Litepaper v2.0January 2026
The Gavel Protocol
Oracle-Free DeFi Lending | Auction-Based Rate Discovery | Trustless Bitcoin Credit
Executive Summary
The Gavel is a decentralized lending protocol that eliminates oracle dependencies through competitive auction-based rate discovery. Borrowers post collateral and request loans; lenders compete by bidding down interest rates. The best bid wins — the market sets the rate, not an algorithm or external price feed.
This mechanism solves two critical problems in DeFi lending:
Oracle Manipulation Risk
Price feed attacks have caused billions in losses
Liquidation Unfairness
Borrowers lose collateral to momentary price wicks
Beyond lending, the aggregated auction data generates the first real-time yield curve for crypto-collateralized credit — a benchmark that could become as important to crypto finance as LIBOR was to traditional markets.
The Problem
Traditional DeFi Lending is Broken
Protocols like Aave, Compound, and MakerDAO rely on price oracles to value collateral and trigger liquidations. This creates systemic vulnerabilities:
| Issue | Impact |
|---|---|
| Oracle Manipulation | Attackers manipulate price feeds to trigger unfair liquidations. Mango Markets lost $114M in a single attack. |
| Flash Crash Liquidations | Momentary price wicks liquidate healthy positions due to technical glitches. |
| Centralization Risk | Most oracles depend on a small number of data providers — a single point of failure. |
| Latency Exploitation | Sophisticated actors front-run oracle updates, extracting value from regular users. |
Centralized Lending Collapsed
The 2022 crypto credit crisis revealed the dangers of centralized lending:
Celsius
$4.7B in losses
BlockFi
$1B+ in losses
Genesis
$3B+ in losses
Voyager
$1.3B in losses
The lesson:
Crypto lending must be trustless, transparent, and on-chain.
The Solution: Auction-Based Rate Discovery
The Gavel replaces oracles with competitive bidding. Instead of an algorithm setting rates or an oracle determining liquidations, the market itself discovers fair terms through open competition.
┌─────────────────────────────────────────────────────────────────────┐ │ │ │ BORROWER LENDERS │ │ ──────── ─────── │ │ │ │ "I want to borrow $50,000 "I'll lend at 12% APR" │ │ against 1 WBTC. ↓ │ │ Maximum rate I'll accept: 15%" "I'll do 10% APR" │ │ │ ↓ │ │ │ "9% APR" 🔨 WINNING BID │ │ │ │ │ │ └─────────────────────────────────┘ │ │ │ │ LOAN CREATED │ │ Borrower receives $50,000 USDC │ │ Repays $54,500 in 12 months (9% APR) │ │ 1 WBTC held as collateral until repayment │ │ │ └─────────────────────────────────────────────────────────────────────┘
Why This Works
✓
No Oracle Needed
Collateral value is implicit in lender bids. If lenders think collateral is risky, they bid higher rates or don't bid at all.
✓
True Price Discovery
Rates reflect real market conditions — supply, demand, risk appetite — not algorithmic curves.
✓
Manipulation Resistant
No external price feed to attack. Manipulating requires outbidding real lenders with real capital.
✓
Borrower Protection
No flash liquidations. Borrowers know their exact repayment amount upfront.
Key Features
🔨
Competitive Auctions
Lenders compete by offering better terms. The borrower gets the lowest rate the market will offer.
🛡️
Oracle-Free Design
Zero external price feed dependencies. The protocol cannot be manipulated through oracle attacks.
🎫
Position NFTs
Every loan creates two ERC-721 tokens — one for borrower, one for lender. These can be transferred or sold.
🏪
Secondary Marketplace
Sell your position on the integrated marketplace with offers, counter-offers, and escrow.
🔒
Grace Period Protection
Borrowers have 24 hours after maturity to repay before the lender can claim collateral.
🖼️
NFT Collateral Support
Not just fungible tokens — use NFTs as loan collateral with the same auction mechanism.
The Yield Curve: Data as a Product
Every auction generates valuable data: what rate did a borrower with X collateral receive for Y duration? Aggregate this across thousands of loans, and you get something that doesn't exist in crypto today:
A real-time yield curve for crypto-collateralized credit.
The "Bloomberg Terminal for crypto credit" — the canonical source for crypto lending rates.
