In contrast to most others in this thread I do consider DLCs an interesting technology. There was some buzz 1-2 years ago about it but it seemed then the euphoria died down a bit.
There was a thread
here last year and I opened one in
Spanish but not much interest has been shown.
Discreet Log Contracts (and in particular DLCFDs) are not so much about stabilizing the Bitcoin price but about giving people the possibility to hedge against price swings, similar to options. Basically there is one party who wants to leverage their long position and the other party who wants to get a stable value, renouncing to profit from price swings.
Just synthetizing the concept:
- Alice wants a stable price, Bob wants to leverage the position, Carol is an oracle knowing the current price in USD. So they agree on a contract that, when the contract expires (e.g. after 30 days), Alice will receive Bitcoins for the same value in USD than at the contract's start, while Bob will receive the remaining coins (minus a fee for Carol). If Bitcoin goes up, Bob will receive more Bitcoins.
- Alice and Bob create an address with a Bitcoin Script contract which includes a signature from Carol (see below) and transfer funds F to it, in the simplest case 50% of the funds are provided by Alice and 50% by Bob.
- Then Alice and Bob sign several off-chain transactions where the funds get divided, after expiration, according to a proportion like the terms of the contract, i.e. where Alice always receives the same value in USD, for different Bitcoin prices (e.g. for a price of 50k, 51k, 52k ... up to 80k).
- Once the deadline arrives Carol (the oracle) provides a signature which corresponds to the proportion which distributes the funds correctly for the current Bitcoin price. i.e. where Alice gets a
BTC amount which corresponds to the USD value of her initial transfer to the multisig address.
Carol has to be trusted to not cooperate neither with Alice nor Bob, otherwise she could provide a signature for the "wrong" price. But Carol can't steal funds.
Why are these contracts not more popular? I honestly don't know. It's possible that the high on-chain fees in the last year have delayed their acceptance. But these contracts are also possible using Lightning - however Lightning currently is also stagnating.
Bitcoin is a Proof of Work (PoW), mineable blockchain and you can not have smart contracts with interaction of Oracle to stabilize its price.
In Discreet Log Contracts, the oracle does not have any direct incidence on the Bitcoin price (like in Dai for example). Its function is to "post" the current Bitcoin price so the two parties who engage in the DLC can settle their contract. But it's a purely private contract between two parties, see above