America this week? Tell us in the comment section below.

Sergio Goschenko

Sergio is a cryptocurrency journalist based in Venezuela. He describes himself as late to the game, entering the cryptosphere when the price rise happened during December 2017. Having a computer engineering background, living in Venezuela, and being impacted by the cryptocurrency boom at a social level, he offers a different point of view about crypto success and how it helps the unbanked and underserved.

Image Credits: Shutterstock, Pixabay, Wiki Commons

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After the American financial technology giant Paypal rolled out crypto payments last year, the company is now introducing cryptocurrency transfer services to Venmo users. The firm detailed that Venmo customers will be able to send funds to an existing Paypal account, an external wallet, or a crypto exchange platform.

Venmo Customers Can Now Transfer Cryptocurrency to Paypal Users, External Accounts, and Exchanges

On April 28, the payments services company Paypal announced that Venmo’s 60 million customers can now enjoy cryptocurrency transfers. The rollout follows Paypal’s crypto transfer launch last summer after initially introducing the product without the ability to transfer to external accounts. Similarly, up until now, Venmo only allowed its customers to buy, hold, and sell after integrating crypto in 2021.

“Crypto transfers will be rolling out to Venmo customers over the coming weeks starting in May 2023,” Paypal said on Friday.

In a bid to gather more insights into the behavior of its clientele, Paypal conducted a survey of Venmo customers. The findings revealed that a considerable number of individuals are now flocking to Venmo to better manage their cryptocurrency. More than half of Venmo’s crypto customers elected to use the firm’s crypto services. 74% of Venmo’s crypto customers opted to leave their investments in their Venmo accounts.

During the first quarter of 2023, almost 50% of Venmo customers who already possessed cryptocurrency balances chose to expand their portfolios by acquiring additional digital assets through Venmo. Paypal issued guidelines detailing the process of transferring crypto, along with a blog post on the topic.

The company emphasized that crypto transfers cannot be undone or reversed and urged customers to verify the recipient’s details by carefully inspecting the destination address. Moreover, Venmo cardholders can take advantage of incentives that offer cashback in the form of crypto assets and receive price alerts about fluctuations in crypto values.

What are your thoughts on Paypal’s move to offer cryptocurrency transfer services to Venmo users? Do you believe this will make it easier for more people to invest in digital assets? Share your views in the comments section below.

Jamie Redman

Jamie Redman is the News Lead at Bitcoin.com News and a financial tech journalist living in Florida. Redman has been an active member of the cryptocurrency community since 2011. He has a passion for Bitcoin, open-source code, and decentralized applications. Since September 2015, Redman has written more than 7,000 articles for Bitcoin.com News about the disruptive protocols emerging today.