On April 30, 2024, the Bitcoin re-staking protocol Chakra announced its institutional financing from StarkWare, ABCDE, Bixin Ventures, CoinSummer, Cogitent Ventures, Trustless Labs, as well as angel investments from crypto OGs such as Shuai Chu, founder of Qtum, Wu Gang, founder of Bixin, and Yan, co-founder of Longhash. So what is the Bitcoin re-staking protocol Chakra? This article will help you understand.
Introduction to Bitcoin Scaling Solutions
With the successful listing of Bitcoin spot ETF, Bitcoin has entered the mainstream global financial market as an alternative asset. Therefore, the Bitcoin ecosystem is the narrative of this bull market. However, with the expansion of Bitcoin’s technical solutions and the introduction of various Layer 2 solutions, Bitcoin is also developing new narratives beyond just being a store of value, such as Bitcoin yield assets, decentralized finance (DeFi), and various decentralized applications based on the Bitcoin network.
Clearly, the massive market capitalization of Bitcoin, worth trillions of dollars, has not been fully financialized. Bitcoin holders have long been limited to centralized asset allocation through borrowing, facing high security risks and a lack of financial flexibility. From a technical perspective, the emergence of various Bitcoin Layer 2 solutions allows Bitcoin to participate in DeFi protocols as underlying assets, partially solving the trust issue with intermediaries. Below, we will compare various Layer 2 solutions and explain why Chakra is a better infrastructure for Bitcoin staking yield.
Sidechains
Sidechains are currently the main implementation of Bitcoin Layer 2. They are usually connected to the main chain through bidirectional cross-chain bridges, allowing assets to flow between them. Sidechains have their own consensus mechanisms and validation nodes, providing strong flexibility. However, their security fundamentally depends on the design of the bridge, which often requires third parties (such as signing nodes or MPC nodes), while BTC is hosted on the first layer.
Typical Bitcoin sidechain projects like Stacks execute smart contracts written in Clarity on the sidechain and settle transactions on BTC. Stacks allows the generation of multiple small blocks, called microblocks, on-chain, enabling miners responsible for confirming the current Stacks block to process more transactions during the time interval between two BTC blocks. When Bitcoin confirms the current block, these microblocks are also confirmed, and the next Stacks block will link to the current last microblock.
Lightning Network
The Lightning Network is a traditional Layer 2 scaling protocol for BTC, facilitating faster microtransactions. It consists of payment channels established through user signatures, forming a network for fast BTC transfers. The Lightning Network eliminates the need for BTC block confirmations and achieves near-instant transaction confirmations, solving the core pain point of BTC payments. However, it also has its drawbacks:
Funds Locking: Users need to lock funds in payment channels to use the Lightning Network, limiting fund availability.
Transaction Limits: The locking design of the Lightning Network makes it difficult to support large transactions, lacking usability.
Network Centralization: In order to improve efficiency and reduce costs, large payment hubs may emerge, increasing the risk of network centralization.
RGB
RGB is a Bitcoin-based smart contract system. It uses client-side validation to create and manage various types of assets on the Bitcoin network without sacrificing privacy and security. Compared to traditional blockchain smart contracts, RGB aims to provide higher scalability and flexibility while maintaining the decentralized nature of the Bitcoin network. However, RGB also has its drawbacks:
Complexity and Development Progress: RGB’s technology and concepts are relatively complex, and its development progress is slow.
Difficulty in Global State Confirmation: While RGB’s state transition diagram guarantees privacy, it cannot achieve globally visible transaction data.
Adoption and Network Effects: RGB requires significant adoption by users and developers to realize its potential value, which takes time.
Layer 2 Rollups
Rollup is a scalability technology defined by Ethereum (ETH) and also used for BTC. It “compresses” multiple transactions into a single transaction and submits the proofs to the main chain. Ideally, the security and finality of Rollups depend on the main chain. Due to the lack of smart contract functionality in BTC, BTC Rollups are not a complete concept of Rollups, as BTC cannot verify their proofs. Similar to sidechains, Rollups require cross-chain bridges to enable asset transfers between L1 and Rollup.
Typical Bitcoin Layer 2 Rollup projects like Citrea use off-chain verification with ZK proofs and on-chain challenges with ZK proofs. Security still relies on fraud proofs, so the security model is still the 1/N honest assumption of OP Rollup.
