DLC Attestor Theft-Proof Design and Risks

Key Takeaways  

• Unlike blockchains or Bitcoin Layer 2s (Ls), dlcBTC relies on DLC Attestors to relay information between the Bitcoin and Ethereum networks in a read-only mode, ensuring secure cross-chain communication. 

• By setting a high threshold for consensus, implementing a theft-proof mechanism, and selecting attestors from reputable industry leaders, dlcBTC raises the bar for attestor collusion.

• The financial stakes involved, including the loss of staked tokens and future revenue, strongly discourage dishonest behavior among DLC Attestors.

• dlcBTC's integration with Chainlink's POR system adds an extra layer of security, but still, anyone can verify a dlcBTC transaction since it’s on-chain data.

In our daily interactions with prospects, people often ask: since DLCs have an oracle, can dlcBTC be manipulated? 

The answer is NO since dlcBTC operates differently from standard blockchains and Bitcoin L2s. dlcBTC relies on a decentralized network of node operators known as DLC Attestors.

These attestors monitor blockchain events, approve DLC creations, and validate EVM blockchain outcomes, ensuring secure and reliable cross-chain communication without holding users' keys or having custodial control over the locked funds.

This article analyzes why collusion among DLC Attestors is highly unlikely, highlighting the economic disincentives, reputational risks, and technical safeguards in place to prevent such behavior.

Examining the Bitcoin Oracle Concept

First proposed in the original DLC whitepaper, a "Bitcoin oracle" involves a mechanism that determines the outcome of a bet between two parties.

In the dlcBTC implementation, this concept has evolved significantly. Rather than relying on a single oracle, DLCs are designed to involve human users entering into agreements with a protocol.

In this framework, the "Bitcoin Oracle" role is effectively divided into two components: a blockchain and a DLC Attestor.

The blockchain, typically a smart contract chain like Ethereum, emits events crucial for executing the DLC. These events are then read and verified by a DLC Attestor, which operates an Ethereum validator node.

The Attestor's role is to ensure that the event has indeed occurred on-chain before publishing its attestation.

This attestation confirms that the smart contract's conditions have been met, allowing the corresponding Bitcoin to be moved.

DLC Attestors function primarily as relays, translating signals from Ethereum to Bitcoin settlement instructions.

Their role is strictly read-only concerning the blockchain; they monitor, verify, and attest to events without the ability to alter the blockchain itself. This read-only mode of operation ensures they cannot manipulate the chain or the outcome of any DLC.

Verifying on-chain events and publishing attestations enables secure and reliable cross-chain communication, maintaining the integrity and trustworthiness of dlcBTC without holding users' keys or having custodial control over the locked funds.

Preventive Measures that Make Attestor Collusion Hard 

Reputational Risk

DLC Attestors are selected from reputable industry leaders, such as the Hashkey Cloud, OKX DeFi, DeSpread, LinkPool, Stakin, DexTrac, and Republic. These organizations have invested heavily to build their reputation on trust and reliability within the crypto space.

Engaging in collusion or dishonest behavior would severely damage their reputation, leading to long-term professional and financial repercussions.

The potential loss of credibility and trust in the industry is a powerful deterrent against any attempts to manipulate the system. 

A High Collusion Threshold

dlcBTC requires a high threshold for validation, where 10 out of 15 attestors must agree to validate a transaction.

The high threshold makes it extremely challenging for collusion to occur. Reaching consensus among such independent attestors would require significant coordination and cooperation, which is highly improbable.

The decentralized nature of the attestor network further adds to the difficulty, as attestors are spread across different organizations and jurisdictions, each with their interests and incentives to maintain the integrity of the network.

A Theft-Proof Mechanism that Secures Depositor Funds

Even if the attestors collude, they cannot steal the depositors' Bitcoin.

The DLC lockbox is designed with a theft-proof mechanism, where the funds can only be liquidated to the depositor's address.

This means that attestors can only delay the unlocking of the Bitcoin, potentially using it as leverage to demand a ransom. However, they cannot redirect or misappropriate the funds for themselves. 

Loss of Staked Tokens

DLC Attestors are required to stake a significant amount of DLC tokens to participate. Initially, the network will have a controlled number of attestors to minimize counterparty risk, starting with seven and expanding as decentralization progresses.

Any attestor found or suspected of engaging in collusion, they risk losing their staked tokens.

The financial stake serves as a strong incentive for attestors to act honestly and uphold the integrity of the network, as the loss of staked tokens would represent a substantial financial setback.

Loss of Future Revenue

DLC Attestors earn rewards through a combination of baseline rewards and a share of monthly buybacks of DLC tokens.

250,000 DLC tokens will be redistributed to attestors each month as baseline rewards for the first five years.

Additionally, dlcBTC will conduct monthly buybacks of the DLC token, redistributing a certain percentage to attestors based on their reputation scores.

Engaging in collusion would result in the loss of these future earnings, providing a significant disincentive for dishonest behavior. 

Integration with Chainlink Proof of Reserve

dlcBTC has integrated Chainlink's Proof of Reserve (PoR) to enhance security and transparency. The integration verifies that a UTXO has been funded before any dlcBTC is minted.

Chainlink's system provides additional smart contract verification on the dlcBTC token contract, ensuring that dlcBTC can only be minted up to the amount of Bitcoin reserves successfully locked in the system. 

This added layer of verification helps to maintain trust and transparency, making it even harder for any manipulation or collusion to go unnoticed.

Besides, any third-party service can still verify dlcBTC transactions. 

Conclusion

In conclusion, the dlcBTC network employs a robust and multifaceted approach to prevent collusion among its DLC Attestors.

By setting a high threshold for consensus, implementing a theft-proof mechanism, and selecting attestors from reputable industry leaders, dlcBTC ensures that the integrity and security of dlcBTC are maintained.

The financial stakes involved, including the loss of staked tokens and future revenue, further discourage dishonest behavior.

As a result, investors and users can trust the dlcBTC network to provide a secure and reliable solution for cross-chain communication and decentralized finance without the risks associated with traditional oracles, validators, or bridges. 

About dlcBTC

As a decentralized wrapped Bitcoin, dlcBTC leverages Discreet Log Contracts (DLCs) and Chainlink's Cross-Chain Interoperability Protocol (CCIP) to provide a theft-proof bridge to cross-chain DeFi, backed by the security of the Bitcoin network. dlcBTC unlocks yield for your Bitcoin in DeFi with the benefit of lower fees and merchant self-custody, empowering users to put their Bitcoin to work.

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