🖇️Bitcoin -> Smart chains (new)

Swaps based on the UTXO-chain vaults running on Starknet & EVM. This is a new & improved protocol over the legacy PrTLC based Bitcoin -> Smart chain swaps.

The new Bitcoin -> Smart chain swap protocol is leveraging the UTXO-chain vault.

The LP (liquidity provider) creates a UTXO-chain vault on the smart chain, and uses a small (dust) UTXO that he owns as the initial UTXO. It's important to note that setting up the UTXO-chain vault is not done on a per-swap basis and is instead done just once when the LP sets up their LP node.

User and LP can then cooperatively sign a transaction that atomically (in a single transaction):

• spends the latest vault UTXO

• commits to the withdrawal data (i.e. user gets 10 wBTC)

• sends funds from user to the LP's wallet on the bitcoin side (i.e. LP gets 10 BTC)

Diagram showcasing a swap of 10 BTC -> 10 wBTC

Watchtowers

Parties (permissionless - can be anyone), that are submitting withdrawal transaction data on the smart chain on behalf of the user. This is useful when user has no balance on the smart chain and therefore has no way of submitting the withdrawal transaction data himself (no way to pay gas fees). To incentivize watchtowers there is an option to include a tip/fee to the watchtower in the additional transaction data.

Liquidity fronting

In case users want to get their funds sooner than the confirmations required in the vault, they can specify a fronting fee/tip in the additional transaction data. The liquidity fronters can then process the swaps sooner (sending the assets to the user) - e.g. with the btc transaction having just 1 confirmation, and later reclaim the value they fronted (+ fronting fee) from the vault - e.g. when the bitcoin transaction gains 3 confirmations.

Liquidity fronting is not yet available on mainnet nor testnet

Parties

User - has bitcoin and smart chain wallets and wants to swap bitcoin to smart chain asset

LP node - handling the swap and providing the liquidity, needs to have a deposit only vault set up on the smart chain

Watchtower - a party submitting the bitcoin transaction data on the smart chain on behalf of the user

Liquidity fronter - a party which is willing to front the liquidity for swaps

Process

1. User sends an RFQ (request for quote) to the LP indicating the requested input (or output) amount of assets

2. LP constructs a PSBT (not signed yet) spending the latest vault UTXO, and adds 3 outputs:

   1. Small (dust) output as a next vault UTXO

   2. OP_RETURN data specifying the output amount and recipient

   3. Output to LP's wallet with the swap's input amount

3. User verifies the returned PSBT:

   1. Validly spends latest vault UTXO and that UTXO is unspent

   2. Specifies the correct (i.e. requested) output amount and recipient in the OP_RETURN data

   3. Outputs valid input input amount to the LP's wallet

   4. There is still enough balance in the vault on the smart chain to honor this swap

4. User then adds his own input UTXOs up to the amount of the outputs (user is also expected to cover the transaction fee), and optionally also adds a change output for himself

5. User signs this adjusted PSBT and sends it to the LP

6. LP verifies that the user hasn't changed any of the LP specified outputs and inputs

7. LP signs the transaction and broadcasts it to the bitcoin network

With liquidity fronting

1. ...the transaction confirms on the bitcoin network, but doesn't get enough confirmations to be eligible for vault withdrawal yet (i.e. gets 1 confirmation)

2. A Liquidity fronter fronts the liquidity (minus the fronting fee) through the smart contract to the User, the smart contract saves this fact and later redirects the claim to the Liquidity fronter

3. ...the transaction now gets enough confirmations to be eligible for vault withdrawal (i.e. gets 3 confirmations)

4. A Liquidity fronter submits the bitcoin transaction data to smart chain, where it's verified and the output amount is paid out to the Liquidity fronter

Without liquidity fronting

1. ...the transaction confirms on the bitcoin network and gets required number of confirmations

2. A User, LP or Watchtower submits the bitcoin transaction data to smart chain, where it's verified and the output amount is paid out from the vault to the User. Whoever submits the data gets the caller/watchtower tip/fee - if specified in the transaction data (i.e. can also be set to 0).

Diagram