Aki Balogh: DLC Link – Self-Wrapped Bitcoin (dlcBTC). Ep. 526

Transcript

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that's figuring out a new architecture to bridge Bitcoin from Bitcoin to the other ecosystems like ethereum now of course a lot of projects have tried and implemented commercial systems to do similar things but they have a really cool AR ecture that minimizes the trust required in the bridging technology so uh please welcome Aki to the to the show hi Aki hey thanks for having me so tell us uh tell us first about how you entered into the crypto ecosystem into this mad house well I'm very happy to be here I came in full time three years ago uh I

guess just a quick background on me I've been a developer since I was like nine or 10 I went to a a computer science undergrad or actually instead of high school I did College college degree in CS and then BBA undergrad um and uh yeah I I was in AI for over 10 years actually I was an AI BC or machine learning Big Data VC when the nosql stuff started in 2011 so I got into data management then um I uh actually heard about Bitcoin in in 20 uh like 201 11 20 2012 actually but I didn't have the space to kind of the Mind space to get it then because I was building an AI company an AI marketing tech company called Market Muse which I founded and led for eight

years uh and so when I stepped away at Market Muse and you know we put a CEO in there to to run it uh I thought this would be the perfect time to to come to web 3 it's just the amalgamation of a lot of things that I was interested in uh Finance crowdfunding data management database Tech you know self sor empowering people you know giving people good options in also interior you know in developing countries I was born in Hungary in in a smaller town called Dean and we grew up in you know Boston and Michigan so it just all of it came together and finally had the mindspace to to get into the space and my father had been a scientist all his career and so also with Market Muse I just I found

my niches you know Finding technologies that uh that could really be developed into products and and figuring got how to productize and commercialize it um I did that with my last company I I am a co-author on two patents or or I guess I don't know what the term I have two patents in the uh area of topic modeling and semantic keyword analysis and so when I came to crypto I wasn't uh I wasn't a cryptographer I I don't think I I I have that uh background but um but I found this uh this opportunity this white paper that Taj at MIT had published uh and I met the DLC Community I met some brilliant people and I thought this would be an area where we

could you know uh I could help in and then uh I found my co-founder Jesse and then we've been kind of you know trying to be active members of the DLC Community uh for over two years now that's really cool uh I'm curious if you have any regrets switching away from EI to web 3 and then maybe one year into your journey chat GPD launched and such a huge AI boom kicked off it was funny that I yeah I was in AI when too maybe arguably too early before before this and uh and missed out on the big runup of you know Bitcoin and E I heard about both I just couldn't really

participate and then I came to crypto it crashed and AI went up it it's sort of the joke uh uh but um but you know I don't I I don't really honestly don't have regrets because I'm really focus focused on building things that add value for society I know that's always a like a thing Founders say but for me it's true uh that uh you know I I loved my my father's kind of love for invention and kind of primary research and you know basic research and and I always wanted to build things that just really make a difference and uh and you know I think AI uh helps in a lot of ways web3 helps in a lot of ways on some level these are all infrastructure and it's really about what we build with

these with these tools uh but I'm still somewhat involved with Sami companies uh actually our friend that introduced us on is heavy into AI we talk about it almost every week so um you know but I'm happy to be here and I just want to make a difference with you know with our work and that's we're we're getting a lot of that here and and I think the timing now is very strong because you know we've got the hab coming up we've got Bitcoin ETFs launching you know Bitcoin has sort of crossed the chasm it's in use by people in El Salvador and other places on a mass scale and and that's what attracted me to you know to to this you know to building on bitcoin quote unquote uh I think that the time has

come for this to be you know more easily usable than before right so you mentioned that uh you started out um meeting Taj um and the DLC Community DLC standing for discrete log contracts and that's kind of like the uh core pillar on which um your commercial efforts are further inventing on top of top of that so let's start there what is a discret lock contract and why were they invented yeah yes so t uh Taj also uh is probably most known for his other invention the lightning network uh so right before he published the lightning

white paper he published this white paper on dlc's entitled like smart contracts on bitcoin the the original idea was how can we you know add some sort of logic to bitcoin and he kind of you know proposed a math around it where basically you can have you know two parties Alice and Bob uh you know put some Bitcoin and make sort of a bat like maybe like a sports bat and then you have this offchain entity quote unquote Bitcoin Oracle uh Olivia the Oracle that decides who won the bat and then there's a you know cryptographic tach proposes a cryptographic way to to kind of uh to to execute this is so that the um so that for example The offchain Entity the

attester does not know who the parties are it's just signing uh you know outcomes or publishing attestations and then the parties uh you know uh they basically the big the big invention that we also utilize is when the when when the users deposit Bitcoin uh they pre-sign the addresses where it can go so you have pre redefined everything up front and uh and it's sort of a secure system and so there was a company called short bits uh Chris Stewart and nadav Cohen were primarily driving that and they had built the community around this they had implemented the first uh you know DLC technology uh and so they were really the thought leaders you know

