Yala: Unlocking the Vast Potential of Bitcoin Liquidity

Key Takeaways

• Bitcoin is not as easily integrated into DeFi as Ethereum or Solana because Satoshi intentionally restricted the functionality of its scripting language to prevent security vulnerabilities.

• As a result, while there have been numerous attempts to introduce smart contracts on Bitcoin, the issuance of Bitcoin-backed stablecoins has been extremely limited.

• If a stablecoin backed by Bitcoin were to emerge, it could significantly enhance Bitcoin’s utility from a credit creation perspective, unlocking substantial liquidity and exerting a major impact on the Web3 financial market.

• To address this, Yala enables the cross-chain issuance of a BTC-backed stablecoin - YU - in a secure and intuitive manner to leverage the security of the Bitcoin network whilst providing holders with unique yield and integration opportunities.

1. The Bitcoin Network from a Financial Market Perspective

1.1 Credit Creation: The Core Mechanism of Financial Development

Historically, the development of financial markets has been closely tied to the creation of credit. In the past, financial activities were limited to small communities, but this changed dramatically during the colonial era with the emergence of the fractional reserve system and joint-stock companies.

In the 17th century, institutions like Sweden’s Riksbank and the Bank of England adopted the fractional reserve system. By holding only a fraction of deposits as reserves and using the rest for loans and investments, they facilitated credit creation and spurred economic growth. This innovation played a critical role in establishing England as a global financial power during that period.

Source: Stephencdickson

The Dutch East India Company (VOC), initially established to facilitate trade in Asia, is widely regarded as a pivotal enterprise that laid the foundations for modern joint-stock companies and the capitalist system.

First, the VOC raised capital by issuing shares, which were traded on the world’s first stock exchange, the Amsterdam Stock Exchange. This allowed the company to expand its business using investors’ capital. Second, the VOC marked a significant turning point in the development of the limited liability system. Before its advent, investors were held fully liable for losses incurred by a business. The introduction of limited liability by the VOC reduced the risk of bankruptcy for investors, encouraging more robust investment activity.

The same principles apply to today’s financial markets. Banks provide loans based on customer deposits, companies raise funds by issuing stocks and bonds, and complex financial instruments like derivatives enhance market efficiency. These mechanisms increase the money supply, smooth the flow of capital, and drive financial market growth.

The differences between advanced and underdeveloped financial markets largely stem from variations in credit creation efficiency and structural robustness. Advanced financial markets benefit from highly trusted financial systems, diverse financial institutions, and well-developed capital markets, which facilitate credit creation. In contrast, underdeveloped markets often suffer from low trust in their financial systems due to political and social factors, discouraging citizens from engaging in financial activities and hindering credit creation. Ultimately, trust in financial activities plays a critical role in enabling effective credit creation.

1.2 Is the Bitcoin Network a Financially Underdeveloped Market?

What does the Bitcoin network look like today? About a year ago, in January 2024, several Bitcoin spot ETFs were listed on the U.S. stock market, significantly expanding the size of the Bitcoin asset market. At the time of approval, Bitcoin's price was approximately $40,000. Now, it exceeds $100,000, with a market capitalization of over $2 trillion, ranking it as the 7th largest asset globally, surpassing silver (9th) and Saudi Aramco (8th).

Despite Bitcoin’s prominent position as the 7th largest asset by market capitalization, is it being efficiently utilized for credit creation? Not at all. In fact, systems like WBTC or cbBTC, which operate with nearly 100% reserve ratios, have not gained widespread adoption.

As of January 2025, the amount of tokenized Bitcoin (e.g., WBTC, cbBTC) being used in centralized bridge systems within smart contract networks is approximately 160,000 BTC. Additionally, the amount of Bitcoin natively staked through networks like Babylon is around 56,000 BTC. Combined, this accounts for just over 1% of Bitcoin’s circulating supply.

This means that, relative to its scale, Bitcoin as an asset is being utilized at a very low rate. This inefficiency suggests that the Bitcoin network resembles a financially underdeveloped market, where assets are not effectively leveraged. As we will explore further, the inherent limitations of the Bitcoin network make it extremely challenging to utilize Bitcoin natively without trust assumptions. These trust requirements are a significant reason why most Bitcoin holders are reluctant to use their assets in decentralized finance.

