Understanding the Bitcoin Restaking Protocol Chakra in One Article

Written by: 0xjs@黄金财经

On April 30, 2024, the Bitcoin re-pledge protocol Chakra announced that it had received institutional financing from StarkWare, ABCDE, Bixin Ventures, CoinSummer, Cogitent Ventures, Trustless Labs, and angel investment from crypto OGs such as Qtum founder Shuai Chu, Bixin founder Wu Gang, and Longhash co-founder Yan.

So, what is the Bitcoin re-pledge protocol Chakra? This article will show you how to understand it.

Introduction to Bitcoin Scaling Solutions

With the successful listing of Bitcoin spot ETFs, Bitcoin has entered the mainstream global financial market as an alternative asset. Therefore, the Bitcoin ecosystem is the narrative of this bull market. However, with the expansion of Bitcoin technology solutions and the launch of various Layer 2 solutions, Bitcoin is also developing new narratives beyond just a means of value storage, such as Bitcoin income assets, decentralized finance (DeFi), and various decentralized applications based on the Bitcoin network.

Obviously, Bitcoin's huge market value of trillions of dollars has not yet been fully financialized. Bitcoin holders have long been able to centrally allocate assets through lending, facing extremely high security risks and lack of financial flexibility. From a technical perspective, the emergence of various Bitcoin Layer 2 solutions has enabled Bitcoin to participate in DeFi protocols as an underlying asset, while partially solving the trust problem with intermediaries. Below, we will compare various Layer 2 solutions and explain why Chakra is a better infrastructure for Bitcoin staking yields.

Sidechain

Sidechains are currently the main implementation of BTC L2. They are usually connected to the main chain through a two-way cross-chain bridge, allowing assets to flow between them. Sidechains have their own consensus mechanism and verification nodes, with strong flexibility. However, their security fundamentally depends on the design of the bridge, which usually requires a third party (such as a signing node or MPC node), while BTC is hosted on the first layer.

Typical Bitcoin sidechain projects such as Stacks execute smart contracts written in Clarity on the sidechain and ultimately settle transactions on BTC. Stacks allows multiple small blocks to be generated on the chain, called microblock streams, enabling miners responsible for confirming the current Stacks block to make full use of the time interval between the generation of two BTC blocks to process more transactions. When Bitcoin confirms the current block, these microblocks are also finally confirmed, and the next Stacks block will be linked to the current last microblock.

Lightning Network

The Lightning Network is BTC's traditional second-layer expansion protocol that facilitates faster small payments. It consists of payment channels established by user signatures to form a network for fast BTC transfers. The Lightning Network eliminates the need for BTC block confirmation and achieves near-instant transaction confirmation, thereby solving the core pain point of BTC payments. However, it also has its disadvantages:

• Fund lock: Users need to lock funds in the payment channel to use the Lightning Network, which limits the availability of funds.

• Transaction limit: The locking design of the Lightning Network makes it difficult to support large transactions and lacks availability.

• Network Centralization: In order to improve efficiency and reduce costs, large payment centers may emerge, increasing the risk of network centralization.

RGB

RGB is a smart contract system based on Bitcoin. It uses client verification to create and manage various types of assets on the Bitcoin network without sacrificing privacy and security. Compared with traditional blockchain smart contracts, RGB aims to provide higher scalability and flexibility while maintaining the decentralized nature of the Bitcoin network. However, RGB also has its disadvantages:

• Complexity and Development Progress: RGB's technology and concepts are relatively complex, and its development progress is slow.

• Difficulty in Global State Confirmation: Although RGB's state transition graph design guarantees privacy, it cannot achieve global transaction data visibility.

• Adoption and Network Effects: RGB requires a large number of users and developers to adopt it to realize its potential value, which takes time.

 Layer 2 Rollups

Rollup is a scaling technology defined by ETH and also used for BTC. They "compress" multiple transactions into a single transaction and submit its proof to the main chain. Ideally, the security and finality of Rollups depend on the main chain. Due to BTC's lack of smart contract capabilities, BTC Rollups are not full-concept Rollups because BTC cannot verify its proofs. Similar to sidechains, Rollup requires a cross-chain bridge to enable asset transfers between L1 and Rollup.

