Lending Markets are Broken

You've heard the story before: "HODL! Don't sell your Bitcoin – it's digital gold!"

But you've also heard teams say they’re "unlocking Bitcoin's full potential", encouraging you to "put your Bitcoin to work".

So...what's the catch? Should you hold or use your Bitcoin?

Both! The problem is that no one has offered a way for users to safely and securely hold Bitcoin while tapping into its economic value. Thus far, everything has consisted of tradeoffs, from custody to costs.

The core problems users face today when trying to use their Bitcoin:

• There is no simple way to spend against Bitcoin equity, whether it is on or off-chain, simple day-to-day expenses, or big home purchases. People want to stay exposed to BTC, but they don't want the volatility that comes with Bitcoin in their working capital.
• Centralized custody of Bitcoin collateral. Think BlockFi, Celsius, and WBTC. Even Coinbase, a champion when it comes to crypto companies, has created their "centralized-bitcoin" wrapper, cbBTC. These tokenized Bitcoin products require you to trust that the custodian will safely hold and return your bitcoins to you.
• Rates are unpredictable. Borrowing USDT or USDC against a BTC-equivalent on Aave costs 8-9% per year. That rate is variable, typically range-bound at what you could earn on T-bills (~4%), and as high as 20% in peak bull markets. Unpredictable borrowing costs lead to impossible planning for future business and life expenses.

Mezo solves these three issues with mUSD and Borrow:

• Permissionless access to a credit against your BTC holdings. Keep your BTC, tap into your Bitcoin equity, and pay your loan back whenever.
• Loans are created onchain and publicly verifiable 24/7. Close your position whenever you want to receive your underlying Bitcoin collateral.
• mUSD borrow rates are fixed for the life of the loan, starting as low as 1%. Lock in your low rate and don’t worry about the surprise changes.

mUSD is the answer to Bitcoin’s problem of being static, immobile digital gold. It is the fuel that ignites a new wave of economic activity, creating and sustaining the Bitcoin circular economy. This post dives into mUSD’s protocol design, specifically addressing liquidation mechanics, collateral management, yield opportunities, and ecosystem integrations.

If you would like to join the waitlist for 1% borrow rates for mUSD against your Bitcoin collateral, fill out the form today. Limited access and limited time:

A Primer On mUSD

mUSD is a permissionless stablecoin 100% backed by Bitcoin reserves. Anyone can mint mUSD by depositing BTC collateral into the mUSD contract, thus creating a loan position. To close a position, simply return the borrowed mUSD and accumulated interest to receive your initial Bitcoin collateral.

The mUSD minting mechanism is a collateralized debt position, where mUSD is always redeemable for $1 in BTC. This helps maintain the peg in the following scenarios:

• If mUSD is trading at a discount ($.90) from its $1 peg, users can buy mUSD on the market and redeem it for $1 in underlying BTC. Users with a loan position can do this for no additional cost, while those without a loan position must pay a 0.5% redemption fee.
• If mUSD is trading at a premium ($1.10) from its $1 peg, users can mint mUSD by supplying BTC to the protocol, sell the minted mUSD on the market for a profit (selling into another dollar-equivalent stablecoin like USDT or USDC), and repeat until the $1 peg is restored.

To ensure the peg is maintained during market volatility, sufficient BTC collateral must always back the outstanding mUSD. The system has guardrails in place that ensure this is always the case, which can be read in further detail below in “Liquidations and Risk Mitigations”.

Why is mUSD a solution for Bitcoiners?

Key features that Bitcoin holders will find valuable:

• There are no minimum payments required on your loan. Borrow now, and pay back when you want.
• Interest rates are fixed for the life of the loan. There are no unpredictability or surprise changes.

The issues that Mezo solves with mUSD are not novel. Bitcoiners inability to access their wealth has been a cyclical issue, and we’ve seen countless failed experiments that have attempted to fill the gap in the Bitcoin lending market. Unfortunately, the failures have been catastrophic, ending in bankruptcies and a total loss of funds.

mUSD and Mezo address these risks with complete onchain management of capital and positions. Positions can be tracked onchain, and the underlying Bitcoin collateral is securely managed using tBTC’s robust infrastructure.

tBTC, which is built by the same team behind Mezo, Thesis*, is powered by the Threshold Network‘s decentralized infrastructure. Threshold is a decentralized signer set that has operated the Threshold Bitcoin bridge since early 2020 and successfully bridged over 17k Bitcoin. Proof of reserves for tBTC have been live for the entire life of the bridge and are viewable are tbtcscan.

