The Steem Virtual Machine (SVM) & Sherpa Protocol - STEEM's Gateway to SocialFI

A Technical Whitepaper — Bringing Native DeFi to the Steem Ecosystem

Version 1.0 · July 2026

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Abstract

The Steem Virtual Machine (SVM) is a Cosmos SDK sidechain with full Ethereum Virtual Machine (EVM) compatibility. It extends the STEEM token and existing Steem accounts into a high-performance DeFi environment while preserving the original blockchain.

A validator-native bridge, integrated directly into SVM consensus, enables 1:1 transfers of native STEEM without wrapped tokens or centralized custodians.

Sherpa Protocol is the native DeFi layer built on SVM, featuring a concentrated-liquidity DEX, the overcollateralized stablecoin sUSD, permissionless liquidity farming, a decentralized oracle network, and protocol-owned liquidity.

Together, SVM and Sherpa deliver modern Web3 financial infrastructure to the Steem economy from day one.

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Table of Contents

1. Introduction & Vision
2. Core Design Principles
3. Why Cosmos SDK + EVM Compatibility?
4. High-Level Architecture
5. The Validator-Native Bridge in Depth
6. Account Registration & Linking
7. Depositing STEEM into SVM
8. Validator-Based Bridge Consensus
9. Validator Key Registration — Status & Design Direction
10. Withdrawals to Steem
11. Permissionless Bridge & Steem Hardfork Proposal
12. Why a Validator-Integrated Bridge Beats Traditional Multisig Bridges
13. How SVM Differs from L2s and Wrapped-Token Bridges
14. Benefits of Bringing STEEM into an EVM Environment
15. Web3 Gaming, NFT Assets & Community Tokens on SVM
16. Introducing Sherpa Protocol
17. The SHERPA Token – Utility & Tokenomics
18. Concentrated Liquidity DEX
19. Protocol-Owned Liquidity (POL)
20. Permissionless Liquidity Farming
21. sUSD – Native Overcollateralized Stablecoin
22. Stability, Liquidations & Instant Redemption
23. Sherpa Oracle Network
24. Future SBD Bridge
25. Staking & On-Chain Governance
26. Future Vision: Interoperability, Chainlink, RWAs & Expansion
27. Current Progress & Testnet Status
28. Security Model & Roadmap to Mainnet
29. Economic Sustainability, STEEM Flywheel & Protocol-Owned Reserves
30. Community Discussion: Proposed DAO Funding for Testnet Infrastructure
31. Conclusion & Community Invitation

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1. Introduction & Vision

For more than ten years, the Steem blockchain has proven that decentralized social platforms can operate at global scale. Millions of accounts have used blockchain technology through a familiar account model, resource credits, and a tokenized social economy.

While Steem excelled at content and social interaction, the broader blockchain industry evolved rapidly around smart contracts, decentralized finance (DeFi), tokenized real-world assets, and permissionless financial applications.

The central question has always been:

How can the existing STEEM economy gain access to modern Web3 infrastructure without replacing or fragmenting the blockchain that already works for millions of users?

The Steem Virtual Machine (SVM) answers this question by acting as a bridged sidechain dedicated to extending STEEM itself — not competing with it.

Core objectives:

• Keep STEEM as the native asset and gas token
• Preserve every existing Steem account
• Deliver full EVM compatibility
• Unlock sophisticated DeFi without splitting liquidity or forcing users to adopt new tokens

SVM is not another independent blockchain. It is the financial extension layer for the Steem ecosystem.

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2. Core Design Principles

#	Principle	Description
1	STEEM is King	Native gas token and primary asset on SVM
2	Account Continuity	Existing Steem accounts can be linked 1:1 with EVM addresses
3	Trust-Minimized Bridge	Bridge logic lives inside validator consensus
4	EVM Compatibility from Day One	Leverage years of audited contracts and developer tooling
5	DeFi-Native from Launch	Sherpa Protocol ships alongside SVM
6	Decentralized Custody	Long-term goal of collective validator control over bridge operations
7	Sustainable Economics	Every protocol utility creates real demand for SHERPA while strengthening STEEM

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3. Why Cosmos SDK + EVM Compatibility?

