Draft:DLC.Link

DLC.Link Inc. is a US-based blockchain company on a mission to make Bitcoin composable. It’s building an infrastructure that provides developers with a secure and decentralized way to create smart contracts on the Bitcoin protocol. The company was founded in 2021 by Aki Balogh, the CEO and co-founder of MarketMuse, and Jesse Eisenberg, a former software engineer at Pivotal Labs, MoPub, and Twitter. DLC.Link is based in North Andover, Massachusetts.

DLC.Link has two business lines: commercial and community. The commercial line aims to bring BTC to other chains via dlcBTC safely. The company’s commercial strategy involves generating yield through participation in liquidity pools, such as Curve, where trading fees contribute to returns. Besides, DLC.Link aims to generate yield by providing dlcBTC as collateral in lending pools, as demonstrated by platforms like AAVE.

On the community front, DLC.Link seeks to enable protocols and chains to integrate its infrastructure, allowing them to create their own Discreet Log Contract (DLC) experiences. Basically, a DLC is a special multisig unspent transaction output (UTXO) where users retain one key during a transaction. DLC experiences extend to supporting activities like Ordinals trading, exemplifying the company’s commitment to fostering diverse and customizable decentralized finance (DeFi) activities on the Bitcoin network.

Moving Bitcoin (BTC) With Code – Not Trust
Though BTC is the largest cryptocurrency by market capitalization, it can’t be used in DeFi directly. To use it on other networks, users rely on custodian banks and crypto bridges to mint synthetic assets, such as wrapped Bitcoin (wBTC).

Wrapped tokens lock BTC deposits with custodians or use smart contracts to mint synthetic versions on other networks. However, custodial wrapping and bridging of BTC often compromise the user’s self-sovereignty, privacy, and security – fundamental ideologies that form Bitcoin ethos. Moreover, crypto bridge hacks resulted in losses exceeding $1 billion in little over a year.

DLC.Link implements DLCs to enable BTC holders to use native BTC in DeFi without exposing themselves to custodial and bridging risks. The platform trustlessly locks BTC on-chain, from where it can be used on other chains, like Ethereum.

dlcBTC
Recently, DLC.Link announced its first commercial product, dlcBTC, an innovative solution that securely moves native BTC with code to other chains. The product will go live in early 2024 and help BTC holders seamlessly interact with popular DeFi applications, like Curve and AAVE, without needing custodians and intermediaries. DLC.Link’s infrastructure enables users to safely lock their BTC deposits in a DLC lockbox and mint dlcBTC out of self-custody.This innovative model safeguards BTC deposits using the full Bitcoin hashrate.

Moreover, the payout addresses are predetermined and locked at the deposit stage. This implies that in the event of a security breach, the attackers cannot redirect or drain the deposits, making dlcBTC a “theft-proof” Bitcoin scalability solution.

Step 1: Pre-funding Transaction
A user begins the minting/redeeming process by generating a pre-funding transaction. This is a time-locked and on-chain transaction that secures the user's BTC collateral using the full hashrate of the Bitcoin network. The integration with the broader Bitcoin network ensures that dlcBTC inherits the robustness and protection of the largest and most secure blockchain in the world.

Step 2: Transaction Creation for Attestors
Next, DLC attestors (similar to validators on traditional cross-chain bridges) create two partially signed Bitcoin transactions (PSBTs). The first is the funding transaction, which uses the UTXOs from the pre-funding transaction to lock the BTC collateral. The second transaction is the payout transaction, designed to make the dlcBTC minting/redeeming process theft-proof.

Step 3: Attestor Relays
The attestors play a crucial role in the dlcBTC architecture - they are relays between the Bitcoin and other networks. They play a pivotal role in ensuring the integrity of transactions by publishing their DLC “Announcements” and identifying which UTXO is a DLC. This action adds an extra layer of transparency and trust to the system, ensuring that all parties involved can verify the legitimacy of the transactions.

Step 4: ERC20 Token Preparation
After confirming that the user has locked BTC in the DLC lockbox, the attestor’s smart contracts interact with the other network’s smart contracts on-chain. During the interaction, the attestors perform a series of checks and commands in the other blockchain, effectively setting up the system to mint ERC20 dlcBTC tokens. The attestors' actions here are the bridge between the Bitcoin and other blockchains, enabling the locked BTC to be minted as ERC20 tokens, which are compatible with DeFi applications.

Step 5: ERC20 Claim Process
Once the dlcBTC tokens are minted, the user initiates the claim process. The process is a critical security step where the user must reveal the secret key they used to lock the collateral. The secret key is a unique identifier that acts as proof of ownership and authorization. By revealing this key to the attestors, the user engages in what's known as an atomic swap, a kind of digital handshake that ensures a secure token exchange.

Step 6: Transaction Conversion
The attestors, upon receiving the correct secret key, authorize the transfer of the newly minted ERC20 tokens to the user's wallet. They achieve this by converting the pre-funding transaction which until now has been like a check waiting to be cashed) into a standard funding transaction. This conversion process is meticulous and secure, ensuring that the original terms of the deal are met and that the locked BTC is ready to be returned to the user's control in the form of dlcBTC tokens.

Step 7: Token Redemption and BTC Release
After the user achieves their intended action with dlcBTC tokens, they can convert them back to BTC by burning them. The attestors observe the burn event on-chain and publish their DLC attestations. Once a threshold of attestations are published, the DLC unlocks. This mechanism ensures a consensus-based validation, adding another layer of security and trust to the redemption process.

Step 8: The Execution Phase
At this point, the user, utilizing their wallet software, initiates the final step. This action commands the transfer of BTC from the DLC lockbox to the user's wallet, completing the cycle of minting and redeeming within the dlcBTC architecture.

dlcBTC Primary Features that Distinguish It from Other Wrapped BTC Versions
These are the key dlcBTC features that distinguish it from other wrapped BTC forms, such wBTC in a table format:

Funding
In March 14, 2024 - OKX Ventures, the investment arm of OKX, one of the leading cryptocurrency exchanges, announced its strategic investment in DLC.Link. Foresight Ventures, Animoca Ventures, Cryptogram Ventures, Hailstone Labs, Lotus Capital, Web3.com Ventures, Michael Jin, Allan Matheson and Dae Lee also participated in this investment round.

In October, 2022, DLC.Link announced it had completed a $2 million pre-seed investment round. The investment round was headed by ABCDE Capital, established by a Huobi co-founder, and Comma 3 Ventures. DeFi funds Bixin, Contribution Capital, AlphaDAO, and DeSpread were the other investors. Bitcoin mining-focused firms like New Layer Capital, SBX, Gossamer, and Waterdrip also participated in the funding.

DLC.Link received strategic contributions from Chainlink, Stacks Foundation and Trust Machines. Chainlink was DLC.Link’s first investors through their foundation’s grant program. Stacks Foundation then awarded DLC.Link their maiden Partner-level grant.

Angel investors, including Charlie Songhurst (a Bitcoin whale and super-angel), Matt Barby (DeFi expert and podcaster), Saeed Al-Zaabi (formerly Director at the General Secretariat of Abu Dhabi) and Kieran Flanagan (CMO of Zapier) also participated the funding round through Sequoia Scout.