For a thorough dive into tBTC, you can see the Bitcoin Layers research report analyzing tBTC against other popular wrappers such as WBTC and cbBTC. Additional risk analysis has been done by the LlamaRisk team in advance of tBTC’s listing as collateral on Aave.

By using tBTC, the Bitcoin that is used as collateral for mUSD is relying on a time-tested protocol that supports nearly $400m of DeFi activity today.

mUSD offers a lower minimum collateralization ratio than other leading lending protocols, meaning Bitcoin holders can access more capital-efficient borrowing. With the 110% minimum collateralization ratio requirement, borrowers can access up to 90% of their Bitcoin equity in a loan position. This is a significant improvement compared to Aave (82.5% for ETH) and Compound (80% for WBTC), for example.

Miners, institutions, early BTC buyers, and long-term holders have historically preferred to accumulate their wealth denominated in BTC, and this trend will only continue. mUSD allows these users to access working capital against their Bitcoin stack while maintaining robust decentralization via tBTC and permissionless protocol access.

mUSD vs. Other Stablecoins

mUSD uses learnings from other stablecoin models to build a system with a multi-decade time horizon. This is achieved through mUSD’s pure Bitcoin backing collateralization.

The stablecoin market is broad, ranging from fiat backed stables (USDT and USDC) to synthetic stables (USDe) to other algorithmic CDPs (Liquity, Maker). While the growth of these stablecoins has been remarkable over the past few years, there is still a gap in the market for Bitcoiners.

• Fiat-backed stablecoins make up more than 90% of the stablecoin market, but they are wholly reliant on the legacy financial system. Centralization risks and permissioned access are the antithesis of Bitcoin.
• Synthetic stables rely on centralized custody solutions and are exposed to significant external market risks, such as unpredictable funding rates.
• CDP-based stablecoins have collateral risks—often times backed by ETH related tokens or fiat-backed stables.

mUSD is always 100% Bitcoin-backed, which means the model can scale linearly with Bitcoin's growth. It doesn’t rely on any centralized stablecoins or alternative cryptocurrencies—it is simply and purely backed by BTC. Bitcoin’s deep liquidity also helps ensure successful redemption and liquidation management so the mUSD system can swiftly react to market volatility to maintain its peg, which is not possible when collateralizing a stablecoin with altcoins.

Many stablecoin models already rely on Bitcoin collateral for part of their backing: Ethena’s USDe has 41% of its backing in BTC, and crvUSD has 65% of its supply collateralized by BTC. This number will only increase over time as altcoins trend to zero against BTC.

When a stablecoin is backed by hard money, it means that governments are unable to print money and inflate our savings.

The endgame is money that is 100% Bitcoin-collateralized.

Liquidations and Risk Mitigations

The introduction section covered how mUSD maintains its $1 peg via a mint and redeem arbitrage mechanism. This section provides a complete overview of how mUSD prevents systemic risk. You can always visit the mUSD documentation for more information.

mUSD uses multiple layers of protection to ensure sufficient collateralization and protect against bad debt:

• Stability Pool: This pool absorbs liquidations first, leaving other borrowers untouched. When a position goes through liquidation, the pool repays the outstanding debt and receives the Bitcoin collateral as compensation.
• Redistribution Mechanics: When liquidations exceed Stability Pool capacity, debt, and collateral are redistributed proportionally among borrowers, preventing any single borrower from bearing excessive risk.
• Economic Incentives: Aligned incentives maintain system health through gas compensation for liquidators and rewards for Stability Pool providers.

Each mUSD position has its own individual collateralization ratio. The individual collateralization ratio (ICR) measures the value of BTC collateral vs. the outstanding mUSD debt on a specific loan position. A position’s ICR can be simply calculated as follows:

BTC collateral value / mUSD debt

mUSD loan positions that fall below 110% ICR are at risk of liquidation.

