Mintlayer's DeFi integration with Bitcoin

Mintlayer is designed as a sidechain of Bitcoin, enabling the integration of decentralized finance applications while inheriting the security of the Bitcoin network. Unlike most standalone blockchains, Mintlayer interacts directly with Bitcoin, allowing users to leverage Bitcoin's liquidity and decentralized features in DeFi applications.

One advantage of Mintlayer is the use of atomic swaps with native Bitcoin, allowing Bitcoin to directly interact with other tokens on Mintlayer without the need for wrapped tokens or token bridges. This eliminates a major security vulnerability in DeFi, as token bridges are often targeted by attackers, leading to fund losses. By integrating native Bitcoin through atomic swaps, Mintlayer reduces these risks, providing a secure and efficient way for Bitcoin holders to participate in DeFi while maintaining decentralization.

The compatibility of Mintlayer with Bitcoin is also reflected in asset issuance. Tokens or securities created by users on Mintlayer can be traded within the ecosystem, while interoperating with Bitcoin, expanding the potential liquidity pool and ensuring the integration of the two systems.

Built-in tokenization and smart contract primitives

By embedding token issuance functionality into its protocol, Mintlayer simplifies the tokenization process and eliminates the need for users to write smart contracts. This is in contrast to other blockchains such as Ethereum, where users must write and deploy contracts in languages like Solidity. In Mintlayer, users can issue tokens by defining their properties (such as symbol, supply, and metadata) through basic transaction parameters.

The main tokenization standard of Mintlayer is MLS-01, which is applicable to fungible tokens, similar to Ethereum's ERC-20. Such tokens are widely used for security tokens and stablecoins. MLS-01 tokens can be configured with specific functionalities such as freezing, increasing supply, and supporting multi-signature. These functionalities make MLS-01 tokens suitable for various DeFi applications, from asset tokenization to decentralized exchanges.

In addition to MLS-01, Mintlayer also supports non-fungible tokens (NFT) through the MLS-03 standard, and privacy-focused tokens through the MLS-02. These tokens can be managed without smart contracts and privacy features such as zero-knowledge proof have been developed for MLS-02 tokens to enhance confidentiality.

Mintlayer's built-in smart contract functionality is designed to be efficient and secure. Unlike Ethereum's complex Turing-complete smart contracts, Mintlayer focuses on non-Turing complete primitives, enabling faster execution and lower transaction costs. These primitives are directly embedded into Mintlayer's UTXO model, achieving simplified transactions and reducing the risk of vulnerabilities or attacks.

MLS-01 Token and Decentralized Exchange (DEX)

Mintlayer's MLS-01 token supports decentralized exchanges (DEX) and liquidity pools. Mintlayer's DEX is integrated into the protocol, allowing for atomic swaps between Bitcoin and tokens issued on Mintlayer. These atomic swaps enable users to exchange assets without intermediaries or wrapped tokens, further enhancing the platform's security and decentralization features.

The token issuance without smart contracts also simplifies the creation of liquidity pools. By allowing users to easily issue tokens, Mintlayer supports the formation of liquidity pools to facilitate decentralized trading. Users can lock a pair of assets (such as Bitcoin and MLS-01 tokens) in the pool, allowing others to trade based on the provided liquidity. In return, liquidity providers can earn fees from trades executed in the pool.

Mintlayer's decentralized exchange (DEX) benefits from its secure model directly connecting to the Bitcoin network. This not only ensures the decentralization of transactions on Mintlayer but also inherits the security protection of the Bitcoin network. Transactions do not require third-party intermediaries, making Mintlayer an ideal choice for DeFi participants, especially for users who wish to avoid risks related to centralized exchanges and token bridges.

Security Tokens and Compliance

One of Mintlayer's major innovations is its approach to handling security tokens. Security tokens represent ownership rights to real-world assets, such as company shares. Due to the strict regulation of such tokens, Mintlayer meets these requirements through features like whitelisting and multi-signature (multi-sig) functionality.

Whitelist, also known as Access Control List (ACL), allows token issuers to specify addresses that are allowed to hold or trade secure tokens. This is particularly useful for complying with regulations that restrict the sale of securities to qualified investors or require customer identity verification (KYC, Know Your Customer). The MLS-01 token is freely transferable between addresses by default, but issuers can implement ACLs to restrict token transfers to approved addresses.

The multi-signature function adds security to token transfers, requiring multiple parties to sign before the transaction is completed. This is particularly important in the security token space, as transfers may require approval from multiple stakeholders or compliance with specific legal procedures.

In addition, Mintlayer supports functions such as transaction taxes and dividends, allowing security token issuers to implement customized financial rules that meet specific needs. For example, security tokens can be configured to pay dividends to holders based on profits generated from underlying assets, or to charge transaction taxes on specific addresses.

Future DeFi features: privacy tokens and automated compliance

Looking ahead, Mintlayer is developing additional features to enhance its DeFi capabilities, especially in the fields of privacy and automated compliance. MLS-02 is a privacy-focused token standard designed to enable confidential transactions through zero-knowledge proofs. This will allow users to transact privately on the blockchain without disclosing transaction details to the public. Privacy tokens like MLS-02 may have significant applications in industries that require confidentiality, such as financial services or healthcare.

Mintlayer is still working on expanding its ACL system to achieve more sophisticated compliance automation. In the future, security tokens may include built-in compliance rules that automatically enforce legal and regulatory requirements. For example, security tokens can be programmed to automatically check whether the recipient is a qualified investor before allowing transfers, or to enforce lock-up periods that prohibit trading.

These future developments will further enhance Mintlayer's value proposition as a secure, flexible, and legally and regulatory compliant DeFi platform. By combining the security of Bitcoin with advanced DeFi functionality, Mintlayer is positioning itself as a leading platform for decentralized finance.

Highlights

• Mintlayer directly integrates with Bitcoin to achieve atomic swaps and participate in DeFi without the need for wrapped tokens.
• The built-in tokenization standard (such as MLS-01) simplifies the process of creating and managing tokens without the need to write smart contracts.
• MLS-01 tokens natively support decentralized exchanges and liquidity pools.
• Mintlayer's security tokens use whitelist and multi-signature functionality to ensure compliance.
• Future DeFi upgrades include privacy tokens (MLS-02) and automated compliance mechanisms.