driving these discussions and they had these monthly DLC kind of meetings and we would talk about this back and and and kind of implementation of it and so when we came into the scene that's those were the you know people we we met and it felt like there's a you know big opportunity here but also that Community was sort of running into some challenges because um there wasn't it was hard to get liquidity on it there wasn't like a market for sports betting with dlc's uh mostly because people didn't really know what dlc's are and uh and like how do you find your peers and you know what kind of bet and then who is this mysterious Oracle that just happens to know everything that was always a the

quote unquote Oracle problem um so so anyway we we just thought we could kind of you know as the new people coming in maybe give it some fresh eyes and uh and so we actually started looking at dlc's in a different way as a user locking Bitcoin with a protocol and the Oracle being like an oracle that we're familiar with like a price feed Oracle like chain link or pith and there being kind of a blockchain involved and and I can kind of describe that more but we basically repositioned you know the narrative and our understanding of dlc's and that's what we're building you know around now and I think that's what people will will find you know very actionable that's really that's that's

really cool so actually like if we wrap our heads around the traditional DNC as envisioned by T like if you ra heads around this sports betting framework that maybe he had in in in his mind while writing the paper and then it has this party which is the Oracle and then if we switch the Oracle from being a single centralized party to being a protocol uh when you make the jump from single centralized party to protocol that is when you get from discreet log contracts to DLC link um so maybe we first start with kind of

unpacking unpacking the original idea which is like a Sports bed so I'm kind of imagining this as let's say the two of us uh Aki and Mah A and M we want to bet I don't know let's say a Bitcoin on the outcome of a of a game so maybe it's a maybe it's a soccer match there two teams in the so I'm kind of imagining it as the two of us putting money into um into a transaction output so maybe I'm putting in one Bitcoin there and you're putting in one Bitcoin there and then the realization is that

at the end of the bed what can happen either two Bitcoin can come to me or two Bitcoin can come to you nothing else makes sense so in in a sense I sign a I sign a sort of um transaction but it's not a transaction I sent to the blockchain I I I signed something that says in some scenario in the future two Bitcoin could come to me I sign that and I also sign in some scenario in the future two Bitcoin could go to uh a Ai and you do the same and then these kind of

uh signed transactions require a signature from from some centralized party which is called an Oracle and this Oracle can kind of observe the match get the results of the match and choose the correct transaction to sign sign it and then resolve the bet on the Bitcoin blockchain is that of right yeah yeah that that's pretty much it um you can I I would just add in the original design too and and in the way some protocols use it you can have kind of virtually any number of outcomes right now we have seen as we have done this high as 10,000 outcomes so you could have you know one and a half and half and whatever different splits but uh but yeah we also

found that you you easiest way to think about it conceptually is like it all goes to Alice or it all goes to Bob that's a that's a very practical uh you know way to do it because then other data you know can be handled logic can be handled in more sophisticated places elsewhere so so that's a good example that's definitely you you stick with that and so yeah you you basically have these uh a set of outcomes I I also describe it like an if then else statement or if then statement so if this condition happens then send it to you know a I'll send to B you can do something like that and so these um these create these kind of preatures they're called cets contract uh execution transactions and basically

these are all predefined up front so uh you know both party both uh you know Alice and Bob signed them and then Olivia the Oracle has kind of a special role because the Oracle is not a party to the two of two multisig for security and privacy reasons of course but the the Oracle does publish there there's a Oracle announcement in the beginning which is like hey uh you know Alice and Bob basically choose the oracles so um and you can have one or multiple oracles and we could talk about that too but let's say Alison Bob ch use this particular Oracle publishes an announcement hey you know this is the Oracle and the the the Oracle uses this private key to publish like a number for

each outcome basically uh so you can think of it as just a number so you have you know outcome one outcome to they each get a non a one time use number and then the Oracle uses that non in conjunction with its private key to publish you know two public uh Keys you know for outcome one outcome two and later when the outcome is known the Oracle publishes it at this station which is basically just another number corresponding to whichever outcome one and then the the the again the Oracle is not a party to the multisig so Al what happens actually is the Oracle publishes this number into a public space and then Alice or Bob either Alice or Bob can grab that and you know and and execute

the transaction and then either Alice or Bob have to actually execute it the the gas fees were also paid upfront at deposit time but you know presumably whichever party is qual winning has the incentive to execute the transaction that's that's the base kind of DLC design so so that's really cool right like so of course we know that in in ethereum because you have a during complete ethereum virtual machine you could you could write how fund should be distrib uted in every outcome and Bitcoin lacks that but what discret log contracts are saying is in any Financial

interaction if you can Define the set of final outcomes and it's a finite set not an infinite set then you can use the finiteness of possible outcomes as a way to constraint train the system and through those constraints reduce trust in a centralized party right like that that seems to be the the essential Insight yes so so maybe you know um maybe you can take an example of a set which is like not finite where if I I had to create a coin running on top of Bitcoin