SVM is built on the Cosmos SDK with a full EVM execution layer.

Key reasons for this choice:

• Modularity — Custom modules (bridge, oracle, Sherpa DeFi primitives) can be added cleanly without forking core consensus.
• Native Interoperability — Built-in IBC support enables future connections to other Cosmos chains and, via bridges, to Ethereum and beyond.
• Performance — Tendermint BFT consensus delivers fast finality (typically 1–6 seconds) and high throughput suitable for DeFi.
• Proven EVM Layer — Leverages battle-tested EVM modules (inspired by Ethermint/Evmos architecture) so Solidity contracts run with minimal or no changes.
• Governance — On-chain governance is native, allowing the community to upgrade parameters, add assets, or evolve the protocol.
• Developer Velocity — Existing Ethereum tooling works immediately. No need to rebuild wallets, explorers, or developer infrastructure from scratch.
• Security Track Record — Dozens of production Cosmos SDK chains demonstrate the robustness of the stack.

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4. High-Level Architecture

                     Steem Blockchain (Social Layer)
                                  │
                        @svm.bank (Bridge Account)
                                  │
              SVM Validators observe transfers + submit attestations
                                  │
                     SVM Blockchain (Cosmos SDK)
        ┌─────────────────────────┼─────────────────────────┐
        │                         │                         │
   EVM Module               Bridge Module              Sherpa Modules
 (Solidity smart          (Validator-native          (DEX • sUSD • Farming
   contracts)               mint/burn logic)         • Oracle • Governance)
        │                         │                         │
        └─────────────────────────┴─────────────────────────┘
                                  │
                     Native STEEM (gas + asset)

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5. The Validator-Native Bridge in Depth

The bridge is the most critical component of SVM. Instead of an external service or multisig, every SVM validator runs bridge logic natively inside the blockchain binary.

Validators continuously monitor the Steem blockchain for transfers to @svm.bank containing specific memos:

• svm-register <EVM address>
• svm-deposit <EVM address>

They independently verify these transactions and submit attestations to the SVM chain. Bridge actions are only finalized after sufficient stake-weighted consensus.

This design makes bridge operations part of SVM's core consensus rather than an add-on.

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6. Account Registration & Linking

1. User sends any amount of STEEM to @svm.bank with memo: svm-register 0xYourEVMAddress
2. SVM validators detect the transfer and record a pending registration.
3. User visits the SVM dApp and signs a cryptographic message with their EVM wallet.
4. The signature proves ownership of both the Steem account and EVM address.
5. The permanent on-chain mapping is recorded: SteemAccount ↔ EVM Address

This mapping powers deposits, withdrawals, future governance participation, and validator identity.

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7. Depositing STEEM into SVM

Once linked, depositing is simple:

User sends STEEM to @svm.bank with memo: svm-deposit 0xYourEVMAddress

Validators:

• Verify the Steem transaction
• Reach consensus
• Mint an equivalent amount of native STEEM directly on SVM

Steem Account Linking is Not Mandatory .


No wrapped token is created. The asset on SVM is STEEM.

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8. Validator-Based Bridge Consensus

Each validator:

1. Observes the Steem transaction (via integrated monitoring).
2. Submits an attestation transaction on SVM.
3. Once a stake-weighted threshold is reached, the mint (or burn) is executed as part of consensus.

Because attestations are on-chain and weighted by stake, malicious or incorrect behavior can be economically penalized through slashing.