On the flip side, this highlights the immense untapped potential of Bitcoin DeFi. If Bitcoin could be utilized natively without relying on trust-based systems, a vast amount of unused BTC liquidity could be unlocked, potentially ushering in a second golden age for the Bitcoin network.

2. Bitcoin DeFi: Unlocking Massive Liquidity

2.1 Limitations of Bitcoin DeFi

2.1.1 Turing Incompleteness

Unlike ETH or SOL, leveraging BTC in DeFi presents clear challenges. This stems from Satoshi's intentional design decisions to limit the capabilities of Bitcoin’s stack-based scripting language to prevent potential security vulnerabilities.

The primary purpose of Bitcoin Script, the language used in the Bitcoin network, is transaction verification. For example, the most commonly used transaction type, P2PKH (Pay-to-PubKey-Hash), involves two scripts:

1. Locking script (ScriptPubKey): This specifies conditions under which the BTC can be spent. Essentially, the sender declares, "Only the owner of this address (the holder of the corresponding private key) can unlock and use this Bitcoin."

2. Unlocking script (ScriptSig): This is provided by the recipient to prove, "I own this address," by presenting a valid signature and public key.

The primary value of Bitcoin Script is security. To ensure the Bitcoin network remains secure and stable, Satoshi restricted Bitcoin Script's capabilities by omitting features like conditional statements (if-else) or loops (while/for). This keeps the system simple and predictable. Additionally, potentially exploitable or resource-intensive opcodes, such as OP_CAT (for concatenating data) and OP_MUL (for multiplication), were deactivated to avoid misuse or overloading the network.

Under these constraints, even implementing a basic swap process requiring conditional logic or arithmetic operations is impossible. Consequently, Bitcoin's network is inherently incapable of supporting smart contracts, a foundational component for DeFi applications.

2.1.2 Low Scalability

Bitcoin's low scalability is another significant obstacle to Bitcoin DeFi. The Bitcoin network has a maximum block size of 4MB and an average block time of 10 minutes. Compared to other networks, Bitcoin's transaction throughput is very low.

From a user experience perspective, the 10-minute block time and the usual 60-minute confirmation time for transaction finality are highly inconvenient. These limitations significantly hinder Bitcoin’s ability to support the fast and efficient processes required in DeFi ecosystems.

2.2 Current State of Bitcoin DeFi

Efforts to unlock the massive liquidity of Bitcoin have been ongoing for years. The most well-known method involves centralized custody providers like WBTC and cbBTC, which hold BTC in reserve and issue an equivalent amount of wrapped BTC tokens on chains that support smart contracts. While this is a simple and widely used approach, it creates a single point of failure due to reliance on custody providers, making it less than ideal for truly unlocking Bitcoin's liquidity.

Other projects, such as the Bitcoin Lightning Network, Liquid Network, Rootstock, Core, and Stacks, have aimed to bridge Bitcoin and make it usable in faster environments. However, these projects have seen limited adoption due to their unique limitations. For instance, the Lightning Network adheres closely to Bitcoin's security but lacks robust smart contract capabilities and offers a subpar user experience. On the other hand, solutions like Liquid Network, Rootstock, Core, and Stacks enable diverse DeFi activities using bridged BTC but are sidechains, meaning they do not rely directly on Bitcoin’s security.

Although Bitcoin’s ecosystem may seem to develop slower than ecosystems like Ethereum or Solana, the approval of Bitcoin spot ETFs has sparked a wave of new projects aiming to tap into Bitcoin’s vast liquidity. Let’s explore some of the latest developments.

2.2.1 Bitcoin Layer 2s

Bitcoin Layer 2 (L2) solutions aim to address Bitcoin’s shortcomings while enabling BTC to be utilized effectively. As previously discussed, Bitcoin’s primary limitations are its 1) difficulty in implementing complex smart contracts and 2) low scalability. If an EVM-compatible network reliant on Bitcoin’s security could be implemented, these issues could be resolved.

This intuitive idea, combined with the market uptrend, led to the emergence of numerous Bitcoin L2 projects in 2024. But do all these projects qualify as true L2 solutions? To be considered a true Bitcoin L2, a project must meet two key criteria:

1. Verification of off-chain computations must depend on Bitcoin’s security.

2. BTC deposits and withdrawals between the Bitcoin network and L2 must be trustless and seamless.

One critical observation is that many projects claiming to be Bitcoin L2 solutions are, in reality, more akin to sidechains. Sidechains are independent chains with their own consensus algorithms and security assumptions. While they may periodically write data, such as block headers, to the Bitcoin network, they operate independently. Therefore, they cannot be classified as true Bitcoin L2s.