then uh how that the set of people owning that coin evolves is Maybe massive because new users that nobody knows what their addresses are have to appear and they have to get the coin set of outcomes is infinite may be hard to put into a DLC like format but a bet is something where because the set of outcomes is finite you can use that as a constraining mechanism to reduce trust yes exactly that that's exactly the idea so maybe the paper looking back of course with the benefit of five years of hindsight maybe the white paper was not actually you know it was called smart contracts on bitcoin but it was actually just an if then statement on

bitcoin but it's still quite powerful uh it's a you know kind of a low-level feature but this it does get into this idea of like an onchain escrow or nonchain kind of lock box which is which is extremely powerful given the utility of Bitcoin right so in in our case where it's like your A and M A and M lock their funds into a DLC and there's an oracle Olivia o and the Oracle is the one that's going to resolve the BET and A and M have already pre-signed the future outcomes that are possible with their funds what is the trust assumption on on n on o on

Olivia well that that was the other issue in this story is Olivia has to kind of somehow magically know all the outcomes of any kind of bet you might or you have to pick an Olivia that happens to know what that you know outcome is but how do you even measure an outcome if I'm measuring what the temperature is do I measure it this part of the house that part of the house am I outside you know you can have different real answers from different contexts or different perspectives so that's where we um that's why when we first started looking into this um we you know we actually reached out the chain link and uh just you know they uh you and you know kind of as a disclaimer we have a close

partnership with chain link they were our first investor via a grant uh because they also got excited about this theoretical idea of Bitcoin oracles but you don't need chain link to use a DLC there it's a completely different layer but they've been very you know Progressive and helpful so we reached out to you know to chain link and we realized well chain link strength as the strength of many Oracle systems is you have a diverse set of parties reporting quote unquote truth and they pick like a you know midpoint or some you know specific reference value and then that is used and and then that kind of guided us to well this is really less maybe less of a sports bed and more of a defi or financial tool because now you have

these prices and so you can do things with Bitcoin that trigger based on certain prices and so that kind of started moving us into Defi and then as we were doing that I mean a bunch of things happened uh last year but you know one was sort of any kind of centralized or trusted uh party was you know not not all of them but many of them kind of failed and and and uh you know kind of spectacularly and losing a lot of money so we felt that we're you know on the right track by enabling you know a decentral the more decentralization we can kind of build around this DLC concept you know the more people can benefit from it and that's kind of you know going what what what set us down the path we we have gone so in the in this traditional bet

example is it is it the case that the Oracle the Oracle cannot steal any of the funds because it's it's it the outcome of all the funds going to the Oracle isn't in the pre-signed outcome set in the first place so the Oracle cannot steal funds exactly the worst the Oracle can do is say is the users well I'm never going to publish this nons or this resolving information ever your funds are stuck so you'd better give me half of your funds to make them unstuck otherwise they always stay stuck and get zero so it get extort or by by it's like not being live

but it can't steal and that seems to be trust model here that that's right it's essentially like a form of smart contract risks or or risks uh but yeah the the Oracle can sensor the transaction uh which then pushed us of course in the direction of having multiple oracles uh you know where you have a threshold of you know 507 or or whatever um and and and that that will then reduce it and of course of course the more oracles presumably uh you know getting the data from you know reliable sources uh you know the the more that risk drops so so now like okay so in the beginning it's kind of like one party that's

that's running the Oracle and you're now moving into the space of okay not one party but seven or 9 or 11 or however many parties that together behave as the Oracle so that you can protect against this like liveness uh this this liveness problem so I so that that is that is something that's easy to understand but you're also using it to somehow Bridge Bitcoin over to ethereum which does not feel any obvious then obvious jump so how how does that work how does that P so yes so you know it it took us a while also to sometimes with technology and actually

this often happens in you know universities and research Labs you have a basic invention but the application is quite unclear so it took us also two years uh basically to to kind of go in that direction and it was a set of kind of aha moments uh collectively for our team so the first aha moment was well um if the liquidity doesn't exist between you know you and me doing this then maybe it should be a human interacting with a protocol like a defi protocol a simple example of that is g it would be great if I could just put my Bitcoin in a well maybe I could use a DLC to kind of enabled that uh in in some form uh so

so that was you know one one step but then uh you know another big aha moment was uh and this one actually happened recently for us is if you're locking in you know with the protocol then you might want an outcome where there's like a quote unquote liquidation where you know there's a second outcome where all the funds go to B you might want that but you might not want that um because you know in the case of for example and now getting into kind of our rap Bitcoin product the LCBC like we don't want to be ever in a position where we could rug the protocol you know we could rug the Bitcoin right that would not really scale uh or that would not be useful so so then we realized well wait a moment

