Avalon Finance

Avalon Finance is a Bitcoin-centric financial platform that combines decentralized finance (DeFi) and centralized finance (CeFi) elements to provide lending solutions and stablecoin services. The platform aims to build an on-chain capital market for Bitcoin, bridging traditional financial systems with blockchain technology. As of mid-2025, the platform serviced over 20,000 Bitcoins for more than 300,000 active users, with a total value locked (TVL) exceeding $500 million. ^[1] ^[6]

Overview

Avalon Labs aims to create an on-chain financial center focused on Bitcoin, bridging decentralized finance (DeFi) with traditional financial services. Its mission is to transform Bitcoin from a passive store of value into a dynamic financial asset, thereby driving real-world adoption and utility. The platform offers various solutions, such as Bitcoin-backed lending, a Bitcoin-backed stablecoin (USDa), yield-generating accounts, and a credit card, designed to enable Bitcoin holders to utilize their assets in a dynamic financial ecosystem. ^[2] ^[6]

Avalon Labs is built around four main components: CeDeFi CDP USDa, a yield-bearing collateralized debt position (CDP) backed by BTC that allows stablecoin generation while earning yield; USDaLend, a lending protocol using Bitcoin-backed stablecoins; CeDeFi Lending, a hybrid protocol connecting DeFi with CeFi liquidity providers to enhance scalability and liquidity; and Decentralized Lending, which features an isolation pool mechanism for secure lending with Bitcoin Liquid Staking Derivatives (LSDFi). ^[2]

History

Avalon Finance was part of Season 8 of the Most Valuable Builder (MVB) program, an incubation initiative co-led by BNB Chain, YZi Labs, and CoinMarketCap. This participation helped accelerate its growth and visibility within the Bitcoin DeFi ecosystem. ^[6]

In February 2025, Avalon Labs announced it was exploring the creation of a Bitcoin-backed public debt fund. The company began assessing the potential of using the U.S. Securities and Exchange Commission's (SEC) Regulation A exemption, often called a "mini-IPO," to offer regulated Bitcoin-backed debt products to both accredited and non-accredited retail investors. This initiative is part of Avalon's broader strategy to expand its Bitcoin lending operations into traditional financial markets within a compliant framework. ^[7]

In June 2025, YZi Labs announced a strategic investment in Avalon Labs. The new capital was earmarked for pursuing regulatory compliance across multiple jurisdictions, securing necessary licenses, and accelerating the growth of its institutional lending business, with the goal of becoming a fully regulated on-chain Bitcoin financial institution. ^[6]

Technology and Mechanism

Avalon Finance is built on the Merlin Chain, a Layer 2 solution for Bitcoin, to leverage its scalability, speed, and security. Merlin Chain processes transactions off-chain before settling them on the Bitcoin blockchain, enabling Avalon to handle high transaction volumes with faster confirmation times and lower fees. This architecture ensures a smooth user experience while retaining the security of the underlying Bitcoin network. ^[8]

Interest Rate Mechanism

The platform employs a dynamic interest rate mechanism that adjusts based on supply and demand within each lending pool. Interest rates are not static; they fluctuate in real-time based on the pool's utilization ratio. When the supply of an asset is high, lending rates decrease to incentivize borrowing. Conversely, when borrowing demand is high and an asset becomes scarce, lending rates increase to encourage more deposits and maintain liquidity. This model ensures an efficient and balanced marketplace for lenders and borrowers. ^[8]

Products

CeDeFi CDP USDa

USDa is a Bitcoin-backed collateralized debt position (CDP) stablecoin that offers unique features for Bitcoin holders and DeFi users. It is described as the world's largest issuer of Bitcoin-backed stablecoins and ranked as the second-largest CDP on DeFiLlama in 2025. It introduces a fixed borrowing rate system for predictable capital costs, allowing for better financial planning, and provides a stable 1:1 conversion to USDT, offering protection against volatility. USDa's supply is unlimited, ensuring continuous scalability, and it is omnichain compatible through LayerZero, enabling interaction across multiple blockchains. Additionally, users can stake USDa to earn sustainable yield, with the platform ensuring high capital efficiency and liquidity. ^[9] ^[10] ^[6]

sUSDa

sUSDa is the yield-bearing version of Avalon's USDa stablecoin. Users can obtain sUSDa by depositing USDa into the Avalon Savings Account or vault. The sUSDa token accrues yield, which is generated from USDa borrowing rates and revenues from Avalon's lending platform. This mechanism allows USDa holders to earn passive income on their stablecoin holdings, with yields potentially reaching around 15% APY. The system is designed to incentivize a staking ratio under 50% to maintain sustainable double-digit APRs. ^[14] ^[15]

