How Bool Network provides secure asset custody for BTCFi

Interviewees: Jeffrey, Bool Network

Kai, Bool Network

Witter, Hibit

Buffalo, ChainSwift

Since the summer of 2023, the Bitcoin ecosystem has always been the focus of people's attention, and BTC Layer2 has fallen to the bottom again after a brief prosperity, causing some people to doubt the rationality of BTC's second-layer narrative; in addition, the vast majority of BTC custody solutions cannot get rid of the multi-signature/MPC model, which has undoubtedly become a major bottleneck restricting the development of the BTC ecosystem.

In response to this, Geek web3 invited Bool Network and its CEX application chain Hibit and BTCFi project ChainSwift within the ecosystem to discuss the current status of the Bitcoin ecosystem and Layer2 system, the issue of Bitcoin asset custody, Bool Network's unique design in the custody solution, the principles of Hibit and ChainSwift and their integration with Bool. During the period, Bool's Jeffery pointed out that most Bitcoin second layers are pseudo-concepts, and what everyone should really do is to broaden the application scenarios of BTC, especially BTCFi.

The following is a text record of this conversation, welcome to read!

1. Faust: Recently, I have heard from many channels that many VCs and project parties believe that the narrative of Bitcoin's second layer has reached the bottom, and the enthusiasm is far less than a few months ago. Some people even think that the EVM-based Bitcoin second layer cannot prove its own value. Now many people have turned their attention to the concept of BTCFi. What do you think about this?

Jeffrey:As far as I have seen, many people have lost confidence in Bitcoin's second layer. Several projects were actively promoted in the Bitcoin ecosystem before, but now they don't even update Twitter. In fact, in the final analysis, most of the second-layer Bitcoin has not jumped out of the "WBTC-Ethereum" model, especially the EVM-based Layer2, which is nothing more than "locking assets on the source chain and minting mapped assets on the target chain". What is the difference between this and transferring Bitcoin to Ethereum through WBTC? Moreover, most of the cross-chain bridges of the second layer are not even as safe and reliable as WBTC. For Bitcoin, pure "capacity expansion" is a pseudo-concept and pseudo-demand. The real rigid demand is to expand its application scenarios. This does not mean that you can just build an independent public chain, build a bridge, and build something like WBTC. Babylon is a high-quality case that releases the potential of Bitcoin. It can enable Bitcoin to empower the economic security of the POS public chain and expand Bitcoin in terms of functionality. As for BTCFi, it is more about expanding the financial scenarios of Bitcoin, which is more detailed than the narrative of BTC Layer2 and has a more concentrated focus. There are so many BTC in the Bitcoin chain that are dormant for many years. Many old OGs would rather keep their Bitcoin in cold wallets than take it out to participate in financial activities. The root cause is that 1. Most platforms cannot really guarantee the security of assets, and 2. There is a lack of attractive things. If BTCFi matures, I believe it will change many problems in the Bitcoin ecosystem.

For Bool Network, we recognize the huge potential of BTCFi and Bitcoin itself. Now our main foothold is to unlock the asset potential of BTC in a Trustless way as much as possible. The case of Babylon has shown that many places in Web3 need the participation of Bitcoin assets, and there is still a lot of room for imagination in this area.

2. Faust: In fact, Kevin, the co-founder of Bitlayer, has also expressed before that many BTC big holders have the need to earn interest on assets, but the premise is that they must be placed in a safe enough place. Now many projects in the Bitcoin ecosystem are at risk. What do you think about the topic of asset security?

Jeffrey：Actually, asset security is a long story. Many people think that "users don't care whether xx project is safe or not", but the fact is that "users" who hold this idea are not high-net-worth. Many large users or large institutions attach great importance to asset security, and even tread on thin ice. Whether they are willing to place their assets on a certain platform depends on security.

Here is an example of Babylon. In fact, Babylon has a flaw that will prevent it from attracting large BTC users because of its penalty mechanism. In Babylon's mechanism model, my BTC provides economic security for a PoS application chain in the form of staking, and correspondingly, I will receive the token of the application chain as a staking reward.