we actually need to you know can can a can a person lock Bitcoin with themselves like is that possible and it it turns out it is because the there was another feature of the DLC which people had not really focused on where there's kind of a like a liquidation payout address so you can have U you know Alice puts in and obviously this would be then a one-sided BT uh DLC terms of a depositor so Alice puts in one Bitcoin Bob doesn't put anything because it's just a protocol and and there's outcome one and outcome two but in the case of outcome to the Bitcoin goes back to Alice and the so the Bitcoin goes back to Alice and both cases and in that case

uh Bob is what we call our protocol wallet uh where basically it's just an administrator for the DLC um and the reason you would want an administrator well a couple reasons but one reason is you know if the user like let's say the Bitcoin needs to go back to Alice but either Alice or Bob need to execute on that at the station we can't assume the user is going to be at their wallet but the but the protocol wallet can just constantly execute these uh and just you know actually make the Bitcoin move so so now you know the user can basically lock into this kind of lock box this kind of onchain escro where it's secured by Bitcoin not by another chain not by

another validator set whatever but actual just secure by the Bitcoin chain uh and then you know you can have any kind of implementation any kind of software uh determining you know what basically what options are presented to the user and how you know what governs the unlock and what you know what data source this Oracle kind of comes from and then we also had one last kind of insight there is the this thing that this offchain thing that publishes the attestation it's actually not an oracle if chaining or pith is the Oracle and chaining pith sends a signal to ethereum and ethereum smart contract fires a signal or an event and that goes to this

thing that what is this thing and so we very creatively because it publishes an attestation we called it an attester which is you know uh which is very very simple but effective and so the the attester actually gets a signal from a smart contract chain or a smart contract and actually can check it on chain that's another advantage of defi we realized is you know you can actually check and and validate on chain um before you publish the attestation so it takes out all the kind of it it reduces the the uh the you know the the issues that could go wrong with that uh tester and and basically so then you have this dlca tester or a testers uh and then we started building you know kind of around

that and uh and and it went from there and then that all all of that led us to this idea of you know why don't we have a bridge a DLC Implement DLC as a way to bridge Bitcoin to eth using this system where you're locking it with yourself you're quote unquote s self wrapping it's a term I meet up but you know you're self- wrapping you are the only person that can ever get the deposits and so you end up with this decentralized kind of escrow layer on on bitcoin where instead of sending the Bitcoin to somebody's deposit address or to a custodian or whatever to some pool you actually each individual deposit gets its own DLC and you have all these

DLCs you can see on chain they're all just you know utxo on chain and uh and then you can see the all the all the eth logic or the other smart contract Logic on the other chain and then you have this offchain ATT tester which doesn't make any decisions it's just translating a smart contract signal to bitcoin settlement instructions and that kind of gave us the architecture re have today that sounds really cool cuz like it's an attester it's not a single attester there are multiple ATT testers it's a multi of ATT testers but the ATT testers could not steal my Bitcoin and I am locking the Bitcoin on my side and I'm just locking it by

myself and then I'm getting something on ethereum and I can use that Bitcoin like a normal ERC 20 token on ethereum yes and then the ethereum protocol emits some kind of signal when I want to bring that Bitcoin back and the ATT testers are just translating that signal so that seems to be the advertised capabilities and they seem really awesome cuz the trust equation is like okay you are not you are trusting X Out of Y of these ATT testers to be live that seems to be the trust equation and the capability you get is you can migrate Bitcoin off to ethereum and I presume if you can do for

ethereum you can do for other ecosystems exactly exactly you can use it in the same way from any ecosystem which is quite quite powerful Bitcoin L2 is as as well and anywhere right so that feels very attractive the mechanism behind it I I don't understand it so maybe maybe like let's unpack that um let's unpack that a little slowly right so maybe the maybe the first question is kind of for a bridge to be effective if I have Bitcoin and I send some Bitcoin to whatever thing on this side it's a DLC let's say one Bitcoin

there and it goes on to ethereum if you assume I'm going to do useful things on ethereum then it will always be the case that that Bitcoin could remain half with me and half of it might end up with something else some other party it could be protocol like compound or it could be it could be maybe I made a payment on the CM or whatever so if that's going to happen but on bitcoin only I can someday recover the Bitcoin how can you have a pun punchable token on the ethereum side when I am the only party that could recover it on the

on the Bitcoin side yep yep so so that's a great uh that's a great point that we when we started talk there's also another related challenge which is like which eth protocol wants to manage a Bitcoin address uh and probably none of them are very few not none but very few you know so we came to you know we talked to Partners like Maple and and so on it's like hey you could have this and you could have even in a case of a liquidation and you could have this outcome to liquidation go directly to you but then you need you know a place to manage it and you have to do all this other infrastructure and Regulatory you know who knows what other implications

