Atomic Loans: Cryptocurrency Debt Instruments
This addresses the need for cryptocurrency holders to access fiat or leverage in a decentralized manner, though it is incremental as it builds on existing atomic swap technology.
The paper tackles the problem of creating trustless debt instruments in cryptocurrency by proposing atomic loans, which use atomic swap technology to enable overcollateralized loans without intermediaries, with a bidding process for fair collateral liquidation in defaults.
Atomic swaps enable the transfer of value between the cryptocurrencies of various blockchains without the need to trust an intermediary. In this paper, we propose the concept of atomic loans, which utilize atomic swap technology to allow market participants to create overcollateralized debt instruments in a trustless and disintermediated manner. The primary use cases for atomic loans include enabling fiat/stablecoin access for cryptocurrency holders to participate within legacy systems, as well as enabling leverage for margin trading. We also introduce a bidding process for liquidating collateral in the case of default which provides the ability for a more fair distribution of collateral.