Interest
Rate (%)
│
12%├────● BTC Collateral (Higher Risk)
│ ╲
10%├──────●────●
│ ╲
8%├─────────────●────● ETH Collateral (Medium Risk)
│ ╲
6%├────────────────────●────● Stablecoin Collateral (Lower Risk)
│ ╲
4%├───────────────────────────●────
│
└────┬────┬────┬────┬────┬────┬──── Duration
7d 30d 90d 180d 365dWhy This Matters
| Use Case | Value |
|---|---|
| Institutional Pricing | Funds and trading desks need benchmark rates to price crypto credit products. |
| Risk Assessment | Insurance protocols need data to price coverage for lending positions. |
| Market Intelligence | The yield curve reveals market sentiment — rising rates signal risk-off, falling rates signal confidence. |
| DeFi Composability | Other protocols can build on a reliable rate benchmark. |
Why Trustless Matters
The Gavel vs. Failed CeFi Platforms
| Attribute | Celsius/BlockFi | The Gavel |
|---|---|---|
| Custody | Platform holds your assets | Non-custodial — assets in smart contracts |
| Transparency | Opaque — users didn't know funds were rehypothecated | Fully on-chain — every loan visible |
| Counterparty Risk | Platform insolvency = total loss | No counterparty — code executes automatically |
| Withdrawal | Can be frozen (and was) | Permissionless — no one can stop you |
| Audit | Trust quarterly reports | Verify on-chain in real-time |
The Gavel vs. Oracle-Based DeFi
| Attribute | Aave/Compound | The Gavel |
|---|---|---|
| Rate Setting | Utilization curves (algorithmic) | Market auctions (competitive) |
| Liquidation Trigger | Oracle price feeds | No liquidation — fixed term loans |
| Manipulation Vector | Oracle attacks | None — no external dependencies |
| MEV Exposure | Liquidation bots extract value | No liquidations to front-run |
Supported Collateral
PHASE 1EVM Assets — Live on Testnet
✅ Wrapped Bitcoin (WBTC, tBTC)
✅ Stablecoins (USDC, USDT as loan currency)
✅ ERC-20 Tokens (any whitelisted)
✅ NFTs (ERC-721 tokens)
PHASE 2Native Bitcoin — Planned
Trustless Bitcoin custody via FROST threshold signatures secured by an EigenLayer AVS:
• 10-of-15 validator network controls BTC multisig
• Validators stake ETH on EigenLayer as collateral
• Slashing for misbehavior makes theft irrational
• No wrapped tokens — actual BTC
PHASE 3Universal Collateral — Future
• Solana SPL tokens
• Other L1 native assets
• Cross-chain collateral with single-chain loans
• Unified liquidity and rate discovery
Architecture
┌─────────────────────────────────────────────────────────────────────┐ │ USER INTERFACES │ │ │ │ ┌─────────────────────┐ ┌─────────────────────┐ │ │ │ ListingService │ │ Direct Protocol │ │ │ │ (Recommended) │ │ (Advanced Users) │ │ │ │ │ │ │ │ │ │ ✓ Curated tokens │ │ ⚠ Any ERC-20 │ │ │ │ ✓ 0.1% fee │ │ ⚠ No curation │ │ │ │ ✓ Support │ │ ⚠ User risk │ │ │ └──────────┬──────────┘ └──────────┬──────────┘ │ │ │ │ │ │ └───────────────┬───────────────┘ │ │ ▼ │ │ ┌────────────────────────────────┐ │ │ │ LoanProtocol │ │ │ │ (Permissionless Core) │ │ │ └───────────────┬────────────────┘ │ │ │ │ │ ▼ │ │ ┌────────────────────────────────┐ │ │ │ PositionNFT │ │ │ │ (Borrower & Lender Tokens) │ │ │ └────────────────────────────────┘ │ └─────────────────────────────────────────────────────────────────────┘
Technical Specifications
| Language | Solidity 0.8.20 |
| Framework | Foundry |
| Network | Arbitrum One (mainnet), Arbitrum Sepolia (testnet) |
| Dependencies | OpenZeppelin v5.0 |
| Upgradeable | No (immutable contracts) |
| Lines of Code | ~3,500 |
Roadmap
1
Phase 1: Arbitrum Launch
Q2 2026 — Testnet Live, Audit Ready
✅ Core protocol development
✅ NFT collateral support
✅ Secondary marketplace
✅ Fuzz testing (59 tests, 50K+ iterations)
✅ Manual testing (83 test cases)
🔄 Security audit in progress
2
Phase 2: Native Bitcoin
Q4 2026 — Trustless BTC custody
• EigenLayer AVS deployment
• FROST threshold signatures
• Native BTC deposits
• Yield curve v2 integration
3
Phase 3: Universal Collateral
2027 — Any asset, any chain
• Multi-chain AVS attestations
• Solana, Cosmos support
• Cross-chain collateral
• Unified yield curve benchmark
Business Model
Two-Layer Architecture
Layer 1: Protocol
Open Source • Grant-Funded
- • LoanProtocol contracts
- • PositionNFT contracts
- • Secondary marketplace
- • MIT Licensed
Layer 2: Listing Service
Commercial • Equity-Funded
- • Curated token whitelist
- • Premium UI/UX
- • Yield curve API
- • 0.1% listing fee
Key: We never touch user funds = regulatory clarity
The company operates a software listing service, not a financial platform.
Security
Testing Summary
59
Fuzz Tests
50,000+ iterations
83
Manual Test Cases
100% pass rate
20
Invariant Tests
Critical properties verified
95%+
Line Coverage
Comprehensive testing
Security Features
✓Reentrancy Guards — All external calls protected
✓Pull-Based Refunds — Outbid lenders claim refunds (no push failures)
✓Offer Expiration — Stale marketplace offers auto-expire
✓Marketplace Freeze — Trading halts 24h before maturity
✓Immutable Contracts — No admin upgrade keys
Target Users
Borrowers
Bitcoin Miners
USD for operations without selling BTC
Long-Term Holders
Liquidity without taxable sale
DeFi Traders
Leverage without liquidation risk
NFT Collectors
Unlock value in illiquid NFTs
Lenders
Yield Seekers
Better returns than stablecoin farms
Market Makers
Arbitrage and rate speculation
Institutions
Transparent, auditable yield
Market Opportunity
$2+ Trillion
in Bitcoin sits idle, generating zero yield
Holders want yield but don't trust centralized platforms (post-Celsius) and can't use oracle-based DeFi (liquidation risk). The Gavel offers a third option: trustless, oracle-free lending with fixed terms.
| Segment | Size |
|---|---|
| Idle Bitcoin seeking yield | $1.4T+ |
| Wrapped BTC in DeFi | $10B+ |
| Crypto-collateralized lending annually | $50B+ |
Contact
🔨
The Gavel: Where the market sets the rate.
No oracles. No custodians. No trust required.