that would have and it wasn't like a really good pitch people are not excited about it and that's when we kind of that kind of led us to a simpler mechanism where you're just locking with yourself you literally just you're the you lock your Bitcoin and the fact that it is locked on on in this DLC which also kind of comes in with the built-in like proof of Reserve because you can see on chain is it lock you know open is it locked is it funded like you can see is it closed you can see all that on chain uh on Bitcoin at any time so so basically it's just this like self-locking mechanism um which which is like a little bit of a you know you know kind of Twisted idea

too to kind of wrap your head around because like we're all familiar with escro providers in finance when you're buying a house you put some money in escrow and if the deal goes through it goes through if not you get it back that's familiar but here the escrow provider is actually the chain itself uh the Bitcoin chain which is kind of cool um and I neglected to mention that all of this was like support for this stuff was really added a lot of it or some of it was added in Tapo like schnor and and and something called ptlc so Tapo was also kind of needed to make this you know viable or feasible but but basically yeah that that's it so basically in the LC BTC you lock uh with yourself and the presence of this lock

the fact that it's locked uh lets the bridge DLC BTC which you can use and then when you're you know done using it you can burn it and the burning action unlocks the Bitcoin and sends it back to you um and you know in the case of an a hack if the hackers hack the testers and they're publishing outcomes then then you just get your Bitcoin back earlier like it tanks the DLC BTC token which is not great so we don't want hacks you know if if like the hacker could kind of that the testers don't know who these parties are so they could kind of randomly unlock parts of the reserve behind the LCBC which is not good so security is still critical but in the

case of an attack you get your Bitcoin uh back and uh and and that's it uh and and so you're pretty much you know you're not left holding the back so to speak or you're not left neither us uh nor the you know nor another party could like drain the pool because there is no pool and and that's kind of the value out of it's a very simple application of dlc's there's no the second outcome basically doesn't really matter it's just the locking mechanism secured by these aners so maybe one way of thinking about it is that so in the beginning we are imagining this as like Alice that's kind of locking Bitcoin on one side and then printing an ERC token on the other side

and Alice is kind of like a retail user if you imagine Alice as not being a retail user but rather as a market maker of some kind right that this is a this is an individual like I don't know thousands of BTC it's not an individual it's a corporation with thousands of BTC in its treasury like Michael sailor company for example yeah M Michael we're uh we'd love to talk to you if you're listening and so when they print uh ethum on the other side uh um they basically they could sort of create kind of like a fungible Bitcoin coin on on the ethereum side and they can basically

have that coin transfer and and they are there to always make the other other side um so if the coin ends up in the hands of a different person and that different person wants that coin back into Bitcoin they could always go to this Corporation and kind of um get the Bitcoin back but then it becomes a trusted setup exactly exactly so no but you're exactly right so the the the depositors in this are uh like if you're familiar with wbtc Merchants they're like DLC BTC Merchants they are kyc that's also important for for

regulatory reasons there are like you know companies institutions that are exchanges Market makers Bitcoin depositors could be like Bitcoin miners companies that hold Bitcoin you know asset managers who hold clients Bitcoin like it can be any of those you know sources but it's important that you know they they set up these you know dlc's um and um and because there's sort of an an issue with retail because it's kind of an unusual maybe ux people are used to like a permissionless like peg in Peg out send the Bitcoin you know you send in one you get you know half fou or whatever this is not that you know this is clunkier so you can have something we call like quotequote DLC abandonment

where you know retail like or somebody pegs in maybe they lose their private key they've abandoned that that that is not not actually part of the Reserve at that point that is like fake uh you know kind of liquidity and if the the token drops and that could be issue if there's a lot of that so so the depositors end up being Merchants um and and then retail gets you know can use DLC BTC as a safer uh you know WRA Bitcoin than other Alternatives but then they should go to you know they need to go to a centralized exchange to redeem it which is exactly what I do with wbtc you know when I use it so um and and other forms so basically um uh yeah that that's kind

of that ends up being the the structure uh The Logical conclusion of this yeah okay so I actually know how to express the the limitation of the DLC link protocol and I'll express it so the issue here is because if you imagine party a depositing something on bitcoin and getting a DLC link Bitcoin on the other side and then the only party that can go back is party a itself and similarly if you imagine that interaction for party B there are two um two types of DLC link Bitcoin on the other side one from party a and one from party B and those two Bitcoins are not

fully fungible across each other because their origination uh DLC contracts have rights assigned to different parties and those different parties have different liveness risks the two Bitcoin on the other sides are not fungible with each other and go they cannot be represented as the same ERC token and and that is a limitation of of the protocol but that limitation is coming in ultimately from the fact that Bitcoin doesn't have a smart Contracting system yeah exactly it's it that's exactly right and actually not to further confuse the situation but you can

actually when you log Bitcoin in a DLC you can also represent it as an nft it's really it's really a unique uh you know locking and the nft can have the address the utxo where it's locked so but but the issue we ran into there of course is that you know D5 protocols aren't really set up for nft side and and even today people when people think of nfts 90 some percent of the time they're thinking of you know pictures and stuff and they're not yet thinking of it as a financial asset but I say that because developers who want to implement DLCs can Implement them as nfts and you can also you know do different things with ordinals and then have an ordinal back nftd but that's like you know nobody really it's very

