Citadel Protocol

Citadel Protocol is a groundbreaking CDP (Collateralized Debt Position) system that solves Bitcoin's DeFi accessibility problem without compromising custody. By integrating with Babylon Labs' Bitcoin Trustless Vault, users can mint btcUSD stablecoins while their BTC remains locked in Bitcoin's native chain - never wrapped, never bridged, never at risk.

Our protocol introduces industry-first dynamic risk management that automatically adjusts collateralization ratios based on real-time market volatility (150-250% range), protecting both users and the protocol during market turbulence. The innovative Flash Protection mechanism provides emergency collateral boosts during extreme volatility events, preventing unfair liquidations during flash crashes.

Key innovations:

• True self-custody: BTC never leaves Bitcoin network via Babylon's covenant-based locks
• Dynamic collateralization: AI-powered risk engine adjusts parameters every block based on 24h volatility
• Flash Protection: 4-hour emergency collateral shield during >10% price drops
• Soft liquidation tiers: Gradual liquidation process with 24h grace periods
• btcUSD stablecoin: Over-collateralized, fully redeemable, integrated with major DeFi protocols

Target market opportunity: $1.9T BTC market cap with <1% DeFi participation. Our solution unlocks institutional-grade BTC collateral for lending, yield farming, and derivatives without custody risk. Expected $500M TVL in Year 1, generating $10M protocol revenue through stability fees (3-8% APR dynamic).

Citadel Protocol leverages a sophisticated multi-layer architecture spanning Bitcoin and Ethereum networks, connected through cryptographic SPV proofs that verify BTC lock status without custody transfer.

Technical Stack:

• Bitcoin Layer: Integration with Babylon's Trustless Vault using covenant-based UTXO locks and time-locked redemption paths. We verify locks through SPV proofs containing tx hash, block height, and merkle paths.
• Smart Contracts: Solidity 0.8.19 with OpenZeppelin security frameworks, implementing modular architecture (CDPEngine.sol, RiskOracle.sol, LiquidationModule.sol, btcUSD.sol)
• Oracle Infrastructure: Chainlink price feeds as primary, with Pyth Network and Uniswap V3 TWAP as fallbacks. Custom volatility calculation using 96 price samples over 24h rolling windows
• Risk Engine: On-chain volatility calculation using standard deviation of 15-minute price intervals, automatically adjusting collateral ratios through predetermined risk tiers

Key Technical Innovations:

• Flash Protection Module: Novel emergency system that monitors mempool for liquidation transactions and can inject temporary collateral within same block to prevent liquidations
• Dutch Auction Liquidations: Gas-efficient liquidation mechanism using decreasing price auctions over 2-hour periods
• Bitmap Strategy Allocation: Gas-optimized storage pattern for tracking user positions across multiple vaults using single uint256
• Emergency Circuit Breakers: Automatic protocol pause if price deviates >5% across oracle sources

Partner Technology Benefits:

• Babylon Labs Vault: Enables trustless BTC collateral without wrapping - the core innovation making this possible
• Chainlink: Provides reliable, tamper-proof price feeds critical for accurate collateralization
• OpenZeppelin: Battle-tested security primitives reducing smart contract risk

Notable Hacks:

• Implemented "ghost collateral" system where Flash Protection borrows from future stability fees to provide instant collateral
• Created novel "soft liquidation" mechanism using CREATE2 to pre-deploy liquidation contracts only when needed, saving 40% gas
• Built custom Babylon proof verifier that caches merkle roots for 30% faster verification