Typical Rollup Layer2 Bitcoin projects, such as Citrea, use off-chain verification of ZK proofs and on-chain challenges of ZK proofs. Security still relies on fraud proofs, so the security model is still the 1/N honesty assumption of OP Rollup.

Why Chakra is needed

When exploring existing solutions, introducing BTC into the ecosystem often encounters security vulnerabilities of the bridge. Following the Satoshi belief of “Not your keys, not your coins”, most BTC holders do not trust any third party, whether it is a decentralized bridge or MPC, which directly hinders the further development of the BTC ecosystem. Therefore, introducing BTC into the ecosystem through self-custody is more in line with BTC culture and requires some crypto magic.

Self-custody staking and re-staking

Bitcoin enthusiasts trust Bitcoin because of its high degree of decentralization and strong security. Therefore, sacrificing security for returns can be a major problem. Our solution allows Bitcoin holders to participate in staking without moving assets out of their wallets, which is achieved through time-locked scripts to ensure that there is no third-party risk.

Chakra will truly unlock the potential of the BTC ecosystem, marking the first time that BTC can earn interest without trusting an external third party, allowing trillions of dollars worth of BTC to flow seamlessly into the ecosystem. This is similar to what DeFi did to ETH, which will lead to explosive growth in the BTC ecosystem.

Therefore, attempts like Babylon, which rely entirely on cryptographic methods to self-custody BTC staking to bootstrap L2, provide new possibilities for the BTC ecosystem.

Chakra aggregates a series of user signatures through the MuSig2 protocol to generate a time-locked UTXO that can "stake" Bitcoin for a certain period of time. Instead of transferring BTC to any third-party escrow address, users can achieve self-custody at the L1 layer through a derived address. There are only two conditions for unlocking the staked BTC UTXO:

1. It can be retrieved after a joint signature with the Chakra network, which may be initiated by a user's request for early unlocking within the Chakra network, providing flexibility.

2. After reaching the initially set lock-up period, the user will automatically regain control of their BTC. Even if the Chakra network stops operating, users can still withdraw BTC in a timely manner without worrying about security risks.

The Chakra network is secured by BTC's re-staking proof, allowing staked BTC to be verified in multiple places within the ecosystem. For example, BTC staked in Chakra can also participate in Babylon's staking; BTC liquidity tokens generated during the staking process can also participate in the DeFi and smart contract business ecosystem within the network, making Chakra similar to Lido in the Bitcoin ecosystem.

Specifically, after users pledge BTC through the Chakra protocol, Chakra will issue stBTC for users on L2, and the pledged BTC will be used to participate in Babylon's pledge to obtain returns. When users withdraw cash, destroying stBTC on L2 will release BTC and the corresponding Babylon yield.

Using ZKP to verify Bitcoin transactions

In Chakra's solution, zero-knowledge proofs are used to verify Bitcoin transactions. Bitcoin staking events occur on the mainnet and have a lock-up period. The trust process is completed through these zero-knowledge proofs. These proofs can be verified off-chain, allowing access to on-chain staking information in a completely trustless verification method that does not require a connection to the Bitcoin network or a secure consensus.

Chakra uses STARK to implement the proof system, providing a zero-knowledge proof solution that does not require a trusted setup and enhances security compared to SNARK. The zk light client can synchronize proofs of BTC staking to all L2 networks that require BTC re-staking for security, providing a universal solution.

Bringing Starknet technology innovations to the Bitcoin ecosystem

Chakra will introduce a customizable sorter Madara to the Bitcoin Layer 2 network. Madara uses the cairo language to prove the execution of any program, making the Madara network itself more secure and efficient because anyone can innovate proofs in a decentralized way.

In addition, Cairo uses STARK technology to generate efficient zero-knowledge proofs, making it efficient enough to verify large and complex calculations while ensuring good scalability. Since it does not rely on a trusted setup, the STARK proofs generated by Cairo are inherently transparent and secure. Essentially, CairoVM is a program that takes the bytecode of a compiled Cairo smart contract and outputs an execution trace, a list of all the steps taken during the execution of the program. With CairoVM, Chakra can not only bring the relatively complete ecosystem of Starknet to Bitcoin, but also leverage Cairo's strong developer community to create new applications for the Bitcoin ecosystem.