For instance, BEVM bridges BTC by requiring users to deposit BTC into a Lightning Network channel. If at least two-thirds of the validators agree, an L-BTC equivalent is issued on the Lightning Chain. However, BEVM only records minimal data, such as channel states, on the Bitcoin network, while transaction data is managed independently. This makes it more accurately categorized as a sidechain rather than a rollup.

To qualify as a Bitcoin rollup, a project must:

1. Provide proofs for computations.

2. Store transaction data on the Bitcoin network.

An example of such a project is Citrea, a zk-rollup based on the Bitcoin network. Citrea generates zk-proofs for each batch using BitVM and inscribes these proofs onto Bitcoin. Additionally, it inscribes the state changes necessary to reconstruct the rollup’s state, fulfilling the core requirements of a rollup.

Beyond these examples, the Bitcoin L2 ecosystem includes projects like BOB, Corn, Merlin, B^2, Alpen, and BitLayer. Users must carefully evaluate whether these projects genuinely rely on Bitcoin’s security and ensure there are no centralized points of failure in the withdrawal process.

Regardless of their security levels, the significance of these approaches lies in enabling users to participate in diverse DeFi activities using BTC.

2.2.2 BTC Native Staking

Source: Babylon Labs

One of the most active ecosystems utilizing Bitcoin natively is the BTC staking ecosystem, led by projects like Babylon. Unlike other PoS networks, the Bitcoin network is based on PoW and does not natively support staking. However, Bitcoin's massive liquidity can be a highly effective tool for crypto-economic security.

Babylon enables BTC to be used as a crypto-economic security asset in PoS projects through the following mechanism:

Stakers freeze their BTC on the Bitcoin network using a self-custody method. This involves creating a UTXO (Unspent Transaction Output) with two payment conditions:

• Condition 1: The BTC can be withdrawn after a set time (timelock) using the staker’s private key.

• Condition 2: The BTC can be burned using an extractable one-time signature (EOTS).

EOTS is a unique signature mechanism used by Babylon. Unlike traditional digital signatures, EOTS allows the extraction of the private key after the signature is used. If a staker engages in malicious behavior, such as double-signing in the PoS chain’s validation process, the EOTS will reveal the staker’s private key. This exposed private key enables anyone to burn the staker’s BTC.

After creating a UTXO with specific payment conditions, stakers can participate in the validation process of PoS chains. They can withdraw their BTC after the timelock period, provided no malicious activity is detected. If bad behavior occurs, the private key is exposed via EOTS, and the BTC is slashed by being burned.

Babylon enables native BTC staking to earn rewards from PoS chains. Building on this foundation, protocols like Solv and Lombard aim to make these staked assets liquid. When users deposit BTC into these liquid BTC staking protocols, the BTC is staked through Babylon while liquid tokens are issued on EVM networks, allowing participation in various DeFi activities.

This method provides two key advantages over traditional approaches like custodial BTC management and wrapped Bitcoin issuance: it generates additional staking rewards and ensures greater decentralization.

2.2.3 BitVM

BitVM, introduced by Robin Linus in 2023, is a concept designed to perform arbitrary computations on the Bitcoin network without requiring upgrades. Its operation resembles optimistic rollups, where all computations are executed off-chain, and in the event of disputes, a fraud-proof process is conducted on-chain. BitVM achieves this by storing multiple stages of scripts in Taproot, which are revealed and executed during disputes.

The core components of BitVM are the prover and verifier. The prover performs off-chain computations and claims the results, while the verifier checks the prover's submitted results and raises disputes if any issues are found. If the verifier proves that the prover’s result is incorrect, the prover forfeits their funds.

Due to its ability to facilitate off-chain arbitrary computations while leveraging Bitcoin’s base layer, many projects aim to use BitVM to build Bitcoin Layer 2 solutions. Notable examples include Citrea, Bitlayer, and BOB.

However, BitVM is not a universal solution. In Ethereum-based optimistic rollups, anyone in the network can act as a validator and submit fraud proofs, whereas BitVM relies on a predefined set of verifiers, requiring at least one honest verifier (1-of-N trust assumption). Additionally, users cannot withdraw funds freely by calling functions, as with smart contracts; instead, withdrawals require agreement between the prover and verifier.

