Subject: [bitcoindev] Re: Un-FE’d Covenants: Char-ting a new path to Emulated Covenants via BitVM Integrity Checks

From: Erik Aronesty <[email-masked]>
Date: Sat, 30 Nov 2024 09:19:08 -0800 (PST)

like all other "incentive-driven honesty" proposals, it only works if the 
value locked in the bonds is greater than thevalue locked in the 
covenants.   but that's a reasonable restriction for many "l2" use cases, 
where the purpose of l2 is to enable low-valued "vtxo's"  that allow an 
emulated self custody of small amounts that would otherwise be too 
expensive to move on-chain

some analysis of the relationship between the bond lock value and the 
maximum "incentive-safe"  covenant value, and the fees the oracles are paid 
vs the loss of liquidy needs to be done in order to drive the incentives 
home both for would-be oracles and would-be users.

this is unlikely, for example, to be valueable for any vault-ing use case, 
but should be possible to enable ark2, enigma-network and other protocols 
designed to falicitate small-value-transactions-at-scale  

On Tuesday, November 26, 2024 at 7:21:03 PM UTC-8 jeremy wrote:

Esteemed Bitcoin Developers,

Sharing below an approach to implementing Bitcoin covenants without 
requiring native protocol changes. The approach uses covenant emulators 
signing servers.

Unlike approaches to date for covenant emulation, the oracle signers put up 
bonds to BitVM auditors subject to a BITVM style fraud proof, whereby their 
funds can be stolen if the emulator oracle ever signs a transaction in 
violation of the covenant rules.
you can find the paper here: 
https://rubin.io/bitcoin/2024/11/26/unfed-covenants/

Regards,

Jeremy

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