But compared with the real BTC in my hand, the token of this application chain is actually a virtual currency. In the process of participating in POS Staking, my BTC may be confiscated, that is, the reward I get may be a bunch of air coins, but the cost is to lose real BTC, which is difficult for big players to accept.

Similar reason,because most BTCFi projects provide incentives to participants in the form of Alt Coins, if you want these people to pay attention to you, it is better to make what you do safe enough, which is the value of asset security.

3. Wu Yue: Let's get back to the topic of Bool Network itself. What is your self-positioning? From a technical point of view, how does Bool ensure asset security? I remember you said that the nodes participating in the threshold signature in the Bool network do not know the specific calculation content. How to achieve this?

Jeffrey：What Bool does is actually to provide trustless asset custody for BTC, and provide users with mechanisms such as forced withdrawals and escape hatches, so that BTC can safely participate in scenarios such as BTCFi.We provide BTC custody facilities for cross-chain bridges, Restaking, BTC-based stablecoins, oracles, on-chain trading platforms, etc., but the functions to be provided in these scenarios are not as simple as just taking BTC across and back.

To summarize more simply, because BTCFi almost all relies on off-chain components, when your BTC tries to interact with things off-chain, how can I ensure that BTC is still safe? This involves the way of asset custody. Most cross-chain bridges, trading platforms, and Defi platforms have asset custody as their core business. You need to give your assets to a third party for safekeeping and take them back when needed, but how can you ensure that the funds are not taken away or detained by the custodian? How can I force the withdrawal of Bitcoin back to the BTC chain without permission? These are all things that need to be considered.

For this,we have built a function similar to forced withdrawal/escape hatch on the BTC chain based on pre-signature, Taproot, and time lock technologies. Users can take the initiative over their own BTC and force the withdrawal of assets without trust at critical moments.

In addition,we have also proposed the concept of "dynamic hidden committee" based on ZK and TEE, referred to as "DHC".Here I will talk about the dynamic hidden committee DHC. First of all, Bool Network is a permissionless network based on asset pledge. As long as you buy specific hardware and add a certain amount of asset pledge, you can participate in becoming a node in the Bool network.

If there are 1,000 nodes distributed all over the world, how do I create a DHC? Suppose, now a certain asset management platform uses Bool's service, and needs Bool to create an MPC/TSS committee for it with a validity period of 10 minutes, and a threshold of 7/10 (simply understood as multi-signature with higher security), that is to say, 10 nodes are temporarily selected from 1,000 nodes to form a committee to do threshold signatures, and after 10 minutes, it will be disbanded and replaced by a new batch of nodes.

For this purpose, we created the Ring VRF algorithm and combined it with ZK for privacy protection. During the term of each committee, the identities of the 10 selected persons cannot be known, including the selected persons themselves (TEE is used for this).

This design has two advantages. First, because DHC is dynamic, temporary, and confidential, if you want to do evil, you have to hack or bribe 7 out of 10 people within a limited time, but because of privacy protection, you don’t know who these 10 people are;Second, because DHC members hide from each other, the problem of conspiracy to do evil can be circumvented, because each other’s identities are unknown, and naturally there is no way to conspire. Anti-conspiracy is very critical, because most centralized multi-signatures find it difficult to solve the problem of conspiracy to do evil, and our solution can be anti-conspiracy.

In this case, unless you hack most of the nodes in the entire Bool network, or crack the mechanism design of Bool.In other words, the security of asset custody based on DHC is basically equivalent to the security of the entire network.

Wu Yue: Can you elaborate on the use of TEE (Trusted Execution Environment)?

Jeffrey: TEE is actually a black box. Programs and data can be encrypted and stored and run in the black box. Even the device operator does not know what is running in the TEE.