2.2.4 OP_CAT

case OP_CAT:
if (stack.size() < 2)
    return set_error(serror, SCRIPT_ERR_INVALID_STACK_OPERATION);
valtype& vchl = stacktop(-2);
valtype& vch2 = stacktop(-1);
if (vchl.size() + vch2.size() > MAX_SCRIPT_ELEMENT_SIZE)
    return set_error(serror, SCRIPT_ERR_PUSH_SIZE);
vch1.insert(vchl.end(), vch2.begin(), vch2.end());
stack.pop_back();
}
break;

OP_CAT is one of the Bitcoin script commands first proposed by Satoshi Nakamoto. It provides the functionality to concatenate two data elements. Bitcoin Script is a stack-based language, and OP_CAT concatenates the top two elements on the stack, producing a new string.

In 2010, Satoshi Nakamoto disabled OP_CAT due to concerns that concatenating data could exponentially increase the stack size, potentially enabling Denial of Service (DoS) attacks. However, the 2021 Bitcoin Taproot upgrade introduced safeguards by limiting the maximum size of stack elements, addressing the memory overload issue and ensuring that OP_CAT, if reactivated, would not facilitate DoS attacks.

Recently, efforts to reintroduce OP_CAT have been led by the Taproot Wizards community, focusing on building the quantum cats NFT ecosystem. The most critical feature enabled by OP_CAT is covenants. Covenants allow specific conditions to be set on Bitcoin, restricting how funds can be used. Through OP_CAT, output data from previous transactions can be concatenated to enforce new spending conditions in subsequent transactions.

Covenants enable more complex scripts and can enforce conditions for withdrawing or moving BTC, laying the groundwork for a true Bitcoin L2. For example, current Bitcoin L2 solutions face challenges when users attempt to withdraw BTC back to L1. By contrast, with OP_CAT, users can independently withdraw funds by proving ownership, without requiring external permissions due to the nature of covenants.

Although OP_CAT has not been reactivated yet, systems like CatVM could potentially allow users to leverage BTC in L2 environments once it becomes active.

2.2.5 Discreet Log Contracts (DLC)

DLCs are a Bitcoin-based technology that implements smart contracts by using oracle data to automatically transfer Bitcoin based on predefined conditions. One of the main advantages of DLCs is their ability to function on the current version of Bitcoin clients without requiring a network upgrade.

A typical example of DLC use is betting on real-world events. Suppose A and B wish to place a bet on the Bitcoin network without intermediaries.

1. Funding: A and B each send 1 BTC to a 2-of-2 multisig wallet.

2. Contract Execution Transactions (CETs): A and B pre-create two CETs. One CET sends the funded 2 BTC to A, and the other sends the 2 BTC to B. Each transaction requires the signatures of A, B, and an oracle. Without the oracle’s signature, neither CET can be executed.

3. Settlement: When a real-world result is determined, the oracle reveals a signature corresponding to the outcome. This signature enables one of the two CETs to execute, allowing the winner to claim the 2 BTC.

One prominent example of utilizing DLC technology to use BTC in other networks is iBTC. In the example above, substituting A and B with merchants and attestors respectively, demonstrates the iBTC system. Merchants are entities that receive BTC from retail users and mint iBTC on their behalf, while attestors verify transactions and mint iBTC on the target chain.

The iBTC minting process involves a merchant creating a vault on a target chain (e.g., Ethereum, Arbitrum, etc.). Once the merchant deposits BTC into a 2-of-2 multisig address, attestors verify the transaction and mint iBTC on the target chain. Crucially, attestors cannot steal the merchant’s BTC—they merely relay data. Even in cases of attestor collusion, BTC redemptions always return to the depositor, not the attestors.

However, the iBTC system does have some minor risks. The first is the single point of failure due to merchants acting as intermediaries for users’ BTC. The second is that attestors, while unable to steal funds, can delay processes if they collude.

3. Yala: Offering Bitcoin-Backed Stablecoin

3.1 The Need for Bitcoin-Backed Stablecoins

According to DefiLlama, the total value locked (TVL) in DeFi protocols is approximately $120 billion. In comparison, the total issuance of stablecoins exceeds $200 billion, highlighting the critical role of stablecoins in the blockchain ecosystem.

