Trust & Security Considerations

HodlFi's trust and security model is grounded in the cryptographic guarantees of Bitcoin and Ethereum. Only a minimal set of additional assumptions is introduced. The design focuses on a few unchanging principles that together ensure fairness, transparency, and resilience. The first principle is custody separation. The borrower always retains control over their Bitcoin keys, and the collateral is locked in a Taproot script that only the borrower can unlock upon repayment. At the same time, the lender remains in full control of the stablecoin principal through the escrow contract. No coordinator, cosigner, or external service has the ability to move funds from either side. Custody is never pooled, and no participant has unilateral access to both assets. The second principle is atomic alignment. Repayment on the EVM side requires the lender to reveal the secret x. Once revealed, the borrower can use it to unlock the Bitcoin collateral. If x is not provided, the fallback adaptor secret y ensures that the borrower still regains access to their BTC. In the case of default, if repayment has not occurred by the agreed maturity T, the lender can claim the collateral after the timelock. This design ensures that outcomes always resolve, either by repayment and release or by maturity and default, without indefinite lock-up. The third principle concerns the cosigner. The cosigner's only function is to preserve liveness in edge cases. If one party has already fulfilled its obligation on one chain but the counterparty is unresponsive, the cosigner can provide a restricted signature to allow the protocol to progress. Crucially, the cosigner cannot seize funds, cannot change outcomes, and cannot act unilaterally. Every action it takes is publicly recorded on-chain, so any deviation or refusal would be immediately observable. This visibility creates strong economic and reputational incentives for honest behavior. The final principle is predictability and transparency. All commitments, timelocks, and repayment conditions are established in advance and are visible on-chain. Repayment always aligns with collateral release, defaults always resolve at maturity, and no live price feeds or liquidation triggers are required. This eliminates whole classes of risks such as oracle manipulation, auction failures, or discretionary interventions. Taken together, these principles deliver end-to-end trust minimization. Settlement depends on contracts, cryptographic proofs, and market mechanisms rather than on intermediaries. Users can independently verify each step of the process, confident that HodlFi upholds the ethos of Bitcoin: self-custody, transparency, and resilience.