Introduction

Bitcoin-backed lending reveals a clear market gap. Borrowers want access to liquidity without losing their long-term Bitcoin exposure, while lenders seek predictable returns without bearing unlimited downside risk. Current models, both centralized and decentralized, fail to reconcile these opposing needs. Centralized custodians introduce counterparty and rehypothecation risks, while decentralized protocols depend on oracle-driven liquidations that penalize borrowers during volatility.

HodlFi emerges to address this unmet demand. By anchoring collateral in borrower-controlled Taproot contracts and replacing liquidations with market-based hedging, HodlFi provides a principled framework that eliminates forced sales, ensures transparent pricing, and keeps custody with the user. This sets the stage for a lending primitive aligned with Bitcoin's ethos of decentralization and trust minimization.