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9. Validator Key Registration — Status & Design Direction

At registration, each SVM validator already broadcasts a public key alongside a reference to their Steem owner, active, and posting keys, for example:

{
  "pubkey": {"@type": "/cosmos.crypto.ed25519.PubKey", "key": "xZYrcNf4q0nRQ7h/BTsjcR82HH28UnkeZzBWeZQKNJo="},
  "amount": "1000000000000000000000asteem",
  "moniker": "blazed007",
  "identity": "",
  "website": "",
  "security": "",
  "details": "owner=STM<your-owner-key>;active=STM<your-active-key>;posting=STM<your-posting-key>",
  "commission-rate": "0.10",
  "commission-max-rate": "0.20",
  "commission-max-change-rate": "0.01",
  "min-self-delegation": "1"
}

One approach considered was a modular binary allowing all validators to automatically update the account weight and threshold of @svm.bank's Steem authorities as the validator set changes — giving validators collective, weighted multisig control of the bridge account.

The design direction has since moved away from this model. Collective key-based ownership still concentrates custody in a defined set of keys, however distributed, and requires validators to hold and manage Steem account authority. Instead, the proposed Steem hardfork (see Section 11) aims to make @svm.bank ownerless, with withdrawals executed permissionlessly once sufficient witness signals attest to them — closer in spirit to how the Steem DAO (SPS) automatically pays SBD to proposals that pass, with no account authority or custodial key threshold involved at all.

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10. Withdrawals to Steem

Withdrawal design is under active discussion and is intentionally being finalized before rollout. The direction under consideration:

1. User burns STEEM on SVM and specifies a target Steem account.
2. Witnesses independently observe the burn and broadcast a signal — not a signed transfer — attesting that the withdrawal is valid.
3. Once enough witness signals accumulate to satisfy the hardfork-defined threshold, Steem consensus itself executes the corresponding STEEM transfer from @svm.bank, without any individual or group holding transfer authority over the account.
4. User receives native STEEM on Steem.

This mirrors how the Steem DAO (SPS) disburses SBD to a proposal once it accumulates enough approval votes — payout is a function of protocol consensus, not of anyone's private key.

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11. Permissionless Bridge & Steem Hardfork Proposal

To further decentralize the bridge and remove any single point of control, the following Steem hardfork is proposed for community discussion.

Rather than requiring Steem witnesses to run separate SVM validator nodes, the proposal introduces a lightweight witness plugin — architecturally similar to the existing price-feed plugin — dedicated solely to attesting SVM withdrawals. Witnesses simply enable the plugin on their existing node to participate in withdrawal consensus, with no additional infrastructure to operate.

Proposed Hardfork Goals:

• Introduce a native Steem witness plugin (comparable to the price-feed plugin) that attests to SVM withdrawal requests, requiring no separate validator node.
• Make @svm.bank an ownerless account — its authorities are not held by any individual, team, or multisig, removing any single point of custody or control.
• Enable on-chain governance on Steem to influence or ratify major SVM bridge parameter changes.
• Formalize memo standards and bridge operations as recognized Steem operations for easier indexing and security.

Benefits of a Hardfork:

• Increases bridge security by leveraging existing Steem witness infrastructure through a minimal, purpose-built plugin rather than a separate validator stack.
• Removes custodial risk entirely by making @svm.bank ownerless — no party can unilaterally move funds from the account.
• Makes SVM feel like a native extension rather than an external sidechain.
• Reduces any remaining trust assumptions.
• Opens the door for deeper integration (e.g., resource credit interactions, account recovery alignment).

This hardfork would be proposed through normal Steem governance channels after thorough community review and technical specification.

Launch is not blocked on the hardfork. A Steem hardfork can be delayed by many factors outside SVM's control — governance timelines, witness coordination, review cycles. To avoid making mainnet launch dependent on that timeline, SVM can launch with the previously described validator-custodied model (Section 9) as the initial bridge custody arrangement, and transition @svm.bank to the ownerless, hardfork-secured model once the hardfork activates. Launch does not wait on the hardfork, and the hardfork does not require relaunching SVM — it simply upgrades the bridge's custody model in place.