CeDeFi Lending

Avalon's CeDeFi lending protocol combines centralized and decentralized finance elements to offer a stablecoin borrowing platform for retail and institutional users. It features fixed borrowing rates for stablecoins like USDT and USDC, real-time on-chain transparency, and minimized slippage during liquidations through a proprietary trading algorithm. The protocol integrates with DeFi platforms and leverages institutional capital to maintain liquidity and reduce borrowing costs. A key feature is its use of independent, regulated custodians, ensuring that Avalon never takes custody of user assets. The platform also employs a client-aligned liquidation policy with safeguards to help users manage positions before they are at risk of liquidation. ^[11] ^[1]

DeFi Lending

Avalon's DeFi lending protocol is the largest decentralized liquidity protocol for Bitcoin Liquid Staking tokens and other Bitcoin derivatives. It supports borrowing and lending for Bitcoin and Bitcoin Liquid Staked Derivatives (LSDs), using isolated lending pools to enhance capital efficiency and reduce risk exposure. The platform provides deep liquidity and over $1 billion in assets and operates across multiple blockchains, including Ethereum, Arbitrum, and BNB Chain, enabling access to a broad range of users and ecosystems. ^[12] ^[1]

Isolated Lending Pools

Avalon’s isolated lending pools enhance capital efficiency and reduce risk by separating asset classes into pools with customized parameters. This structure prevents a price crash in one asset from affecting the stability of other pools. ^[12]

The pools include:

Main Pool: This pool supports permissionless assets with stable prices and high resistance to manipulation, such as major cryptocurrencies.
Innovation Pool: This pool is for newer, more volatile crypto assets that offer higher potential returns but also carry greater risks.
RWA Lending Pool: This pool is designed for permissioned and permissionless Real World Asset (RWA) tokens, including money market funds, equity indexes, and corporate bonds, paired with stablecoins.
BTC LSD Pool: This pool handles individual BTC Liquid Staked Derivatives alongside BTC, adjusting risk settings based on asset volatility.

Each pool is managed with asset-specific Loan-to-Value and liquidation thresholds to maintain stability and minimize exposure. ^[8]

Super Earn

Super Earn is a product designed to offer enhanced yields on stablecoins and Bitcoin. It provides various strategies tailored to different risk appetites. For USDT, options range from conservative, principal-protected strategies based on funding arbitrage and DeFi yield (5-10% APY) to growth-oriented strategies using cross-exchange arbitrage (10-50% APY). For BTC, strategies include a conservative DeFi yield option (2% APY), a balanced approach using BTC-backed loans (5-10% APY), and a structured option strategy with a capped max downside of 5% (15% APY). An AI-driven RWA yield product was also planned. ^[1]

AVL

AVL is Avalon’s governance token, introduced to give the community a direct role in shaping its Bitcoin-backed financial ecosystem. Holders of staked AVL (sAVL) can vote on major protocol decisions, influencing the platform’s development and strategy. Beyond governance, AVL unlocks benefits like fee rebates, access to AVL Lend, and exclusive incentives. With 90% of the token supply allocated to the community and just 10% to the team, AVL reinforces Avalon’s commitment to a decentralized, user-driven model. ^[3] ^[10]

Tokenomics

AVL has a total supply of 1B tokens and has the following distribution: ^[4]

Community Incentive: 28%
Airdrop: 20%
Investors: 19%
Ecosystem & Treasury: 15%
Team: 10%
Advisor: 4%
Initial Liquidity: 4%

sAVL

sAVL is the staked form of AVL, designed to reward long-term participation and deepen alignment between users and Avalon Labs. Staking AVL into sAVL enables holders to earn AVL rewards, access governance rights, and influence the allocation of token emissions across various pools. A bribing market supports additional yield generation for sAVL holders. Users also receive fee rebates on Avalon products like USDa and CeDeFi Lending, with benefits increasing based on the amount staked. sAVL reinforces long-term engagement by tying incentives to Avalon’s sustained growth. ^[5]

Backers and Partnerships

Avalon Finance is backed by several notable investors and partners in the Web3 space, including YZi Labs and DOMO, the creator of the BRC-20 standard. ^[1] ^[6]

The platform has established partnerships with a wide range of projects and blockchains to enhance its ecosystem and interoperability. Key partners include:

These collaborations support Avalon's multi-chain presence and integration with various DeFi protocols and infrastructure providers. ^[13]

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