We just said that Bool uses TEE. If TEE is not used, the node operator can observe the current DHC participant's account in a certain way, and even attack the election program itself. After adding TEE, it is equivalent to running the program and data in a black box. The node operator cannot know the account, key and other information sealed in the TEE.

Someone asked before, since you use TEE, why do you still use technologies such as ZK and MPC/TSS? In fact, it is mainly to enhance the overall security of the system. If I run a TEE-based node, and then if this node hangs up, because MPC/TSS itself has good fault tolerance, the network can still operate normally, that is, MPC and TSS can enhance fault tolerance properties based on TEE, and with ZK, the privacy of DHC and the parties can be protected to prevent collusion. In summary, we chose a composite technology such as TEE+MPC+ZK to ensure the security of the system to the greatest extent.

Many people criticized that TEE would use a more centralized remote authentication method. For example, if we use SGX, it will involve the influence of centralized companies such as Intel. But we implemented the remote authentication program in the form of smart contracts, and the authentication method can become decentralized (Scroll and Taiko also used similar ideas). Even if Intel has an accident one day, our program can still run.

Kai: I will make a supplement to this part. The program run by the Bool node is highly automated. The main function of TEE is to separate the confidential programs and data in the Bool client from the part of the program that is usually used for human-computer interaction. However, it will retain some basic functions, such as login and interaction interfaces. As long as the node is started, whether it is verification or submitting SGX Proof to the chain, the entire program is automated and locked in the TEE black box. TEE hardware will mark any information submitted by the Bool node to the outside world, making it easier for the outside world to verify whether the Bool node is running in the TEE. If it is not running in the TEE, the smart contract arranged by Bool on the chain will slash the pledged assets of the node. 4. Faust: Today, there are projects in the Bool ecosystem. For example, Hibit is going to build a decentralized order book trading platform, and it uses Bool Network and ICP as infrastructure to solve the problems of asset custody, data verification and asset snapshots.

In this regard, there is a trading platform called Degate, which has made itself into the form of Ethereum Layer2, similar to the Loopring Protocol. If you compare you with Degate and the Loopring Protocol, what are the similarities and differences?

Witter: In fact, this issue is related to information transparency and asset revocability. CEX has many shortcomings, such as the ability to misappropriate user assets, manipulate liquidity within the exchange and crash the market. Although DEX has largely solved these problems, it also faces the trouble of limited TPS and multi-chain liquidity fragmentation.

An ideal trading platform model is to have a centralized performance experience, while having decentralized trust, data verifiability, and the ability to connect the entire chain, including full-chain assets and full-chain wallets. Our goal is to become such a platform.

So how to achieve this? First of all, we have our own architecture similar to the hybrid of Layer2 and application chain. There are fixed sorter nodes in the Hibit network, and then there are hundreds of Validators, but there is no direct consensus between these nodes. They receive the latest transaction data from the sorter, execute transactions, and then package and generate blocks.

So how to ensure the consistency of data updates of different nodes? We have deployed Verifier smart contracts on high-performance public chains such as ICP and Solana, and directly let Hibit nodes send locally generated block headers to Verifier contracts. As long as the block headers submitted by most nodes are consistent, it is considered that consensus has been reached. The reason we do this is mainly to reduce the overhead generated by frequent communication between different Validator nodes and maximize TPS.

It is worth mentioning that we will synchronize the block header or Block Hash to the Bitcoin chain through methods such as OP_Return operation code, which is actually equivalent to anchoring Hibit's blocks and Bitcoin blocks to prevent rollback.

Faust: Here I want to ask, both Degate and Loopring protocols have forced withdrawal/escape hatch functions, which allow users to bypass the platform's permission and forcefully withdraw their assets from the trading platform. Do you have a similar mechanism design for this?

Witter: If it corresponds to the scenario of the trading platform, we have to consider some extreme cases, such as someone is censored and attacked, and the platform refuses to process someone's request. At this time, the user needs to forcefully withdraw the assets, and the escape hatch function is like this.