As discussed earlier, while numerous attempts have been made to enable smart contracts with BTC as an asset, efforts to issue stablecoins backed by BTC remain scarce. If a stablecoin could be issued using BTC as collateral, the resulting credit creation effect could be significant.

Since platforms like Sky(MakerDAO) and Ethena have successfully issued crypto-collateralized stablecoins on the Ethereum network, a platform enabling the issuance of stablecoins backed by native BTC would unlock immense potential value.

3.2 Yala Overview

Source: Unsplash

Named after Yala Peak in Nepal, Yala embodies the ambition to unlock Bitcoin's vast liquidity. Yala enables the secure and seamless issuance of stablecoins on smart contract networks (e.g., Ethereum) using native BTC, eliminating the centralization risks of bridges and wrapped tokens to enhance security and reduce reliance on non-native assets for more efficient portfolio management.

The Yala team consists of alumni from notable companies like Alchemy Pay, Binance Labs, Circle, Sky(MakerDAO), Microsoft, and Lido. Yala has successfully raised $8M in seed funding, led by Polychain Capital, Ethereal Ventures, Galaxy, Amber, and Anagram.

3.3 User Journey (Pro-Mode)

Rather than diving into technical explanations of the protocol, it's more effective to explore how users can utilize BTC to issue stablecoins through Yala. This approach offers the easiest way to understand the protocol.

Yala boasts an intuitive and user-friendly interface, enabling users to easily mint YBTC on Ethereum and subsequently $YU stablecoins. Let's examine the user journey. Note that Yala offers three modes: 1) Pro-mode, 2) Institution mode, and 3) Lite-mode. Currently, only Pro-mode is supported in the testnet.

For those interested in trying out the protocol, a Testnet Incentive Program is live, and users can experience it through the Testnet Web App.

*YBTC is a certificate that is provided to the user after staking their BTC and used as a collateral in the targer chain smart contract to mint $YU.

Source: app-testnet.yala.org

YBTC Minting: Users connect both their Bitcoin and Ethereum wallets. By locking native BTC in their Bitcoin wallet, they can mint the desired amount of YBTC on the Ethereum network.

Source: app-testnet.yala.org

$YU Minting: Users deposit their YBTC on the Ethereum network to create a vault. Within an allowed collateralization ratio, they can issue $YU stablecoins. These stablecoins can then be used in other DeFi protocols, enabling users to earn additional yields while retaining their BTC holdings.

4. How Does Yala Work?

4.1 CubeSigner by Cubist

Yala leverages Cubist services to manage BTC deposits, withdrawals, and transaction verification. Before diving into Yala’s operations, let’s explore CubeSigner, Cubist’s cryptographic key management service.

CubeSigner simplifies the process of generating keys and signing transactions securely within hardware through an API. Cubist has received investments from prominent VCs like Polychain Capital, dao5, and Robot Ventures, and collaborates with protocols like EigenLayer, Babylon, Lombard, and Ava Labs.

CubeSigner users can securely generate keys and sign transactions within hardware by following these steps:

Key Generation

1. The user sends a key generation request (org.createKey).

2. The request is approved through the Auth system.

3. The Policy Engine checks generation conditions (e.g., FIDO2 authentication, approval from at least two administrators).

4. A new key is generated within secure hardware. The key remains linked to the hardware, preventing external access.

Transaction Signing

1. The user sends a transaction signing request (session.signEvm).

2. The request is authenticated through the Auth system.

3. The Policy Engine verifies transaction conditions (e.g., specific recipient address, 2/3 approvals).

4. The key stored in secure hardware signs the transaction data.

5. The signed transaction is returned to the user.

In summary, keys generated in secure hardware are safely stored, inaccessible to anyone, including Cubist. Users can quickly and securely access their keys via the API without needing to manage the keys themselves.

4.2 Native BTC Deposit & Withdrawal (Pro-Mode)

Yala’s core process involves:

Deposit

• Users deposits BTC on the Bitcoin network and mints YBTC on the target chain (e.g., Ethereum).

Withdrawl

• Users burns YBTC on the target chain and withdraws BTC on the Bitcoin network.

4.2.1 BTC Deposit and YBTC Minting

The process for depositing BTC on the Bitcoin network and minting YBTC on the Ethereum network is as follows:

1. The user sends BTC to a multisig cold wallet on the Bitcoin network (bridge receiver address).

2. The Yala bridge monitors the Bitcoin network and waits for six block confirmations for finality.

3. Once confirmed, the Yala bridge randomly selects 7 of the 11 decentralized notaries.

4. The selected notaries verify the transaction and sign it using Cubist’s API.

5. The Yala bridge collects the signatures, transmits them to the Ethereum network, and mints YBTC through a smart contract.