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12. Why a Validator-Integrated Bridge Beats Traditional Multisig Bridges

Traditional bridges rely on small multisig committees or external federations. History shows repeated catastrophic failures (Ronin, Wormhole, Multichain, etc.).

SVM advantages:

Aspect	Traditional Multisig Bridge	SVM Validator-Native Bridge
Trust Model	Small set of signers	Majority of economic stake
Attack Surface	Key compromise / collusion	Requires compromising majority stake
Transparency	Often off-chain	All attestations on-chain
Slashing / Penalties	Usually none	Economic slashing for misconduct
Custody	External wallets	Moving toward collective validator control
Integration with Security	Separate system	Part of SVM consensus
Failure Mode	Total loss possible	Requires majority validator collusion

The SVM bridge is secured by the same economic actors who secure the chain itself.

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13. How SVM Differs from Traditional L2s and Wrapped-Token Bridges

Vs. Ethereum L2s (Arbitrum, Optimism, Base, etc.):

• L2s derive security from Ethereum L1.
• SVM is a sovereign sidechain with its own validators.
• Gas paid in STEEM, not ETH.
• Designed specifically around Steem account continuity.

Vs. Wrapped-Token Bridges:

• Wrapped tokens introduce new synthetic assets and custodial risk.
• SVM mints/burns native STEEM 1:1.
• No fragmentation of STEEM liquidity.
• Bridge is decentralized by design, not reliant on a trusted federation.

SVM occupies a unique middle ground: EVM compatibility + native STEEM + decentralized bridge tailored to an existing social blockchain.

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14. Benefits of Bringing STEEM into an EVM Environment

• Immediate MetaMask, WalletConnect, and hardware wallet support
• Thousands of audited Solidity contracts can be deployed with minimal changes
• Full Ethereum developer tooling (Foundry, Hardhat, Tenderly, etc.)
• Access to existing DeFi patterns and libraries
• NFT standards (ERC-721/1155) available from day one
• DAO frameworks and on-chain governance tooling
• Easier future interoperability with other EVM and Cosmos ecosystems

Existing Steem users gain access to modern DeFi without abandoning their accounts or assets.

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15. Web3 Gaming, NFT Assets & Community Tokens on SVM

EVM compatibility does not just unlock DeFi — it opens SVM to the entire Web3 gaming and NFT ecosystem, an industry that has matured considerably since the play-to-earn boom of 2021.

How today's leading Web3 games use EVM chains

• Axie Infinity runs on Ronin, an EVM-compatible sidechain purpose-built for gaming, separating game traffic from Ethereum mainnet congestion while keeping full EVM tooling compatibility. Ronin also hosts other titles such as Pixels, one of the most-played Web3 games by daily activity.
• Illuvium, widely regarded as a flagship AAA-quality Web3 title, combines Ethereum for asset settlement with Immutable X/zkEVM for gasless NFT minting and trading.
• Gods Unchained, a trading card game, also builds on Immutable's zkEVM, giving players gas-free card ownership and trading.
• The Sandbox and Decentraland, both metaverse platforms built around land, avatars, and creator-owned assets, run on Ethereum with Polygon for lower-cost transactions.
• Big Time runs an action RPG where in-game items are tradable NFTs via its Open Loot platform, again leaning on EVM-compatible infrastructure for asset ownership.

The closest precedent to SVM: Splinterlands

Splinterlands — originally launched as Steem Monsters directly on the Steem blockchain before later moving its game logic to Hive — is arguably the most relevant case study for SVM. Its governance and reward token, SPS, lives on EVM chains (Binance Smart Chain and Ethereum, as a BEP-20/ERC-20 token) while gameplay itself runs on the social blockchain, with an oracle system reconciling state between the two. That is structurally the same split SVM is built around: keep the social/account layer where it already works, and let an EVM-compatible layer handle tokens, trading, and asset markets. SVM removes the need for a separate oracle-bridged token by letting game assets be minted and traded natively on the same chain that mirrors STEEM 1:1.