you know it's like another mind WIP so so what we found was in order to make this interoperable it would need to be an erc20 but it would have that limitation that you you know you described where if Alice you know refuses to Peg out you know she doesn't have to but then the liquidity is less or if Alice cannot Peg out maybe the uh you know because of just not losing the private Keys a simple example um or if Alice you know pegs in and then you know changes like uh swaps the lbtc for usdt and then the price shoots up and now they have to spend a lot more to like Peg out that they might not want to Peg out because financially or economically so it it's kind of creates that

complexity so the solution can only be just institutions where they have you know treasury management strategies and they have uh you know professional kind of Risk Managers involved but for that audience it's it's very powerful because now you have a way where you where it the counterparty risk is not I cannot say it's zero but it's reduced to a significant extent it's trust minimized uh to a significant extent over other options and and that's very powerful you know in the Practical world we live in where there's all this you know Bitcoin that already exist and and or or all this liquidity and then more about coming in um it's uh you know it it

creates a powerful instrument or way for then that kind of takes us down the path of you know we can provide uh you know uh the user could use different financial instruments on you know evm and options and hedging and things like that treasury management things uh you know it through this mechanism with the you know and and there's no U there's there's physically no way the Bitcoin can be stolen that's sort of the if that's just the one headline we gain with this then then that's you know that's that's a big deal so maybe like the the way to picture the DLC protocol is when you when you imagine a party like I don't know coinbase could be one but it could also be like Bitcoin sweet

in Switzerland or Saba Bank on Switzerland or in the future um many like these companies that are building you know market makers or things like that so these companies can essentially take their Bitcoin from the Bitcoin network bridge them over to ethereum and this bridging process is quite trustless they need to rely on the liveness of these adders but they they only need to rely that on on a subset will remain live and so with with very low trust they can Bridge them over to ethereum and then these parties could be issuing

fully fungible Bitcoin ERC 20s on on on ethereum that in the end finally uh retail users would likely use to basically do anything they want to do in in defi that is kind of like the uh the end goal that your protocol uh could brings exactly exactly and and the the requirements for using this DLC BTC Bridge can be kind of more simpler or more uh easily accessible you know we just have to qualify that's an institution they have a way of safeguarding their private Keys you know kind of standard stuff um and and and then they can you know and obviously

with centralized exchanges the good thing about Bitcoin with exchanges is there's a lot of it already so they already have large amounts of Bitcoin so it's not like listing a new it is listing a new token it's a synthetic token but but it's a it's an easier one from a lot of uh standpoints and then yeah retail can then use it uh you know hedge funds you know can trade against it whatever you know it can be used in finan in different ways but uh but you just know that the underlying security model is a decentralized security model and not centralized uh and so there's less of that kind of counterparty risk uh and then yeah you still need like the exchanges and stuff to participate I

would probably say that that just is kind of a endemic to the financial system overall like if you know if if we are on one exch change and they refuse to redeem uh you know maybe we should have more exchanges you know we can kind of work with that but that with any kind of financial instrument uh you know at that point it's like an economic system and uh there are the good news is there are a lot of economic you know systems like that that we can you know leverage and risk management processes and even we can look at insurance and things like that right so presumably it should be possible to for kind of this financial institution uh that's that's doing this

this kind of bridg in to have a system where they Bridge from Bitcoin onto ethereum and it lands directly in some kind of Unis swap pool against usdc so as a retail user I could deposit usdc into the pool and get kind of BTC that institutional BTC directly into a transaction and then I can do things with that in B BTC so kind of like that that flow that hand over to the user is kind of like made really easy but the one thing that does that seems pertinent here is do you sense that there is

like there is like an argument here that you have one blockchain Bitcoin and then you have another blockchain bit and ethereum and if a professional company is moving stuff from this chain into that chain that they are a money transmitter and if they are a money transmitter then they are subject to various forms of regulation in the in the United States and one of which is to actually get licenses in 50 states and that being a difficult part of your protocol getting traction uh it's a great question and we worried about this a lot uh earlier this year until we realized that you of innovation I mentioned around that the

payout address of this uh like all the payout addresses basically can be set to the depositor so if there's no scenario in which we can never receive funds and the you know the funds are all directed by immutable smart contracts running on you know various blockchains and we also um I mean the the I think the the with any kind of of course you know crypto or financial protocol there's some risk you know this is a synthetic asset it has risks but the because the risk profile is really the attester uh so you know there isn't anything really on the Bitcoin side that would constitute money transmission and then the attester is just you know running software we made