Notaries can only sign EIP191 and EIP712 message types via the Cubist API, minimizing risks of malicious actions. Random selection of notaries during each verification reduces risks of collusion or attacks.

4.2.2 YBTC Burn and BTC Withdrawal

The process for burning YBTC on the Ethereum network and withdrawing BTC on the Bitcoin network is as follows:

1. The user burns YBTC through a smart contract on the Ethereum network.

2. The Yala bridge monitors the burn transaction and waits for 12 block confirmations for finality.

3. The Yala bridge randomly selects 7 of the 11 decentralized notaries.

4. The selected notaries verify the transaction and sign a PSBT (Partially Signed Bitcoin Transaction) using Cubist’s API. PSBTs require multiple signatures to execute.

5. Once signatures are complete, the PSBT is broadcasted, and the user receives BTC in their wallet after six Bitcoin block confirmations.

For withdrawals, a 3-of-5 multisig is required. Among the five keys, two are held by the core team, two by board members (e.g., investors), and one by an external custody firm. Like notary keys, these keys are securely managed by Cubist. Random selection of three keys minimizes risks of collusion or malicious attacks.

4.3 $YU Stablecoin

Users who mint YBTC can create a vault on the Ethereum network, deposit YBTC as collateral, and issue $YU stablecoins within the collateralization ratio allowed by the protocol. $YU stablecoins can be utilized in various DeFi strategies on the Ethereum network to generate additional yield. Alternatively, users can deposit them into Yala’s YSR (Yala Savings Rate) or the Stability Pool to earn rewards derived from the protocol’s operations and liquidation processes.

YSR is similar to Sky(MakerDAO)’s DSR (Dai Savings Rate), which is a special module allowing DAI holders to deposit their tokens and receive a portion of Sky(MakerDAO)’s revenue as yield. Similarly, in Yala, when users deposit YBTC and issue $YU, interest income flows into the YSR, providing sustainable real yields to $YU holders. The Stability Pool is discussed further in section “4.4 Liquidation Process.”

How does $YU maintain its peg to $1? Essentially, $YU is an over-collateralized stablecoin backed by YBTC. If collateral value drops, the system maintains health through collateral liquidation. Users must also pay a stability fee as interest for issued stablecoins. If $YU’s price drops below $1, the stability fee increases, incentivizing users to repay $YU and driving the price up. Conversely, if $YU’s price rises above $1, the stability fee decreases, encouraging users to issue more $YU, which drives the price back down.

4.4 Liquidation Process

The Stability Pool is a liquidity pool in Yala used for collateral liquidation. Users(Liquidation participants) can deposit $YU into this pool. If the collateral of any user drops due to market fluctuations, the protocol can liquidate user YBTC collateral through the Stability Pool to prevent bad debt.

For example, suppose a user deposits $1,000 worth of BTC and issues 666% via its YBTC collateralized at 150%. If the Bitcoin price drops and the collateral value falls to $800, the vault’s collateral ratio becomes 800/666 = approximately 120%, making it eligible for liquidation. A role called a keeper identifies this and triggers the liquidation process.

Liquidation occurs via the Stability Pool. The $666 debt is fully repaid using $YU deposited by Stability Pool participants, who receive collateral equivalent to the repaid debt in return. In this example, $666 worth of BTC out of the $800 is distributed proportionally among $YU depositors, and the remaining collateral surplus ($800 - $666 = $134) is returned to the original vault owner. If the Stability Pool lacks sufficient $YU to cover the debt, the remaining debt and collateral are proportionally redistributed to other vaults, maintaining the system's stability.

4.5 Three Modes Based on User Types

In addition to Pro-mode, Yala offers Institution mode and Lite-mode to cater to various user types. Starting with Pro-mode, the other two modes will be supported in the future.

• Pro-mode targets advanced DeFi users who can actively mint $YU using YBTC, manage liquidation risks, and optimize returns through various opportunities.

• Institution mode is designed for institutions or Bitcoin whales. Instead of depositing BTC into Yala, they can implement self-custody by locking BTC in their wallets using P2WSH (Pay-to-Witness-Script-Hash). P2WSH is a Bitcoin lock script enabling conditions such as time locks or multi-signature requirements for funds to be moved.