Why Chakra is Needed
When exploring existing solutions, introducing BTC into the ecosystem often encounters security vulnerabilities in bridges. Following the belief of “Not your keys, not your coins” by Satoshi Nakamoto, most BTC holders do not trust any third parties, whether decentralized bridges or MPC, which directly hinders further development of the BTC ecosystem. Therefore, introducing BTC into the ecosystem through self-custody aligns more with the BTC culture and requires some cryptographic magic.
Self-custody Staking and Re-staking
Bitcoin enthusiasts trust Bitcoin because of its high decentralization and strong security. Therefore, sacrificing the security of returns can be a major concern. Our solution allows Bitcoin holders to participate in staking without transferring assets out of their wallets, achieved through time-locked scripts, ensuring no third-party risks.
Chakra will truly unlock the potential of the BTC ecosystem, marking the first time that BTC can earn interest without trusting external third parties, seamlessly flowing trillions of dollars of value into the ecosystem. This is similar to what DeFi has done for ETH, which will lead to explosive growth in the BTC ecosystem.
Therefore, attempts like Babylon, which rely entirely on cryptographic methods and self-custody for BTC staking to kickstart L2, provide new possibilities for the BTC ecosystem.
Chakra aggregates signatures from a series of users through the MuSig2 protocol and generates time-locked UTXOs for staking Bitcoin for a certain period. Users do not need to transfer BTC to any third-party custody address but can achieve self-custody on the L1 layer through derived addresses. There are only two conditions for unlocking the staked BTC UTXO:
1. It can be retrieved after being jointly signed by the Chakra network, which may be initiated by the user’s request for early unlocking within the Chakra network, providing flexibility.
2. After reaching the initial set lock-up period, users will automatically regain control of their BTC. Even if the Chakra network ceases operation, users can still withdraw BTC in a timely manner without worrying about security risks.
The Chakra network ensures the security of staked BTC with re-staking proofs, allowing staked BTC to be validated in multiple places within the ecosystem. For example, BTC staked in Chakra can also participate in staking in Babylon, and the BTC liquidity tokens generated during the staking process can participate in DeFi and smart contract ecosystems within the network, making Chakra similar to Lido in the Bitcoin ecosystem.
Specifically, after users stake BTC through the Chakra protocol, Chakra will issue stBTC on L2 for users, and the staked BTC will be used to participate in staking in Babylon to earn returns. When users withdraw, destroying stBTC on L2 will release BTC and the corresponding Babylon yield.
Using ZKP to Verify Bitcoin Transactions
In Chakra’s solution, zero-knowledge proofs (ZKPs) are used to verify Bitcoin transactions. The Bitcoin staking events occur on the mainnet and have a lock-up period, and these ZKPs complete the trust process. These proofs can be verified off-chain, allowing access to staking information on-chain through a completely trustless verification method without the need to connect to the Bitcoin network or achieve security consensus.
Chakra uses STARK to implement the proof system, providing a solution for ZKPs without relying on trusted setups, enhancing security compared to SNARKs. ZK light clients can synchronize the proofs of BTC staking to all L2 networks that require BTC re-staking to ensure security, providing a universal solution.
Bringing Starknet Technological Innovation to the Bitcoin Ecosystem
Chakra introduces the customizable sorter Madara to the Bitcoin Layer 2 network. Madara uses the Cairo language to prove the execution of any program, making the Madara network itself more secure and efficient, as anyone can innovate proofs in a decentralized manner.
In addition, Cairo uses STARK technology to generate efficient ZKPs, making it efficient enough to verify large and complex computations while ensuring good scalability. As it does not rely on trusted setups, the STARK proofs generated by Cairo have inherent transparency and security. Essentially, CairoVM is a program that takes bytecode of compiled Cairo smart contracts and outputs an execution trace, which is a list of all steps taken during program execution. With CairoVM, Chakra can not only introduce the relatively complete ecosystem of Starknet to Bitcoin but also create new applications for the Bitcoin ecosystem with the powerful developer community of Cairo.
Tags:
ABCDE
Bixin Ventures
Chakra
Cogitent Ventures
CoinSummer
StarkWare
Trustless Labs
Bitcoin
Jinse Finance
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