Bixin Ventures: DLC.Link technology and product interpretation

Author: Bixin Ventures; Source: Bixin Medium; Translation: 0xjs@金财经

Foreword

As an early holder of BTC and a firm supporter of BTC, Bixin Ventures Has been committed to the development of BTC ecosystem. We have always believed and continued to hope that BTC assets can play a more important role in the excellent DeFi protocols of each chain and generate greater returns. From this perspective, a safe and efficient cross-chain bridge is crucial. So, in one of the earliest rounds last year, we invested in DLC.Link.

With the rise of Ordinals and the continuous expansion of the on-chain and off-chain Bitcoin data flow network, there has been a clear trend of diversification of Bitcoin applications. Due to the challenges inherent in Bitcoin’s limited native smart contract functionality, Bixin viewed DLC.Link as a strategic solution. There is huge demand for secure, decentralized alternatives to Bitcoin, especially after the FTX collapse, which highlighted the risks of centralized infrastructure. DLC.Link aligns with Bixin’s vision of a more secure, trustless ecosystem and strengthens Bitcoin’s role in a variety of applications.

DLC.Link Technology

How does DLC use Schnorr signature in Taproot upgrade?

The Bitcoin Taproot upgrade introduces Schnorr signatures, a more secure alternative to ECDSA for creating and verifying keys. Schnorr signatures have useful linear properties that allow multiple transactions to be efficiently verified by combining public keys and signatures. Discrete Log Contracts (DLC) utilize Schnorr and PTLC, which is implemented through Taproot and therefore already native to Bitcoin. For DLC, there is no need to use L2 or sidechains. Instead, DLC is protected by the entire computing power of the Bitcoin network.

In loan scenarios using DLC, Schnorr signatures are used for conditional results. Both parties generate a unique key, combine it with the long-term key to create a "public key" and prepare signatures in advance for potential outcomes such as repayment or liquidation. A decentralized network of provers then uses discreet log numbers to unlock the pre-signed signatures, triggering contract execution on the blockchain to confirm real-world results. This demonstrates the adaptability, flexibility and safety of DLC in practical applications.

How DLC secures Bitcoin on-chain without validators

Discreet Log Contracts (DLC) inherit Bitcoin’s security by eliminating external validators, ensuring On-chain security. In the DLC.Link architecture, the prover network is an innovative design. The prover acts as an off-chain service, actively monitoring the blockchain via smart contracts, and publicly announcing DLC ​​events via JSON. They certify results, signing values ​​from a data source, usually a smart contract on another blockchain. To enhance security, DLC.Link uses a 5-of-7 prover signature method to reduce the risk of collusion. The DLC.Link Manager contract randomly selects whitelist certifiers for trustless selection. Design choices also allow third-party organizations to run prover nodes, thus promoting decentralization. Distributed attesters can efficiently facilitate DLC creation and signing requests, thus avoiding single points of failure. This comprehensive design not only confirms the integrity, security, and flexibility of Bitcoin transactions, but also establishes DLC.Link as the ideal infrastructure for combining BTC with decentralized finance (DeFi).

How FROST Pioneer provides advanced security for DLC

DLC.Link also integrates FROST (Flexible Round-Optimized Schnorr Threshold Signatures, Flexible Round-Optimized Schnorr Threshold Signatures) to improve security and Simplify prover management. FROST’s key “re-sharing functionality” stands out, enabling dynamic management of the prover network and allowing rapid adjustments without compromising service integrity. Collaborative key generation is used when setting up or changing attesters. This process creates a shared secret and separate shards for each prover. The flexibility of this key generation mechanism ensures that the prover network can be modified securely later without disrupting service.

During the announcement phase triggered by a blockchain event, the prover's coordinator propagates the create-dlc command, resulting in a consensus-backed DLC announcement. Likewise, to close a DLC, a blockchain event prompts the coordinator to coordinate the creation of a DLC proof, with each prover's signature ensuring the contract's secure and verified closure. This advanced upgrade introduces dynamic tuning capabilities to the prover network, significantly reducing computational complexity while maintaining strict security standards.