Revenue, Fees, Savers Rate

mUSD plays an important role in Tigris, Mezo’s native incentive system that connects validator rewards, core dApp activity, and liquidity provisioning to a single, comprehensive flow. In the matsnet phase of Tigris, core economic flows of the chain will flow through veBTC stakers. See the Mezo 2025 Roadmap blog post for an overview of Tigris.

Below is the economy for mUSD and how revenue flows through the system:

1. Interest Fees from mUSD Loans

• Users borrowing mUSD against BTC pay a fixed interest rate (1%-5% APR).
• In the matsnet phase of Tigris, these interest and fee payments will go towards capitalizing the mUSD protocol treasury stability pool, which will be used to liquidate at-risk loans and cover any shortfall in the case of bad debt. In the future, the fees may be split at the discretion of veBTC stakers.

2. Redemption Fees (0.5%)

• Users converting mUSD back into BTC without an existing loan incur a 0.5% redemption fee.
• Redemption fees flow back into the mUSD protocol treasury for the same purpose as the interest fees—to help capitalize the stability pool. In the future, these fees may also be distributed at the discretion of veBTC stakers.

3. Gas and Transaction Fees (Chain Usage)

• Frequent onchain interactions to mint, redeem, stake, and claim emissions generate recurring network (gas) fees.
• Higher usage and transaction volume directly translate to increased fee revenue, which the veBTC stakers, who receive a direct share of gas fees, capture.

The mUSD Savings Rate

mUSD holders are able to deposit their tokens into the mUSD Savings Rate staking module to earn mats emissions. veBTC holders vote on the savings rate gauges, determining what mUSD stakers earn in both:

• Mezo chain fees (BTC)
• mats emissions

Because the earnings for mUSD stakers are determined by the veBTC holders, they are able to strategically increase incentives at their discretion, incentivizing mUSD deposits. Increasing mUSD deposits means there is also a parallel increase in demand for borrowing (and thus minting mUSD), increasing fee revenues from loans and redemption transactions. This additional revenue strengthens the mUSD protocol fundamentals, allowing for sustained or higher future emissions—forming a positive, self-reinforcing feedback loop.

This loop creates alignment between ve-stakers, mUSD savers, liquidity providers, and overall protocol growth—maximizing long-term incentive and fee revenue capture.

Wen mUSD?

mUSD is live on testnet today, with incentives for users who take out a loan and use their mUSD within the Mezo ecosystem.Future plans for mUSD include:

• Soft liquidation, which automatically buys a user's position back as the collateral rises in value. This prevents users from losing their entire exposure during volatile periods.
• Expanding collateral options
(including real-world assets)


With mUSD and Borrow, Mezo becomes a Bitcoin bank where Bitcoin holders can access their equity at a competitive fixed rate and with reliable security assumptions. As mUSD grows, so will Mezo—creating a new onchain economy built for Bitcoiners.

The road to banking on yourself starts with borrowing on Mezo.

👉 Start Today:

• 🏦 Deposit on Testnet
• 📚 Read the Docs
• 👾 Join the Discord

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mUSD FAQs

1. What Does “Buy Now, Pay Never” Actually Mean?

“Buy Now, Pay Never” refers to the flexibility of taking out an mUSD loan against your Bitcoin collateral without a set repayment deadline. You can repay when you choose, provided your collateral ratio remains above the required threshold, initially set at 110%. This doesn't eliminate the need to stay above liquidation ratios or to pay accumulated interest, but it removes the pressure of a typical repayment schedule.

In theory, as your Bitcoin collateral increases in value, you can use the increase to pay down your outstanding debt obligation.

2. Are there any hidden fees?

No. The known fees include:

• Interest Rate (1%–5% fixed APR for the life of the loan).
• Gas Fees for blockchain transactions, depending on the network.
• Refinancing Fees in cases where you change loan terms.
• Redemption Fee (0.5%) for converting mUSD back to BTC when you have no existing loan. Converting mUSD to BTC when you have an existing loan incurs no additional redemption fee.

If new fees are introduced in future updates, they will be transparently disclosed.