Introduction

Currently, BTC assets are increasingly recognized by organizations and institutions worldwide, with a continuous stream of innovations based on BTC emerging. This includes various types of BTC on-chain asset classes and numerous BTC Layer2 solutions. The majority of standards and rules are also in the process of being established. Here, we aim to explore a new possibility with the community, focusing on introducing DeFi and additional on-chain functionalities to BTC, while maximizing the protection of users' asset ownership rights.

The Essence of Public Chain Security

The essence of blockchain technology is rooted in code logic and consensus. Therefore, when an EVM (Ethereum Virtual Machine) node incorporates additional code logic, this new set of rules supersedes the contract logic of the EVM itself. The security of these rules is inherently linked to the security of the entire chain, maintained through the collective code logic of block producers and validators.

With this in mind, introducing additional consensus logic based on the state of BTC nodes from the underlying code of a public chain equates the security of these logics with the overall security of the public chain.

From this perspective, we propose a UTXO (Unspent Transaction Output) signing pledge mechanism that offers a more streamlined approach than the BTC timelock pledge.

Any public key can sign a UTXO it owns and submit it to the chain's nodes to participate in certain logics. To claim related earnings at the end of the logic, re-submitting and verifying the ownership of the UTXO proves that there were no asset movements during the pledge period. This mechanism facilitates the addition of more EVM-compatible DEFI logics to UTXO pledges, such as staking rewards and voting mechanisms.

UTXO Signing Pledge Scheme

Principle

In public chains utilizing the UTXO model, users demonstrate ownership of UTXOs by signing them and submitting these signatures to chain nodes. This also proves that no liquidity operations were performed on these UTXOs for a certain period. Upon completion of this logic, users can acquire additional rights earned during the pledge period, such as voting rights and reward distributions.

Workflow

1. Users select UTXOs for staking and sign each UTXO. The signature should include a non-repeatable parameter (such as a timestamp or random number) to prevent replay attacks.

2. Users submit the signed UTXO and other necessary information (e.g., pledge duration, participating projects) to the chain's nodes.

3. Upon verifying the correctness of the signatures and information, nodes record the pledged UTXOs and the user's public key on the chain.

4. Users can obtain corresponding rights during the pledge period, such as voting rights and rewards.

5. After the pledge period, users must submit the UTXO signature again to prove there were no liquidity operations on the UTXO during the pledge. After verification, users can retrieve their UTXOs.

Security Considerations

• Preventing Replay Attacks: Signatures prevent others from intercepting and replaying signature data. Each signature should include a timestamp or random number to ensure its uniqueness.

• UTXO Uniqueness: If UTXO merging or splitting is allowed, it could affect the implementation of this scheme. Therefore, rules should clearly state that each UTXO can only be pledged once and cannot be operated on (including merging and splitting) after pledging.

• Chain Security: The scheme's security depends on the security of the chain. Since the verification process is conducted by nodes on the chain, the entire process's security is equivalent to the security of the chain's consensus mechanism.

• Verifier Fairness: If a node on the public chain decides to cheat, it could update some unconfirmed transactions. Therefore, a correct node consensus mechanism will strengthen the security of this scheme.

Potential Future Extensions

This design can be further extended to support more DeFi applications. For example, we can introduce smart contract concepts on top of the UTXO model to implement more complex logics, such as automated lending and liquidity mining.

Significant Security Improvements

In traditional time-locked and deposit-based crypto lending or other DeFi applications, users typically need to transfer assets to a contract address, where they are frozen for a period. During this process, user assets are exposed to various risks:

• Contract Risk: If the contract has programming errors or is attacked, users' assets may be at risk.

• Trust Risk: Users must trust the contract developers or operators not to engage in malicious activities, such as suddenly shutting down the platform or absconding with funds.

• System Risk: Issues with the entire chain system can also affect users' assets.

However, using the UTXO Pledge mechanism, users' asset management rights remain within their private keys, merely proving through signatures that assets have not been moved over a period. Even during the pledge period, users' UTXOs are controlled by their private keys without needing to be transferred to other addresses or contracts. This reduces many risks for users, especially regarding trust in smart contracts or third parties, thereby significantly enhancing security.

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