How the Steem community can leverage this

• Web3 gaming — Existing Steem-based games and dApps (or entirely new ones) can deploy Solidity smart contracts on SVM directly, giving players NFT-based ownership of characters, items, and land while settling transactions in native STEEM, without needing a separate game token or an external bridge.
• NFT assets — Steem creators, artists, and communities can mint ERC-721/1155 collections on SVM, list them on the Sherpa DEX or any EVM-compatible marketplace, and use them as collateral or liquidity assets within Sherpa Protocol itself.
• Community tokens — Individual Steem communities, curation projects, or content tribes can launch their own ERC-20 community tokens on SVM, pair them against STEEM or sUSD on the concentrated liquidity DEX, and bootstrap liquidity permissionlessly through Sherpa's farming mechanism (Section 19) — without needing to run their own chain or negotiate a listing.

Because SVM inherits full Ethereum tooling (Section 14), any of this can be built with the same wallets, marketplaces, and frameworks the broader Web3 gaming and NFT industry already uses — while settlement stays denominated in STEEM.

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16. Introducing Sherpa Protocol

Sherpa Protocol is the native decentralized finance layer built specifically for SVM. Instead of waiting for external protocols to deploy, SVM launches with a complete, production-ready financial stack optimized for STEEM and the Steem community.

Core objective: Build sustainable financial infrastructure that continuously strengthens the STEEM economy through real utility and demand.

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17. The SHERPA Token – Utility & Tokenomics

SHERPA is the governance and utility token of Sherpa Protocol.

Primary utilities (all create protocol demand):

• Governance voting (stake to influence parameters, upgrades, treasury)
• Oracle participation (stake to submit prices, earn rewards, risk slashing)
• Liquidity farming incentives (burn SHERPA to create farms)
• Stablecoin collateral (lock SHERPA to mint sUSD)
• Protocol incentives and rewards distribution
• Auction participation (liquidations, etc.)

Tokenomics design philosophy:

Every major action either:

• Requires users to hold or stake SHERPA (reduces circulating supply)
• Burns SHERPA permanently (10% of every farm creation burn is destroyed)
• Generates protocol revenue that can be directed toward buybacks or further incentives

Net effect: Usage of Sherpa directly increases demand for SHERPA while reducing supply through burns. This creates a sustainable flywheel that benefits long-term holders and, by extension, the entire STEEM ecosystem.

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18. Concentrated Liquidity DEX

Sherpa launches with a concentrated liquidity AMM (inspired by Uniswap V3 / PancakeSwap V3).

Features:

• Custom price ranges for maximum capital efficiency
• Multiple fee tiers
• NFT-represented LP positions
• Isolated liquidity positions

Initial trading pairs include:

• STEEM / SHERPA
• STEEM / SBD
• STEEM / sUSD
• SHERPA / sUSD

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19. Protocol-Owned Liquidity (POL)

Sherpa launches with significant protocol-owned liquidity in core pairs.

Benefits:

• Protocol earns trading fees directly
• Deep initial markets without relying solely on mercenary capital
• Treasury grows with ecosystem volume
• Revenue can be recycled into incentives or buybacks

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20. Permissionless Liquidity Farming

A distinctive Sherpa feature: any project or user can create a farm for any liquidity pool by simply burning SHERPA.

Mechanics:

• Burn X SHERPA to create a farm
• 90% of the burned amount is re-minted over time as farming rewards
• 10% is permanently destroyed

This mechanism:

• Enables permissionless innovation
• Creates ongoing deflationary pressure on SHERPA
• Rewards liquidity providers without requiring governance approval

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21. sUSD – Native Overcollateralized Stablecoin (with User Examples)

sUSD is an overcollateralized decentralized stablecoin on SVM. Users lock approved collateral (STEEM, SHERPA, SBD, future assets) and mint sUSD against it.