• Lite-mode targets users who prefer low-risk, passive fund management. These users can earn passive yield by simply depositing BTC into Yala’s vaults. The vaults manage funds on their behalf, employing AI-driven strategies to optimize returns.

5. $YALA Token Utilities

Yala aims to encourage ecosystem participants, enhance system stability, and evolve into a community-driven platform through the use of $YALA tokens.

• Stability Pool Rewards: The Stability Pool is a liquidity pool designed to prevent bad debt within the Yala protocol. Since it significantly contributes to the system's stability, $YU stablecoin depositors in the Stability Pool are incentivized with $YALA tokens.

• Cryptoeconomic Security: In the future, $YALA tokens will be used for staking to enhance system security. For example, users can stake $YALA tokens in the Yala bridge, liquidity solutions like solvers or relayers, or DVN (Decentralized Verifier Networks) for $YU based on LayerZero. Stakers will contribute to system stability and receive rewards.

• Governance: $YALA token holders can participate in key protocol decisions, including collateral ratios, fees, collateral types, and protocol upgrades.

6. Major Partnerships

Although Yala is still in its early stages, it seeks to strengthen its services and expand stablecoin utility through partnerships with major projects. Beyond those listed below, Yala plans partnerships with Plume Network, Lombard, and StakeStone.

6.1 Babylon

Babylon is a protocol that allows native Bitcoin staking to participate in the validation of other PoS protocols and earn rewards. Staking is achieved by locking BTC via UTXO, and slashing is implemented using a unique signing method called EOTS.

Yala’s partnership with Babylon enables users to use YBTC as collateral not only for $YU issuance but also for Babylon staking. Users can stake BTC in Babylon while simultaneously issuing $YU, allowing them to participate in diverse DeFi activities for higher yields.

6.2 Botanix Labs

Botanix Labs is a Bitcoin EVM L2 project based on the Spiderchain concept. Spiderchain involves multiple orchestrators managing BTC in a multisig format. A new multisig wallet is created and locked whenever users send BTC deposit requests, allowing them to utilize their funds within BotanixEVM. Yala’s partnership with Botanix will enable $YU to be used within the Botanix EVM ecosystem.

6.3 Cubist

Cubist is a Web3 developer tools provider that offers hardware-backed key management solutions, such as CubeSigner—a low-latency API for generating keys and signing transactions within secure hardware. This approach ensures that private keys remain protected from insider threats, application compromises, and operational errors, without sacrificing performance. By integrating Cubist's key management solutions, Yala can securely manage the private keys for each user-created vault, enhancing the security and reliability of its services.

In short, this collaboration allows Yala to offer its users a secure and efficient way to manage their assets, combining Yala's yield-generating capabilities with Cubist's advanced key management infrastructure.

6.4 Nubit

Nubit is a DA layer that relies on the security of Babylon-staked BTC and periodically records checkpoints on the Bitcoin network. Recently, Nubit introduced a new concept called Goldinals. Goldinals aims to unify siloed standards on Bitcoin (e.g., BRC-20, Ordinals) to enhance interoperability and simplify development. Additionally, Nubit plans to leverage BitVM to implement advanced on-chain logic for these assets. Through its partnership with Nubit, Yala is exploring the possibility of minting $YU in the Goldinals standard.

6.5 Stacks

Stacks is a smart contract platform built on Bitcoin, functioning as a hybrid between L1 and L2 networks. With its well-established ecosystem, Stacks has numerous DeFi protocols. Through its partnership with Yala, Stacks plans to adopt $YU stablecoin as part of its ecosystem.

7. Final Thoughts

Yala has achieved remarkable results in its testnet, including over 510,000 BTC deposits, $20B+ in $YU issuance, and more than 1.5M active users. While incentives may have contributed to these numbers, they also reflect the immense interest in the potential of Bitcoin-backed stablecoins within the blockchain ecosystem.

The stablecoin market is massive. The Bitcoin market is even larger. The combination of these two markets could introduce an entirely new mechanism for stablecoins with far-reaching impact. This innovation could breathe new life into the Bitcoin network, where credit creation has traditionally been limited. With its intuitive app and robust infrastructure, Yala is poised to play a pivotal role in unlocking Bitcoin’s vast liquidity and realizing its ambitious vision.