BA-13 · LESSON 07

Stablecoins and bitcoin-backed credit

KEY DEFINITIONS

Terms used in this lesson

Oracle: A system that reports outside information, such as a market price, for use by a protocol.
Collateral: An asset pledged against a debt; it can be used to cover the debt if agreed conditions are breached.
Stablecoin: A digital asset designed to track a reference value, usually the United States dollar.
LTV: Loan-to-value: debt divided by the current value of its collateral.
Slippage: Additional price movement incurred while filling a trade at available market depth.
BTC: The common market ticker for bitcoin.

Credit systems add liquidation, oracle, governance, and maturity risks around otherwise bearer collateral.

55 min Difficulty 3/5 Not started

VISUAL MODEL

See the whole mechanism before going step by step

Use the diagrams to orient yourself. Then the guided explanation below teaches every part in depth.

4 explanatory views

CONCEPT-SPECIFIC MAP · liquidity ladderA market order walks available price levelsSelect any state to inspect its exact role.

RELATIONSHIP MAPInputs, rule, and outputs

01
ORDERSell 0.5 BTC
Larger size consumes more of the visible order book.
02
BID 10.5 BTC at $100,000
The best bid fills first.
03
BID 2Unused
Additional quantity reaches a worse price level.
04
AVERAGE$100,000
The average fill is weighted by quantity at each price.
05
IMPACTNo depth consumed beyond level 1
Market depth, not headline price, determines execution.

Rule shown: Realized execution price is the quantity-weighted average of filled levels; quoted mid-price is not guaranteed liquidity.

STAGE 1 OF 5ORDER: Sell 0.5 BTC

Larger size consumes more of the visible order book.

Governing relationship: Realized execution price is the quantity-weighted average of filled levels; quoted mid-price is not guaranteed liquidity. Complete path: 1. ORDER, Sell 0.5 BTC. Larger size consumes more of the visible order book. 2. BID 1, 0.5 BTC at $100,000. The best bid fills first. 3. BID 2, Unused. Additional quantity reaches a worse price level. 4. AVERAGE, $100,000. The average fill is weighted by quantity at each price. 5. IMPACT, No depth consumed beyond level 1. Market depth, not headline price, determines execution.

1. State transitionWhat exists, what changes, and what results

BEFORE

Borrower pledges 1 BTC at $100,000 and owes $50,000. Liquidation threshold is 70 percent LTV.

MECHANISM

Ask who owes redemption, what asset the token legally or technically represents, and whether holders have direct claims on reserves.

AFTER

A threshold signals action; it does not guarantee enough realized collateral to repay debt during a fast market.

Text equivalent: Starting from Borrower pledges 1 BTC at $100,000 and owes $50,000. Liquidation threshold is 70 percent LTV. The mechanism begins when Ask who owes redemption, what asset the token legally or technically represents, and whether holders have direct claims on reserves. The resulting lesson is A threshold signals action; it does not guarantee enough realized collateral to repay debt during a fast market.

2. Mechanism pathSelect a stage to inspect its job

STAGE 1 OF 5

Identify issuer and claim

Ask who owes redemption, what asset the token legally or technically represents, and whether holders have direct claims on reserves.

Complete path: 1. Identify issuer and claim: Ask who owes redemption, what asset the token legally or technically represents, and whether holders have direct claims on reserves. 2. Measure collateral and LTV: Value collateral at a defined price source and time, then divide debt by that value. Haircuts and overcollateralization create a buffer. 3. Update price and margin: Price declines raise LTV. The system may request more collateral, limit borrowing, or prepare liquidation. 4. Execute liquidation: Oracle, custodian, smart contract, signer, exchange, or Bitcoin script paths perform distinct checks. Delay, slippage, and fees affect recovery. 5. Analyze peg and maturity: Redemption queues, reserve duration, bank access, borrower term, lender funding, governance, and legal priority can break a nominal one-dollar claim.

3. Rule and failure boundaryWhat accepts the result and where it can stop

ACCEPTED PATH

A dated available oracle must breach the LTV threshold, authorization and custody must permit execution, and liquidation or redemption must conserve collateral, recovery, reserve assets, and token supply.

CHANGED CONDITION

Stale or unavailable price data, unmet authorization, locked custody, an immature claim, insufficient reserves, an over-supply request, or execution slippage blocks or changes the transition.

Important distinction: Overcollateralized bitcoin credit has no credit risk because BTC is bearer collateral. Price gaps, oracle failure, custody, key compromise, liquidation delay, slippage, legal claims, and operational outages can create shortfall.

Text equivalent: The accepted path is enforced by A dated available oracle must breach the LTV threshold, authorization and custody must permit execution, and liquidation or redemption must conserve collateral, recovery, reserve assets, and token supply. If the required condition changes, Stale or unavailable price data, unmet authorization, locked custody, an immature claim, insufficient reserves, an over-supply request, or execution slippage blocks or changes the transition.

Loading lesson visuals...

Learn the idea

A stablecoin targets a reference value, usually one dollar, through reserves, collateral, redemption, incentives, or some combination. Bitcoin-backed credit lets borrowers receive a loan while pledging BTC. Loan-to-value, or LTV, is debt divided by collateral value. Liquidation sells or transfers collateral when risk thresholds are breached, often using external price data.

GUIDED EXPLANATION1/5 ideas inspected

Identify issuer and claim

Ask who owes redemption, what asset the token legally or technically represents, and whether holders have direct claims on reserves.

The worked example follows the explanation

Inspect every idea above to open it.

Important distinction“Overcollateralized bitcoin credit has no credit risk because BTC is bearer collateral.”

Price gaps, oracle failure, custody, key compromise, liquidation delay, slippage, legal claims, and operational outages can create shortfall.

FINISH LEARNING FIRST

The questions unlock after every required learning activity

Inspect every guided idea, open the worked example, rebuild its mechanism, and complete the deterministic lesson tool. Your progress is saved automatically.