Real-world usage examples:

1. Leveraged STEEM exposure without selling
   User deposits 5,000 STEEM as collateral → mints sUSD → buys more STEEM on the DEX. Maintains leveraged position while keeping original holdings.

2. Stable yield generation
   Deposit STEEM/SHERPA → mint sUSD → provide liquidity in stable pairs or lend sUSD to earn yield while retaining upside on collateral.

3. Everyday payments & commerce
   Mint sUSD to pay for goods, services, or subscriptions in a stable unit of account.

4. Risk management & hedging
   Temporarily convert volatile STEEM exposure into stable sUSD during uncertain market periods, then repay later.

5. Capital-efficient DeFi strategies
   Use sUSD as base currency for trading, arbitrage, or providing liquidity across multiple SVM protocols.

When the user repays the debt, collateral is unlocked.

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22. Stability, Liquidations & Instant Redemption

• Liquidations — Unhealthy positions are automatically liquidated to protect the system.
• Auctions — Liquidated collateral is auctioned in a transparent, rule-based process.
• Instant Redemption — sUSD holders can redeem directly for protocol collateral or treasury assets according to defined rules, supporting the peg through arbitrage.

These mechanisms ensure sUSD remains stable and fully backed.

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23. Sherpa Oracle Network

A decentralized oracle layer where participants stake SHERPA to submit and attest to prices (STEEM/USD, SHERPA/USD, SBD/USD, etc.).

• Median or stake-weighted consensus
• Slashing for significant deviations
• Economic incentives for honest reporting

Future expansions will support additional assets and bridge operations.

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24. Future SBD Bridge

Using the Sherpa Oracle Network, a decentralized bridge for Steem Backed Dollars (SBD) will be implemented, allowing SBD to exist as a native asset on SVM while remaining connected to the Steem blockchain.

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25. Staking & On-Chain Governance

SHERPA stakers can:

• Earn protocol revenue share
• Vote on parameter changes, new collateral types, treasury allocation, and upgrades
• Participate in the long-term direction of the protocol

Governance will gradually transition from initial deployment team to full community control.

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26. Future Vision: Interoperability, Chainlink, RWAs & Expansion

Near-term:

• Full mainnet launch with complete Sherpa feature set
• Additional trading pairs and collateral types

Interoperability roadmap:

SVM's EVM layer is built to fully satisfy Chainlink's network integration requirements, positioning SVM for native Chainlink support. Once integrated, STEEM can move permissionlessly across other EVM chains — Ethereum, Polygon, BNB Smart Chain, Avalanche, and beyond — without a separate custom bridge for each destination.

Because SVM is a Cosmos SDK chain, it also ships with native IBC support. Per the IBC transfer specification, IBC lets SVM move assets to and from other IBC-enabled chains with no external bridge at all — transfers are validated directly by the connected chains' own consensus. This allows assets like USDC and USDT to move in and out of SVM in real time with full on-chain validation. (IBC support is a planned testnet upgrade.)

Combined, Chainlink and IBC connectivity mean SVM is not an isolated sidechain waiting to grow into the wider ecosystem — it is designed for full external exposure to both the EVM and Cosmos/IBC worlds from block 0.

• Chainlink oracle integration for enhanced price feeds and new assets
• Chainlink-powered cross-chain STEEM transfers to Ethereum, Polygon, BNB Smart Chain, Avalanche, and other EVM chains
• Native IBC connectivity for bridgeless, real-time transfer of USDC, USDT, and other IBC-enabled assets (planned testnet upgrade)
• SVM as a liquidity and DeFi hub for the broader Steem ecosystem

Real-World Assets (RWAs):

• Tokenization of real estate, invoices, commodities, and other RWAs on SVM
• Use of sUSD and STEEM for on-chain financing and settlement of RWAs
• Potential compliance and KYC modules via governance-approved modules

Long-term expansion:

• Additional DeFi primitives (perpetuals, options, advanced lending markets)
• Deeper integration with Steem's social graph (SocialFi, creator economies)
• Potential for app-specific chains or further sidechains if demand requires

SVM is positioned to become the financial operating system for the Steem ecosystem and a bridge to the wider Web3 world.