to execute instructions it gets from a protocol that the user has chosen to trust uh and so the user has self- wrapped and chosen a protocol and that protocol is directing you know our node operator Partners you know the running there to kind of fire these instructions we are completely just a software you know provider in that definition there's you know I I don't I'm not a liyer so I can't say zero but there's near zero or like maybe on the list of like on the crypto Hit List we're at dead bottom uh most likely so so that seemed you know so then I can sleep you know well at night because I'm in I'm in New York and we take you know regulation seriously

especially because our uh you know our target market at our institutional Bitcoin depositors of course uh so we are reaching out to the cftc to you know kind of have conversations and get their initial feedback that kind of thing but on the other hand you know we kind of even just looking at chain link I believe chain link as the financial oracal provider is not subject to cftc or SEC you know regulation for that service so our a tester which doesn't even do that much uh probably is is quite safe but but we are you know proactive L there could be things we don't know as as Engineers so we are reaching out to the cftc cool so let's talk about kind of the the environment around this

technology what does your company look like and um how is it financed and yeah and how are you developing this this protocol yeah yeah so we you know I guess I would characterize our company as we have two two Focus areas uh and we have had this from from day one one is the commercial business where we are you know selling this uh this uh we're pitching the idea of uh you know Bitcoin holders institutional Bitcoin holders gaining yield or or buying you know Financial you know derivatives options hedging products or or taking loans on their Bitcoin in a safer way and we're

you know we're presenting that you know we're presenting the options obviously we're not a broker dealer so we're not like doing loans stuff but but we can just show that DLC BTC gets them a step closer to working with these protocols they want to work with in a safer way so so that's the commercial side and that you know we we also take a mint uh you know fees on mint and burn so when people you know peg in or Peg out we take a fee in Bitcoin so that's uh you know that's our business model um and then the we then have the community side where we just support the DLC Community kind of honoring short bits and and all the stuff that they did to set it up and all the other participants in the DLC

Community right now it's Atomic Finance 10101 lava there's like a few of these crew that have been around for years a TBO crypto garage like the and they've been do just working on this and and so we want to get more people building on dlc's we want to get more chains obviously you know on the on the community side I want to focus on every Every Chain uh Bitcoin l2s uh you know use this to enhance their their Peg in and Peg out into their ecosystem so we partner with them uh pretty much anyone you know ordinals um you know brunes BRC 20s uh you know whatever you want to might want to lock in a DLC you know to wrap it to get a representation on

another chain so you can do more advanced stuff like auctions lending you know all we want to support all of that um there's also some work that's been done on dlc's on Lightning so it could have tap assets so so we're just kind of a you know a um just a general uh you know advocate of dlc's there and then we can also leverage the infrastructure we've developed for to support the commercial side and make that available for developers that obviously a highly subsidized uh cost uh so you know you can access our tester Network there's there's other things that we built too like these these CS in the original design they were just stored in the and

Bob's wallets so we have you know other storage to provide redundancy so the cets don't get lost um you know Bitcoin wallet Integrations is actually probably most of our you know work is in order to actually do this DLC the Bitcoin wallet you can use any you know erc20 wallet doesn't matter just it's an erc20 it's fine but the Bitcoin wallet has to have a feature has to have a capability to to lock this DLC to actually create the DLC and do these signatures that requires something called adapter signatures so anyway um we build you know uh the DLC support using basically all open source stuff and stuff that we develop to to

make it kind of easier to to build in but we have sort of like a wallet SDK if you will uh for for plugging in so we have plugged that into leather wallet which used to be called hero and the xers and now we are hoping to talk to you know Ledger uh and okx wallet and so to to just have kind of widespread adoption of this DLC signing capability so that's also a you know big Focus that then benefits everyone who who wants to you know use TLC's so I think we made some good progress with those two wallets over two over 200,000 people use either leather or xers so that's a good start and then obviously once for our customer base once we're at Ledger at Treasure and any

kind of Hardware wallet then um you know then that then then those institutions can can create dlc's from there too so that's a big goal of ours in the next few months so what's the current status of the protocol and the so let's let's start with the protocol first the the attester network and the the code that you need on both sides ethereum side and the Bitcoin side what's serious thing yep yep the code is so we're live on testnet uh last Saturday actually we demoed the DLC BTC Bridge to um ABCD capital on investors and okx Ventures they had a Bitcoin hackathon and so we just I just yesterday posted the the

testnet demo on our YouTube channel so uh it's the first time it was shown publicly uh and uh the second time I had seen it so anyway we've got that in testnet um and um then in um uh so for the attester network we've got a couple of verbal uh uh commits from uh Republic in all nodes and this week through through you I met chorus one so we would love to have just top tier ATT testers we have in when we launch we're just going to have uh six ATT testers and assas the seventh uh so you know six individual attestation or S node operator companies and the main job of the attester is just to safeguard the private key that's that's the most

