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Staking BTC script

Introduction

Babylon's BTC staking protocol turns Bitcoin into a staking asset with the aim to enhance the economic security of the Babylon chain. Bitcoin holders can stake their Bitcoin by locking them using a special transaction on the Bitcoin chain. The locked Bitcoin contributes to Babylon chain's economic security and generates yields for the Bitcoin stakers. The protocol has the following important properties:

  1. The staking is trustless and self-custodial, meaning it does not require bridging, wrapping, 3rd-party custody/multi-sig, or oracle.
  2. The stake voting power is delegatable, a common feature of Delegated PoS (DPoS) protocols.
  3. Stake security: the staked bitcoin is slashed if and only if the BTC staker itself (and in case of delegation, its delegatee) is malicious. This implies that, even if the Babylon chain is compromised and taken over by malicious actors, as long as the BTC staker itself (and the validator it delegates to in case of delegation) is not malicious, its bitcoin stake is secure.
  4. The protocol supports fractional slashing, meaning the protocol can be configured so that when slashing happens, only a fraction of the staked bitcoins are slashed, and the rest is returned to the staker.
  5. The protocol allows stakers to on-demand unbond, On-demand unbonding, means the BTC staker can withdraw from staking with an unbonding delay.
  6. Atomic slashing, meaning that if a delegator is slashed, then all the delegators of the same delegatee, including the delegatee's self-delegation, will be subject to slashing. In other words, the delegatee cannot selectively harm any specific delegator.
  7. (WIP) restakable, meaning that the same bitcoin can be staked to secure multiple PoS chains and earn multiple PoS yields

In the entire Bitcoin staking process, two parties are involved: one is called the Bitcoin Staker, and the other is called the Finality Provider.

  • Bitcoin Staker: A Bitcoin Staker is an entity identified by <StakerPk> in staking scripts. Note that a staking transaction can be funded from arbitrary UTXO, including those owned by multisig/MPC/threshold accounts. Thus, <StakerPk> is not necessarily the address of the source of the fund. Rather, it is the controller and beneficiary of the stake after its creation.
  • Finality Provider: A Finality Provider is the an entity that votes in the finality round to provide security assurance to the PoS chain.

The Bitcoin staker can choose a specific Finality Provider to delegate their voting power derived from their locked Bitcoin.

The key to making all these possible is special constructions of BTC transactions using BTC scripts.

Preliminary

Babylon interaction with Bitcoin is heavily based on Bitcoin's Taproot upgrade. This design choice was made due to the heavy usage of Schnorr signatures that were introduced through the Taproot upgrade.

Staking Flow

Following diagram shows how different transactions described in following paragraphs create and spend different bitcoin outputs:

stateDiagram-v2
    active: Staking output
    unbonding: Unbonding output
    state stake_slashing <<fork>>
    state unbonding_slashing <<fork>>
    burn_staking: Burn address output
    change_staking: Change output
    burn_unbonding: Burn address output
    change_unbonding: Change output

    [*] --> active: Staking transaction

    active --> unbonding: Unbonding transaction

    unbonding --> [*]: Unbonding withdrawal transaction

    unbonding --> unbonding_slashing: Slashing transaction
    unbonding_slashing --> burn_unbonding
    unbonding_slashing --> change_unbonding
    change_unbonding --> [*]: Withdrawal transaction

    active --> [*]: Staking withdrawal transaction

    active --> stake_slashing: Slashing transaction

    stake_slashing --> burn_staking
    stake_slashing --> change_staking
    change_staking --> [*]: Withdrawal transaction
Loading

Withdrawal transactions are btc transactions which transfer bitcoins to the btc staker wallet.

Types of special transactions

There are three special transaction types recognized by the Babylon chain:

  • Staking Transaction
  • Unbonding Transaction
  • Slashing Transaction

Staking Transaction

A BTC Staker gains voting power by creating a staking transaction. This is a Bitcoin transaction that commits a certain amount of to-be-staked bitcoin to Babylon recognized BTC staking scripts. These scripts lock the stake for a chosen amount of BTC blocks and enable other features such as unbonding and slashable safety.

The requirements for a valid staking transaction are:

  • it can contain arbitrary number of inputs
  • it can contain arbitrary number of outputs. One of those outputs must be a Taproot output committing to the BTC staking scripts recognized by Babylon. Henceforth known as Staking Output.

Unbonding Transaction

The BTC staker utilizes the unbonding transaction when they want to unlock their stake before their originally committed timelock has expired.

The requirements for a valid unbonding transaction are:

  • it contains exactly one input which points to staking transaction's Staking Output.
  • it contains exactly one output which must be a Taproot output committing to the BTC unbonding scripts recognized by Babylon. Henceforth known as Unbonding Output.

Slashing Transaction

The slashing transaction is used to punish a BTC staker when they (or the finality provider they have delegated to) perform an offense.

The requirements for a valid slashing transaction are:

  • it must have exactly one input pointing to either the staking output or the unbonding output
  • it must have exactly two outputs, the first sending the slashed fraction of the funds to a burn address specified in the Babylon chain's parameters and the second sending the remaining funds to output which can be unlocked by staker after the timelock
  • the fee for the slashing transactions must be larger than or equal to the minimal fee specified in Babylon's parameters

Staking and Unbonding output scripts

In the below scripts, there are three entities, each represented by BTC public key:

  • StakerPK - BTC staker public key
  • FinalityProviderPk - finality provider public key
  • CovenantPk1..CovenantPkN - public keys of covenant committee members There must be no duplicated public keys in created scripts. For example, StakerPK must never be equal to FinalityProviderPk

Staking output

The staking output is a taproot output which can only be spent through a script spending path. The key spending path is disabled by using the "Nothing Up My Sleeve" (NUMS) point as internal key. Chosen point is the one described in BIP341 i.e,

H = lift_x(0x50929b74c1a04954b78b4b6035e97a5e078a5a0f28ec96d547bfee9ace803ac0)

which is a point constructed by taking the hash of the standard uncompressed encoding of the secp256k1 base point G as the X coordinate.

