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Smart chain → Bitcoin

This swap uses a PrTLC (proof-time locked contract) to enable trustless swaps from smart chain tokens to on-chain Bitcoin. The user locks tokens in a PrTLC on the smart chain, and the LP claims them by proving — through the Bitcoin light client — that it sent the agreed BTC amount to the recipient's Bitcoin address. If the LP fails to deliver, the user can unilaterally refund after the timelock expires. A cooperative refund path also allows the LP to release the user's funds immediately if the payment cannot be completed, without waiting for the timeout.

Parties​

  • User - has smart chain and bitcoin wallets and wants to swap smart chain token (e.g. SOL on Solana, WBTC on Starknet) to bitcoin
  • LP - handling the swap and providing the liquidity, sends a Bitcoin on-chain payment and receives funds from the PrTLC escrow

Process​

  1. User sends an RFQ (request for quote) to the LP indicating the requested input (or output) amount of assets, and the bitcoin address to receive the BTC at. Also sends a unique nonce that will be used to tag the bitcoin transaction and prevent replay attacks
  2. LP returns the swap fee and Bitcoin network fee along with the signed authorization allowing the User to initiate the PrTLC escrow
  3. User reviews the returned fees and sends a transaction to construct a PrTLC on the Smart chain. The PrTLC has the following spend conditions:
    1. Pays the funds to the LP, upon verifying a Bitcoin transaction (via the light client) that sends the exact pre-agreed amount of BTC to the User's bitcoin address and is tagged with the nonce provided by the User to prevent replay attacks
    2. Returns the funds back to the User after a timeout
    3. Returns the funds back to the User, upon verifying a refund authorization signed by the LP—this allows an instant co-operative refund
info

The User needs to make sure that the LP cannot use an already existing bitcoin transaction to claim funds from the PrTLC escrow—i.e. if the user already received 1 BTC to its address, and initiates the swap of 1 BTC, the LP could use the already existing Bitcoin transaction to claim the funds from the PrTLC escrow. To prevent this, it is required that each Bitcoin transaction is tagged with a random 7-byte nonce (provided by the User), where:

  • 3 least significant bytes prefixed with 0xFF are being used as the nSequence field for ALL transaction inputs
  • 4 most significant bytes being treated as integer, adding 500,000,000 to that integer and using it as locktime field for the transaction.

The PrTLC escrow asserts that the Bitcoin transaction uses the pre-agreed to nonce by parsing the nSequence and locktime fields.

a) Successful swap​

  1. LP observes the creation of PrTLC on the Smart chain and proceeds to send a Bitcoin transaction, paying out BTC funds to the User

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

  1. LP submits the Bitcoin transaction data to smart chain, where it's verified and the escrowed funds are paid out to the LP

b) Failed swap​

  1. LP is unable to send the Bitcoin transaction to the User—e.g. LP ran out of funds in the meantime
  2. User sends a request to the LP, the LP returns a signed refund message, that allows the User to refund the PrTLC before a timeout (cooperative close)
  3. User uses the signed refund message to refund its funds from the PrTLC before a timeout

c) LP went offline​

...LP is unresponsive

  1. User waits until the timeout and then refunds its funds back from the PrTLC

Swap sequence diagram​

Smart chain → Bitcoin on-chain swap process