important thing uh so so that's why we're kind of uh you know reducing Risk by having six different ones um and uh obviously for some degree of censorship resistance uh in the future we might have a token that lets anyone running a tester and take the token and that would be a a broader set of decentralization um we're implementing also something called uh well the we're implementing an NPC solution potentially one called Frost but but it might just be a different NPC to where like if the tester has opened a DLC uh or participated in the opening of a DLC and has to leave the network work maybe the company stops doing this or goes bankrupt or something happens then another tester could take its place from

another provider and we can heal the the network so so that's the last feature we need to implement and we have already done one uh a smart contract audit through coin fabric now we are selecting the second smart contract audit firm so all of that together we should be ready to launch uh oh we're also getting uh verbal commits uh on the initial set of Bitcoin depositors for our initial set of merchants uh we have some investors who are you know who who have been early movers in Bitcoin like like Bitcoin miners like a water drip capital in Asia and and some other bit we have another Bitcoin whale who has invested so basically getting some Bitcoin lined up so we have some initial liquidity you know picking an L2 all of that we will

launch on in March uh so I think we're on track to to hit the March buch dat and then you know we'll start creating a curve pool and maybe other dexes and and having at least one uh centralized exchange and then having at least a market maker and kind of build up the ecosystem from there uh really cool so I'm I'm actually curious that like there's there's a space of a lot of protocols a lot of companies that have built bit Bitcoin bridges in the past uh who do you respect the most in these Alternatives yeah you know great uh great question I mean just in the in the space of Bitcoin Bridges I have to

really say hats off to threshold tbtc um you know that that team there um I was fortunate to work with someone from there for a few months uh uh just even helping think through this project and uh I think they they they have a a different system something based on the keep Network or keeps um which was I think invented like four or five years ago or developed but but they really in terms of you know their goal of having Bitcoin in eth for defi in a safe way I think that Vision we share that Vision uh so we're really big fans of of what they've done and and they also have done a lot of really smart engineering and

and and so on so it's really um it's really cool uh but basically you know we I mean we we try to be respectful to everyone but we we love people who you know don't see it don't see blockchains as sort of religions it can it can kind of go down that way and of course everyone if you are invested I mean one of the goals is of course to have ownership and when you have ownership in something of course you have some human biases where you favor that over other things that you don't know or are less familiar with but it should not as Elevate to the level of religions where you know they're Waring or so on you know so so anyone who you know wants to have Bitcoin and eth defi

or Bitcoin in salana or any other chain defi or you know defi rebuilt on Bitcoin in different ways also great you know anyone who's kind of you know is open-minded to two or more uh things uh we we we love those kind of inter uh interdisciplinary people um and and so and and so we also like to talk to developers a lot and people who are you know close to the engineering behind this stuff because I mean sort of simplified a lot of you know math and so on some of it I understand some of it I don't but there's a lot of you know the devil's in the details with engineering so um you know our our hope is that by giving DLC capability and infrastructure

to to a lot of smart people they'll come up with more unique and more interesting solutions that we haven't thought of so we see DLCs as as not it's not a layer two or anything but it's like a technology that people can build on and there's a lot of like building on bitcoin interest that's going on so I think we should you know really look at building on dlc's and and there as even in this call we mentioned several different parameters that are very impactful that you can choose on how you design the applications so you can have different applications and and that's great and we can support also sports betting not to poo that that's a big industry in in the real world so that's one thing or you know there's so many

others uh that we've heard uh especially when it comes to like ordinals and the new types of assets you can put in so anyone who's building and is open-minded you know we respectfully cool so if people are interested uh to connect to you or to the DLC link work uh where should they go yeah I would start with you know started our website dc. link uh and uh kind of an homage to the first company we partnered with chain link but again not strictly Affiliated uh from a technological standpoint although we respect them tremendously we are looking at chaining proof of reserves uh we're looking at chaining ccip so there's you

know there's there's a lot of you know partnership there but anyways start with DLC link uh our docs are they docs. dc. link also I usually recommend our videos uh we have a video on our own page it's one minutes long it explains it we have some blog posts around you know how does this at this station work in detail you know what are things you need to know about the testers what are things you can do like Advanced features this enables for ordinals people building with ordinals or other Bitcoin based assets you know we try to just have you know content that describes it uh we're also now making Chinese language a madin language content so that because now we're working with diverse audiences um

in the future we should have Spanish and other languages as well and uh yeah we're just you know drop us a line there's a chat bot you can join our Discord I'd be totally remiss if I did mention that join our Discord the link is on the bottom website there's also a a a a DLC Community telegram for engineers specifically interested in dlc's we'll put that somewhere on the site uh it's not there today but we'll we'll get it added and um and yeah just uh you know engage with us ask us questions come to our Discord ask questions uh and we're here to help cool good was great to chat with you Ai and I wish you the best of luck for for the upcoming launch thank you so

much just I'm I'm glad we got a chance to go through on a technical level because as you can see this is like a set of Meandering you know startup discoveries over two years so I appreciate you taking the time to kind of walk through the full picture cool and thank you to our listeners for tuning in to the to the episode I'll catch you in the next one