The staking output can be spent by three script spending paths.

1. Timelock path

The timelock path locks the staker's Bitcoin for a pre-determined number of Bitcoin blocks. It commits to a script of the form:

<StakerPK> OP_CHECKSIGVERIFY  <TimelockBlocks> OP_CHECKSEQUENCEVERIFY

where:

  • <StakerPK> is the BTC staker's public key..
  • <TimelockBlocks> is the lockup period denoted in Bitcoin blocks. The timelock comes into effect after the Bitcoin transaction has been included in a mined block. In essence, the script denotes that only the staker can unlock the funds after the timelock has passed. It must be lower than 65535.

2. Unbonding path

The unbonding path allows the staker to on-demand unlock their locked Bitcoin before the timelock expires. It commits to a script of the form:

<StakerPk> OP_CHECKSIGVERIFY
<CovenantPk1> OP_CHECKSIG <CovenantPk1> OP_CHECKSIGADD ... <CovenantPkN> OP_CHECKSIGADD
<CovenantThreshold> OP_NUMEQUAL

where:

  • StakerPK is the BTC staker's public key
  • CovenantPk1..CovenantPkN are the lexicographically sorted public keys of the current covenant committee recognized by the Babylon chain
  • CovenantThreshold is a Babylon parameter specifying the number of how many covenant committee member signatures are required.

Signatures from a quorum of the covenant committee are required to ensure that this script is not used for on-demand unlocking without the stake going through an unbonding period. reward all covenant members for their work.

3. Slashing path

The slashing path is utilized for punishing finality providers and their delegators in the case of double signing. It commits to a script:

<StakerPk> OP_CHECKSIGVERIFY
<FinalityProviderPk> OP_CHECKSIGVERIFY
<CovenantPk1> OP_CHECKSIG <CovenantPk1> OP_CHECKSIGADD ... <CovenantPkN> OP_CHECKSIGADD
<CovenantThreshold> OP_NUMEQUAL

where:

  • StakerPK is the BTC staker's public key
  • FinalityProviderPk is the BTC public key of the finality provider to which the staker delegates their stake
  • CovenantPk1..CovenantPkN are the lexicographically sorted public keys of the current covenant committee members recognized by the Babylon chain
  • CovenantThreshold is a Babylon parameter denoting how many covenant committee member signatures are required.

This path can only be executed with the collaboration of the BTC staker, finality provider, and covenant committee. It is used in following way:

  • for stake to become active, staker must publish pre signed slashing transaction
  • covenant committee validates such transaction, and publish its own signatures.
  • the only signature missing to send slashing transaction is finality provider signature. If finality provider private key leaks due to infractions, anyone can sign slashing transaction and send slashing transaction to Bitcoin network.

Difference between Unbonding and Slashing Path

The main difference between the unbonding and slashing paths is the existence of FinalityProviderPk in the slashing path.

This leads to following system wide repercussions:

  • for staking request to become active, btc staker needs to provide valid unbonding transaction in this staking request. This staking request will become active only when CovenantThreshold signatures will be received by Babylon chain. Lack of FinalityProviderPk in unbonding path, means that after delegation becomes active, staker can send unbonding transaction any time without asking finality provider for permission.
  • existence of FinalityProviderPk in slashing path, coupled with the fact that btc staker needs to provide pre-signed slashing transaction which needs to be signed by covenant committee for delegation request to become active, leads to situation in which the only signature missing to send slashing transaction to btc is signature of finality provider.

Unbonding output

Unbonding output is a taproot output which can be only spent through script spending path. The key spending path is disabled by using "Nothing Up My Sleeve" (NUMS) point as internal key. Chosen point is the one described in BIP341 i.e H = lift_x(0x50929b74c1a04954b78b4b6035e97a5e078a5a0f28ec96d547bfee9ace803ac0) which is point constructed by taking the hash of the standard uncompressed encoding of the secp256k1 base point G as X coordinate.

Unbonding output can be spent by two script spending paths.

1. Timelock path

The timelock path locks the staker's Bitcoin for a pre-determined number of Bitcoin blocks. It commits to a script of the form:

<StakerPK> OP_CHECKSIGVERIFY  <TimelockBlocks> OP_CHECKSEQUENCEVERIFY`

where:

  • <StakerPK> is btc staker public key
  • <TimelockBlocks> is unbonding time. It must be lower or equal 65535, but larger than max(MinUnbondingTime, CheckpointFinalizationTimeout). MinUnbondingTime and CheckpointFinalizationTimeout are Babylon parameters.

2. Slashing path

The slashing path is utilized for punishing finality providers and their delegators in the case of double signing. It commits to a script:

<StakerPk> OP_CHECKSIGVERIFY
<FinalityProviderPk> OP_CHECKSIGVERIFY
<CovenantPk1> OP_CHECKSIG <CovenantPk1> OP_CHECKSIGADD ... <CovenantPkN> OP_CHECKSIGADD
<CovenantThreshold> OP_NUMEQUAL

where:

  • StakerPK is the BTC staker's public key
  • FinalityProviderPk is the BTC public key of the finality provider to which the staker delegates their stake
  • CovenantPk1..CovenantPkN are the lexicographically sorted public keys of the current covenant committee members recognized by the Babylon chain
  • CovenantThreshold is a Babylon parameter denoting how many covenant committee member signatures are required.

Existence of Slashing path in Unbonding output

The fact that slashing path exists in unbonding output means that even if staker is unbonding he can be slashed if finality provider commits infraction during unbonding time.