Native Synthetic USD with Taproot

[Ferib]

I was reading up on Taproot and how Discreet Log Contracts may be used to create a Synthetic type of USD stablecoin.

Concept

My understanding is that, Alice and Bob can make a commitment for both to lock up e.g. 0.1 BTC, and have an Oracle provide an outcome of who should get what portion of their commited coins back.

This would allow for Alice to go SHORT and Bob to go LONG, as both bet against each other. In doing so, Alice gains coins from Bob's side when price of BTC goes down, and vice versa.

To make this work, some sort of Oracle is needed that can share CET's (Contract Execution Transactions) off-chain as the Oracle decides how much BTC Bob and Alice have. This ratio would need to be calculated using a price oracle (Uniswap? DEX like HyperLiquid?) which are off-chain?

Let's say the Oracle computes this CET every X time (e.g. every 1 hour?) so that the last CET from the Oracle can be used by either Bob or Alice to one-shot the current contract and pay out the coins for the ratio the Oracle has computed.

Questions/Issues

My understanding may be lacking, but the idea described there could be an interesting concept to bring DeFi more into native Bitcoin?

There are still some flaws in the given concept:
- There is no stable coin or any form of tokenization that corresponds to how much BTC is locked up. (Maybe bring back color coins?? haven't looked much into this!)
- The Oracle isn't native on-chain. However most Ethereum based contracts use central nodes (chainlink?) and work out fine? Uniswap may be a nice decentralized oracle if it can somehow be integrated with Taproot? (or atleast validate price?)
- This is a 1v1 where Alice is directly betting against Bob. This isn't pooled and both party's may need to sign/lock funds multiple times (e.g. Alice may wants to SHORT 0.2314 BTC and Bob, Charlie and Eve are needed to bet against Alice's position)
- The Oracle may cheat and favours one party over the other. However, funds cannot be stolen unless the Orcale cheater is also participating.

[werghb4562]

- The Oracle isn't native on-chain. However most Ethereum based contracts use central nodes (chainlink?) and work out fine?

Decentralization theater

[Ferib]

- The Oracle isn't native on-chain. However most Ethereum based contracts use central nodes (chainlink?) and work out fine?

Decentralization theater

Correct, Uniswap has a WBTC/USDC oracle that is pretty decentral (ignoring the fact both WBTC and USDC aren't native tokens).

There may be some solution where an Ethereum contract can be used to verify the price we set in our Taproot? My knowledge is limited on Ethereum, and I have no understanding on such attestation mechanism at this time.

Second, I have seen Thorchain and HyperEVM. I am not sure how they work in detail but I believe on Thorchain nodes lock in collateral and then sign transactions as they follow consensus. We may do something similar with our Oracle so that if one tries to cheats, their collateral can be slashed and the affected party's can be compensated for their losses.