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27. Current Progress & Testnet Status

• Bridge architecture successfully tested with real deposits using the @blaze.apps account.
• Sherpa Protocol fully deployed on public SVM testnet.
• All major components operational: concentrated liquidity DEX, sUSD lending, governance, permissionless farming, oracle network, treasury, auctions, and protocol-owned liquidity.
• The core architecture is no longer theoretical — it is actively running and being tested by the community.
• The chain is already open source and publicly auditable.

Live testnet resources:

• Block Explorer: evmscan.steemscanner.com
• SVM App: svmapp.blazeapps.org

Open Source Repositories:

• SVM Chain (EVM Layer): github.com/blazeapps007/SteemVirtualMachine-EVM
• Block Explorer (Blockscout): github.com/blazeapps007/blockscout-SVM

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28. Security Model & Roadmap to Mainnet

• Multiple independent audits planned before mainnet
• Bug bounty program
• Gradual rollout with monitoring and circuit breakers where appropriate
• Emphasis on economic security through staking and slashing

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29. Economic Sustainability, STEEM Flywheel & Protocol-Owned Reserves

Protocol revenue (DEX fees, borrowing interest, liquidation fees, etc.) flows to the treasury and can be used for:

• Development and security
• Incentives
• Buybacks of SHERPA
• Growing protocol-owned STEEM reserves

Strategic, permanent accumulation of STEEM

A deliberate design goal is for the protocol to progressively own a growing share of circulating STEEM — and to hold it, not trade it. STEEM the protocol acquires (through treasury revenue, sUSD collateral inflows, and POL growth) is not intended to be recycled back onto the open market. Removing STEEM from circulating supply in this way is a direct scarcity mechanism in outer-world markets: every STEEM the protocol locks away for collateral, reserves, or liquidity is STEEM that exchange order books no longer have access to.

SHERPA buybacks and the revenue guarantee

Protocol revenue is used to buy back SHERPA from the open market. Bought-back SHERPA can be burned (permanently reducing supply, compounding the effect of the farming-creation burns described in Section 19) or redirected into incentives. Because buybacks are funded by real protocol revenue rather than token emissions, they function as a revenue-backed guarantee behind SHERPA — demand for the token is tied to actual protocol usage, not inflationary rewards alone.

STEEM held for sUSD overcollateralization

STEEM acquired through revenue is also held in reserve specifically to back sUSD. This gives the protocol a growing, self-owned collateral base for stablecoin issuance rather than relying solely on user-deposited collateral — strengthening sUSD's backing over time as protocol revenue compounds.

Market structure and exchange arbitrage

STEEM's current trading volume on external exchanges is largely shaped by market-making bots rather than organic on-chain demand. A liquid, actively-traded STEEM AMM on SVM introduces a second, transparent, on-chain price for STEEM. Where that price diverges from external exchange prices, arbitrageurs — including exchanges themselves — are incentivized to trade the difference, which in turn increases integration interest from exchanges wanting to capture that arbitrage. This creates an additional demand channel for STEEM that exists independently of the protocol's own buying.

Stablecoin trust via IBC-backed reserves

Using IBC vouchers, the protocol treasury will hold reserves of major external stablecoins — USDC, USDT, and DAI — bridged in without a custodial third-party bridge. These reserves back sUSD redemption alongside STEEM and SHERPA collateral, giving sUSD a diversified, verifiable backing rather than relying on a single volatile asset.

Increased usage of SVM and Sherpa drives demand for both SHERPA and STEEM, creating a positive feedback loop that strengthens the entire ecosystem.

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30. Community Discussion: Proposed DAO Funding for Testnet Infrastructure

This section is an open question for the community rather than a finalized proposal, and is included here specifically to invite discussion.