Figure 1. DLC.Link technical process

DLC.Link product

dlcBTC

dlcBTC Launched in early 2024, dlcBTC is at the forefront of DeFi by implementing Discreet Log Contracts (DLC) to provide a non-custodial representation of Bitcoin on the Ethereum network. With dlcBTC, users “self-wrap” deposits and lock BTC themselves, with the locking mechanism protected by the prover. dlcBTC depositors will not send BTC to DLC.Link or any third party.

In this groundbreaking process, users securely lock their Bitcoin into DLC using the DLC.Link bridge, creating equivalent dlcBTC tokens. DLC acts as a secure lockbox on the Bitcoin blockchain, establishing a pre-signed agreement between the user and the protocol. Notably, key distribution uses a 2-of-2 multi-signature UTXO mechanism, where one key is held by the user and the other key is intelligently distributed across the network of trusted prover nodes.

Bridges have a bad reputation for their many vulnerabilities. DLCs ​​are a unique solution because they solve the problem of cross-chain communication without having to consider the security of the bridge. Unlike bridge assets such as wBTC, dlcBTC eliminates the need for intermediaries, instead opting to secure assets through the Bitcoin network’s entire computing power. Launched in the first quarter of 2024, dlcBTC v1 will introduce features such as whitelist access, strict security measures, multi-functional trading pairs, and seamless integration with existing DeFi protocols, marking a major advancement in the decentralized finance space.

We believe that after Bitcoin, the most decentralized network is Ethereum. So with dlcBTC we are working to bring native BTC to Ethereum DeFi without having to build another smaller, untested and riskier L2 or solution. Minted dlcBTC tokens can be used as collateral in prominent DeFi platforms such as Curve and AAVE, allowing users to actively participate in DeFi activities such as investing, lending, and hedging.

DLC.Link in the broader BTC ecosystem

DLC.Link is a transformative force in the broader BTC ecosystem through its cautious logging contract ( DLC) offers a range of applications. This innovation has particular significance for entities as diverse as credit trading desks, prime brokers, digital asset custodians, exchanges and OTC desks. The integration allows custodians to extend financial services to self-custodial Bitcoin customers, escrow and conditionally transfer native Bitcoin with instant certainty, and provide lending services to miners and other self-custodial Bitcoin customers.

DLC.Link’s role in decentralized finance (DeFi) is also extensive and influential. Its integration facilitates the development of loans and stablecoins backed by on-chain Bitcoin collateral, providing advantages to lending protocols. Additionally, DLC.Link seamlessly extends its scope to cross-chain protocols, enabling the transfer of native Bitcoin across different blockchains. Recognizing the popularity of the BRC-20 asset, DLC.Link can facilitate its transfer to cross-chain bridges. Additionally, it supports ordinals trading and lending on NFT marketplaces like OpenSea and other smart contract-based platforms, enabling new use cases in DeFi.

Figure 2. DLC.Link is widely used

Conclusion

The reason why Bixin Ventures The strategic investment in DLC.Link in the early seed round is to promote its seamless integration with decentralized finance (DeFi) and solve the challenges faced by the Bitcoin ecosystem. DLC overcomes the limitations of Bitcoin smart contracts and provides a secure alternative that leverages Bitcoin's strong security. Taproot’s recent enhancements with Schnorr Signatures help DLC.Link build a network of provers, and the integration of FROST further improves the dynamic management of provers. dlcBTC addresses the growing demand for secure, decentralized self-wrapped Bitcoin. Additionally, DLC.Link has broad potential to facilitate multiple products, including self-custodial deposits in CeFi and Ordinals cross-chain in DeFi. Bixin Ventures’ strategic move reflects a commitment to shaping the future of DeFi, recognizing DLC.Link’s innovation in the crypto space and foreseeing its critical role in providing Bitcoin liquidity across the crypto ecosystem.