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Sova Protocol

😇 how sova protocol work

Recently, protocols based on Byzantine consistent broadcast have emerged as one of the mainstream consensus protocols, adopted by blockchains such as Sui and soon to be used by networks like Pod Network and Delta Network. This page introduces a design for constructing BTCFi using Byzantine consistent broadcast, leveraging Bitcoin (BTC) as the settlement layer and using BTC to ensure the finality and security of transactions.

By utilizing Byzantine consistent broadcast as the consensus primitive, the BTCFi protocol achieves both efficient execution and settlement. Moreover, we incorporate the NOIST multi-signature algorithm, which is a variant of the FROST protocol, enabling compatibility with BIP-340 for Schnorr signatures.

Protocol Implementation

In BTCFi’s Byzantine consistent broadcast consensus, we have three types of participants:

  • Validator Nodes: Responsible for the core of the consensus protocol—signing transactions. Any transaction within BTCFi must be signed by at least 2/3 of the nodes to be validated.

  • Observer Nodes: These nodes cannot sign user transactions but can access transaction data on the network. They retrieve transaction history from the BTC chain to get the latest state.

  • Users: Users interact with the BTCFi protocol directly using their BTC wallets. They do not need to install any node software or browser extensions to engage with the BTCFi protocol.

The user transaction flow follows this process:

PSBT State Broadcast

Since Bitcoin’s network uses the PSBT (Partially Signed Bitcoin Transaction) format, which allows for transactions to be signed or modified after construction, BTCFi uses PSBT as the certificate in its Byzantine consistent broadcast protocol. Users first construct a complete transaction locally, such as a transaction to deposit BTC in exchange for stablecoins. This transaction is then broadcasted to the BTCFi P2P network, where nodes verify the transaction’s integrity and security. If the transaction meets BTCFi protocol standards, nodes sign it. In a network with 3f+1 nodes, 2f+1 signatures are required. Once the PSBT gathers enough signatures, it can be broadcasted on the Bitcoin network for finalization. After confirmation, validator nodes update their internal state.

A core component here is threshold signatures. With Bitcoin’s Taproot upgrade, which introduced Schnorr signatures, building threshold signatures has become more efficient. BTCFi leverages the latest NOIST algorithm, which has several advantages:

  1. Non-Interactive: It doesn’t require signers to constantly interact with the server for signing requests.
  2. Single-Round Signing: Only one round is needed to generate a valid signature.
  3. Mutability: Signers can add or remove participants and adjust settings (e.g., the threshold) dynamically.

NIOST

This mutability ensures network scalability, allowing new nodes to join and expand the validator set as needed.

In this consensus protocol, users only need to construct PSBT transactions and can monitor their transactions on the Bitcoin network. Since almost all BTC wallets support PSBT transactions, and users are familiar with the Bitcoin network, there are no additional operational steps required. Users simply broadcast their transactions within the BTCFi protocol, collect signatures, and then broadcast to the Bitcoin network, ensuring transaction security through the underlying Bitcoin blockchain.

Transaction Security

For users, constructing a PSBT transaction is atomic and secured by the Bitcoin network. Once a transaction receives sufficient signatures, the PSBT is considered secure.

However, a potential risk arises if 2f+1 nodes collude within the consensus system, potentially causing significant asset losses for users. To mitigate this, BTCFi introduces TEE (Trusted Execution Environment) as the final arbitration mechanism. When nodes join the network, they lock BTC tokens using a Taproot script, which can be unlocked through:

  1. Multi-signature by 2f+1 validator nodes, or
  2. Signature by a TEE device.

In the event of transaction failures or asset losses, the TEE device can arbitrate the dispute by replaying all BTCFi transactions and using the TEE’s private key to sign forfeiture transactions if necessary. This allows the affected user to broadcast the TEE-signed transaction on the Bitcoin network to penalize the colluding validators and reclaim their assets.

Anti-Censorship Mechanism

Since there is a risk that BTCFi nodes could collude to censor transactions, we introduce the concept of forced inclusion. If a user’s PSBT transaction fails to receive sufficient signatures, they can use Ordinals to inscribe the PSBT data onto the Bitcoin blockchain. If the transaction complies with protocol rules, all BTCFi nodes are required to sign it. Should the forced inclusion process still fail, the user can trigger the final arbitration by TEE to penalize colluding validators.

BTCFi Protocol

In this section, we introduce a simple collateralized stablecoin issuance protocol (CDP) built on top of the consensus protocol.

In this protocol, users can perform the following actions:

  1. Collateralize and mint stablecoins: Users construct a PSBT transaction that deposits BTC and mints stablecoins.
  2. Repay stablecoins: Users construct a PSBT transaction to burn stablecoins and withdraw their BTC collateral.
  3. Liquidate under-collateralized positions: When a user’s stablecoin debt exceeds 90% of the BTC collateral value, any user can construct a PSBT to burn stablecoins and claim the collateralized BTC.

The protocol comprises the following components:

  1. Node component,
  2. Oracle component,
  3. On-chain BTC CDP collateral addresses, and
  4. Stablecoin minting factories on the Bitcoin network.

Each of these components works together to ensure the security and efficiency of the BTCFi network, providing a reliable and decentralized stablecoin issuance mechanism.