Borrow against BTC.
No liquidation price exists.
Split BTC into two tokens — one stable-ish, one leveraged. Use the stable side as collateral that mathematically cannot be liquidated.
The problem with BTC lending today
Every BTC lending protocol — Aave, Maker, Compound, and every perp DEX — shares the same failure mode: liquidation.
Liquidation cascades
One large liquidation depresses the price, triggering more liquidations, depressing the price further. MakerDAO's Black Thursday (March 2020) saw $8M in collateral liquidated for $0 due to network congestion. The mechanism itself amplifies drawdowns.
Oracle dependency
Liquidation engines need accurate, real-time prices. Oracle lag — even seconds — creates arbitrage windows. Oracle manipulation (Mango Markets, $116M) exploits the gap between reported price and true price. The liquidation trigger is a single point of failure.
Cliff-shaped risk
Your position is worth 100% until it hits a threshold, then it's worth whatever a forced auction returns — minus a liquidation penalty, minus slippage, minus MEV extraction. The risk profile is binary: fine one block, wiped out the next.
How Medici fixes this
Split 1 BTC into two tokens — P (Protected) and N (Amplified) — whose payoffs always sum back to the collateral.
P Token — the collateral
- Tracks BTC with bounded roll-execution cost (~1.2%/yr at 10bps slippage). Gross theta collected: +0.57%/yr (real vol). Net roughly break-even; outperformance depends on execution quality.
- Value at maturity =
S/x, fully computable at every price before entering - Collects theta — P holders are option sellers, paid for accepting upside risk
- No forced liquidation — no margin calls, no forced sales, no bad debt. P's value can decline above the strike (continuous, fully computable, never a cliff).
N Token — the leverage
- Leveraged BTC upside — uncapped call option
- No funding rate, no forced liquidation, no ADL queue
- Pays theta to P holders
- Expiry-bound, strike-bound — not a perpetual replacement, but a defined-risk alternative
P + N ≡ 1 BTC · always
That single invariant means the position is never under-collateralized. "No forced liquidation" is a theorem, not a risk parameter. It is not a claim that principal is protected — P's value declines continuously above the strike. That decline is fully computable at every price and is the source of P's yield.
The lending math
At maturity with BTC price x and strike S:
| Condition | P receives (BTC) | N receives (BTC) |
|---|---|---|
| S ≥ x (BTC at or below strike) | 1.00 | 0.00 |
| S < x (BTC above strike) | S/x | 1 − S/x |
A lender underwriting against P isn't modeling tail risk on volatile collateral. They're lending against a token whose minimum value is mathematically bounded. The liquidation cascade that kills every other lending protocol simply cannot happen — the invariant forbids it.
| Scenario | P value at maturity | Safe LTV |
|---|---|---|
| BTC/USD at strike or below | 1.00 | ~90% |
| BTC/USD 2× strike | 0.50 | ~45% |
| BTC/USD 5× strike | 0.20 | ~18% |
LTV = loan-to-value against P's known minimum. Compare to 70–80% LTV on volatile collateral with liquidation risk.
What this costs
No liquidation isn't free. Being honest about the costs builds credibility.
Roll-execution cost: ~1.2%/yr
At 10bps slippage with ~12 rolls/year, the execution cost is ~1.2%/yr. Gross theta collected by P is +0.57%/yr (real vol). Net is roughly break-even. This is not a yield guarantee — it's the cost of maintaining the position. Comparable to ETF expense ratios, and far cheaper than a liquidation penalty.
Fixed term
This is a term-structured product, not an open-ended loan. You trade liquidation risk for a known maturity date. Rolls are possible (atomic, auction-based), but liquidity at roll time isn't guaranteed.
Sale of a tranche
You're not borrowing against collateral — you're selling the P tranche to a buyer who wants its theta. Different capital efficiency, different UX, different risk profile from a revolving credit line.
Why this beats alternatives
| Medici P Token | Lending protocol (Aave/Maker) | Perpetual swap | |
|---|---|---|---|
| Forced liquidation risk | None — no margin calls, no forced sales, no bad debt | Yes — price-based | Yes — funding + margin |
| Oracle dependency | Settlement only (hours/days) | Real-time (seconds) | Real-time + funding rate |
| Cost | Roll cost ~1.2%/yr at 10bps; gross theta +0.57%/yr; net ~break-even | Variable borrow rate | Variable funding rate |
| Term | Fixed, known in advance | Open-ended (until liquidation) | Open-ended |
| Capital efficiency | Moderate (split + sell P) | Moderate–high (LTV-dependent) | High (leverage) |
| Privacy-preserving | Yes (Canton, Midnight) | No (public chain) | No (public chain) |
The N side: Amplified vs a perps-DEX
The comparison above is the P story — index-tracking collateral for the lending audience. The N token has its own natural alternative: the perpetual future. It is a different instrument for directional exposure — defined-risk convexity, not a margined perpetual — so the contrast is structural, not "a cheaper perp." Perps are now explicitly CFTC-regulated onshore; the honest version below is the credible one.
| Perps-DEX | Medici (Amplified) | |
|---|---|---|
| Forced closure | Margin call → liquidation engine → backstop vault | None: P + N = 1 is a settlement identity — no under-collateralized position can be seized |
| Intraday wick | A wick through your liquidation price ends the position — even if price recovers an hour later | Only the settlement price at maturity matters; a wick can never reach you |
| Cost of carry | Funding rate — variable, open-ended, charged periodically | Theta — the premium, prepaid once at entry; fixed and known, nothing accrues against you later |
| Maximum loss | Full margin, plus socialized loss (ADL) if the backstop vault is squeezed | Capped at the premium you pay as the option buyer — known before you enter |
| Where perps win honest concession | Deep, continuous liquidity: exit any second at tight spreads, and far higher leverage (10–50×) | ~2× exposure, fully collateralized; a clean exit means holding both tokens or a thinner secondary market |
Vocabulary is deliberate: Medici is described only in options terms (option buyer, premium, theta, strike, maturity, settlement identity). Margin, funding, liquidation and borrowed leverage belong to the perps column — the contrast is between two instruments, not a claim to be one.
Use cases
BTC treasury hedging
Miners and corporate treasuries holding BTC can split their holdings: sell P to raise cash at a known minimum, keep N for upside — with no liquidation to blow up the operation mid-drawdown.
DAO runway protection
A DAO with treasury in ETH or a native token can split into P (known-dollar runway, collects theta) and N (sell for cash, or keep for upside). No open-market sale, no price impact, no "team is dumping" signal.
Defined-risk leverage
N tokens are uncapped call options — leveraged upside, no funding rate, no liquidation price, bounded loss. A direct answer to what traders hate most about perps.
Where it stands
Working MVP on Canton (dev-deployed, not mainnet). 36 DAML templates, 12-agent fleet, 9-year backtest (Hypercall, Aug 2017–Jun 2026). The mechanism is proven. The port to Midnight is the next step.
Based on Vitalik Buterin's "Building Index-Tracking Assets on Top of Options Instead of Debt" (ethresear.ch/t/25036). Backtest: Hypercall (insights.hypercall.xyz/options-not-debt-2026-06-11). Live Solidity reference: mmchougule deployment on Base.