The proposal: that the Steem DAO (SPS) fund 135 SBD per day to @blaze.apps, structured in phases over 6 months:

Phase	Timing	Use of Funds
1	Months 1–3	Funds ongoing development of SVM and Sherpa Protocol
2	Month 4	Converted to STEEM, deposited into @svm.bank, and distributed among Genesis Validators (open to anyone who joins), staked for a minimum of 1 year — with the bonding period built into genesis so it cannot be unstaked early
3	Months 5–6	Paid directly to validators in SBD, minted natively on SVM as a reward for validating blocks

Justifying Phase 1 (Months 1–3): This funding is not covering hypothetical future costs — it's covering infrastructure and work that is already running today. Currently, a single operator (myself) runs:

• 3 validator nodes securing the SVM testnet
• 1 independent EVM RPC indexer and node
• The SVM App node
• The Blockscout explorer node

With 3 other Steem Witnesses Joiined as Validators .

All of this infrastructure runs continuously, and my more than 4 hours a day currently go into active development, node operation, and maintenance of the project. Phase 1 funding is intended to make that time and infrastructure cost sustainable rather than personally absorbed indefinitely, so development pace doesn't depend on it being subsidized by one person.

Why SBD rewards work without inflation risk: SVM mirrors STEEM and SBD 1:1 against the balances actually held in the @svm.bank wallet — it has no independent inflation of its own. Using a portion of this funding to mint initial SBD validator rewards on SVM is a bounded, one-time incentive to bootstrap genesis validator participation, not an ongoing inflationary subsidy. Validators are also expected to receive SHERPA token rewards alongside SBD, still under design.

Proposed use of funds beyond validator incentives:

• Infrastructure costs — the Blockscout explorer node, SVM App hosting, and EVM RPC infrastructure that we rely on to interact with and observe the testnet.
• Genesis validator bonding — the Month 4 STEEM distribution, locked for at least a year, is designed to give genesis validators real skin in the game from day one rather than a purely mercenary incentive.

Why this is being raised for discussion:

• Testnet and early-mainnet infrastructure carries real, ongoing operating cost, and the DAO already funds comparable community infrastructure and development work.
• Structuring the funding in phases — development, then genesis validator bonding, then validator rewards — ties DAO spending to concrete, sequenced milestones rather than an open-ended stipend.
• The bonded Month 4 distribution and the no-inflation design of SBD rewards are both meant to address a natural community concern: that funding shouldn't create sell pressure or ongoing token inflation.
• The community's input is wanted on the daily amount, the phase lengths, the bonding terms, reporting cadence, and any other conditions before this would be brought forward as a formal SPS proposal.

Feedback, objections, and alternative structures are explicitly welcome before this moves toward a formal proposal.

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31. Conclusion & Community Invitation

The Steem Virtual Machine and Sherpa Protocol represent a deliberate, architecturally sound path to bring modern decentralized finance to one of blockchain's longest-running and most user-friendly ecosystems.

We have chosen a design that prioritizes:

• Preservation of existing STEEM and Steem accounts
• Maximum decentralization of the bridge
• Immediate utility through native DeFi
• Sustainable tokenomics that reward real usage

This is an open invitation to the Steem community. We welcome:

• Technical feedback and security reviews
• Economic analysis of tokenomics and parameters
• Suggestions for the proposed Steem hardfork
• Contributions to documentation, frontend, or additional modules
• Participation in testnet and future governance

Building sustainable financial infrastructure for millions of users is not a task for any single team. It requires collaboration, rigorous review, and shared ownership.

If you believe STEEM deserves a first-class DeFi future while staying true to its roots, we invite you to join the conversation and help shape what comes next.

Let's build it together.

Join the conversation on Discord: discord.gg/xAtjgbm8Tr

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Document prepared for the Steem community.
All feedback, criticism, and collaboration are welcome.

Since my mother language is not English, I used the Claude Sonnet 5 model to restructure my ideas into this long article.

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