The escape hatch of Ethereum ZK Rollup depends on state snapshots, which means that if I want to forcefully withdraw my assets from Layer2 to the Ethereum chain, I must first show a snapshot of the asset balance to prove how much assets I have at XX time, so where these asset snapshot data are stored is a problem.

In response to this, Hibit has adopted a modular asset management solution. We store the balance snapshots of user assets on low-cost storage platforms such as ICP, IPFS or Arweave. When you need it, you can go to these platforms to read the data. I mentioned earlier that Hibit will record the Block Hash on the Bitcoin chain. Based on these Block Hash, you can check whether there is a problem with the state snapshot you obtained from Arweave and other places.

As for the forced withdrawal function, we built this part of the module on Bool Network, and can verify the asset snapshot through smart contracts on multiple public chains to confirm that you do have xx amount of money stored on the Hibit platform, and then you can force your own money to be withdrawn from Hibit's custodial wallet. The deeper details involve how the contract responsible for snapshot verification interacts with Hibit's custodial wallet. It is actually more appropriate for Bool Network to talk about this, so I won't expand on it here.

Faust: Here I have a question, how to ensure that Hibit nodes will send state snapshots to ICP and Arweave without being lazy?

Witter: The selected nodes are responsible for submitting snapshot data, as long as these nodes submit the data. It should be noted here that Hibit verification nodes must first submit the block header, let the Verifier contract on the ICP and Solana chains confirm the consistency, pass the verification, and then the dedicated node will go to ICP, Arweave and other places to submit the state snapshot corresponding to the block header. If it is not submitted for a long time, or the submitted snapshot and block header do not correspond, it will be slashed.

5. Faust: Next, please introduce your own project, Chainswift? It seems that you are working on a stablecoin protocol based on BTC? How is your mechanism design in general?

Buffalo:What Chainswift does is actually to allow users to pledge BTC to borrow stablecoins, similar to MakerDAO. But this kind of platform still has asset management attributes in essence, and BTC needs to be pledged to a safe address, which is the key. Bool Network can just provide this security. We can directly let Bool network provide MPC/TSS services and store BTC assets in the Bitcoin Taproot address hosted by Bool network. After users transfer BTC to this Taproot address, they can cross the money to other platforms to participate in the minting of stablecoins, etc. This is the general framework of Chainswift.

Faust: How do you choose the oracle used in the protocol?

Buffalo:To put it simply, the oracle is how to provide BTC quotes for a designated platform. On the one hand, we can refer to the quotes of WBTC in DEX with strong on-chain liquidity; on the other hand, we also need to select more than a dozen nodes, which can obtain quotes from off-chain data sources. Finally, we use the median algorithm to obtain a reasonable value, which is actually similar to the principle of Chainlink.

However, because it is an on-chain quote, the price curve cannot be as accurate to the second as in CEX, but it can be accurate to the hour level. If the price spikes in a short period of time, this median algorithm will automatically help to smooth it out, which will not cause problems with the liquidation mechanism. As for the liquidation mechanism, it is actually similar to MakerDAO.

6. Faust: Finally, let's talk about Bool Network itself. As far as I know, Bool Network is divided into two parts. The main part is the DHC alternative network mentioned above, and the other part is Bool Chian, which is similar to the beacon chain, which is specifically for DHC alternative nodes. What are the current entry barriers for Bool Chain and DHC alternative nodes?

Jeffrey:Bool Chain is an ordinary POS public chain built on the Polkadot Substrate framework. As for why Substrate is used, this is because among the consensus algorithms of the POS chain (simply speaking, consensus algorithms), Polkadot's consensus algorithm is the most decentralized and can support thousands of nodes; in addition, based on Substrate, we can directly reuse many of Polkadot's achievements, such as its relatively complete on-chain governance system, which facilitates our subsequent implementation as a DAO model.

Bool's DHC node is currently only based on asset pledge. You only need to purchase a device with TEE hardware, and this machine is also universal and the cost is not high. Although both nodes require asset pledge, in order to ensure decentralization, we will keep the pledge threshold as low as possible.