[dlc-dev] [bitcoin-dev] CTV dramatically improves DLCs

Lloyd Fournier lloyd.fourn at gmail.com
Sun Feb 6 08:18:11 CET 2022

Hi Jeremy,

On Sat, 29 Jan 2022 at 04:21, Jeremy <jlrubin at mit.edu> wrote:

> Lloyd,
> This is an excellent write up, the idea and benefits are clear.
> Is it correct that in the case of a 3/5th threshold it is a total 10x *
> 30x = 300x improvement? Quite impressive.

Yes I think so but I am mostly guessing these numbers. The improvement is
several orders of magnitude. Enough to make almost any payout curve
possible without UX degredation I think.

> I have a few notes of possible added benefits / features of DLCs with CTV:
> 1) CTV also enables a "trustless timeout" branch, whereby you can have a
> failover claim that returns funds to both sides.
> There are a few ways to do this:
> A) The simplest is just an oracle-free <STH(timeout tx)> CTV whereby the
> timeout transaction has an absolute/relative timelock after the creation of
> the DLC in question.
> B) An alternative approach I like is to have the base DLC have a branch
> `<STH(begin timeout)> CTV` which pays into a DLC that is the exact same
> except it removes the just-used branch and replaces it with `<STH(timeout
> tx)> CTV` which contains a relative timelock R for the desired amount of
> time to resolve. This has the advantage of always guaranteeing at least R
> amount of time since the Oracles have been claimed to be non-live to
> "return funds"  to parties participating
> 2) CTV DLCs are non-interactive asynchronously third-party unilaterally
> creatable.
> What I mean by this is that it is possible for a single party to create a
> DLC on behalf of another user since there is no required per-instance
> pre-signing or randomly generated state. E.g., if Alice wants to create a
> DLC with Bob, and knows the contract details, oracles, and a key for Bob,
> she can create the contract and pay to it unilaterally as a payment to Bob.
> This enables use cases like pay-to-DLC addresses. Pay-to-DLC addresses can
> also be constructed and then sent (along with a specific amount) to a third
> party service (such as an exchange or Lightning node) to create DLCs
> without requiring the third party service to do anything other than make
> the payment as requested.

This is an interesting point -- I hadn't thought about interactivity prior
to this.

I agree CTV makes possible an on-chain DEX kind of thing where you put in
orders by sending txs to a DLC address generated from a maker's public key.
You could cancel the order by spending out of it via some cancel path. You
need to inform the maker of (i) your public key  (maybe you can use the
same public key as one of the inputs) and (ii) the amount the maker is
meant to put in (use fixed denominations?).

Although that's cool I'm not really a big fan of "putting the order book
on-chain" ideas because it brings up some of the problems that EVM DEXs
I like centralized non-custodial order books.
For this I don't think that CTV makes a qualitative improvement given we
can use ANYONECANPAY to get some non-interactivity.
For example here's an alternative design:

The *taker*  provides a HTTP REST api where you (a maker) can:

1. POST an order using SIGHASH_ANYONECANPAY signed inputs and contract
details needed to generate the single output (the CTV DLC). The maker can
take the signatures and complete the transaction (they need to provide an
exact input amount of course).
2. DELETE an order -- the maker does some sort of revocation on the DLC
output e.g. signs something giving away all the coins in one of the
branches. If a malicious taker refuses to delete you just double spend one
of your inputs.

If the taker wants to take a non-deleted order they *could* just finish the
transaction but if they still have a connection open with the maker then
they could re-contact them to do a normal tx signing (rather than useing
the ANYONECANPAY signatures).
The obvious advantage here is that there are no transactions on-chain
unless the order is taken.
Additionally, the maker can send the same order to multiple takers -- the
takers will cancel each other's transactions should they broadcast the
Looking forward to see if you can come up with something better than this
with CTV.
The above is suboptimal as getting both sides to have a change output is
hard but I think it's also difficult in your suggestion.
It might be better to use SIGHASH_SINGLE + ANYONECANPAY so the maker has to
be the one to provide the right input amount but the taker can choose their
change output and the fee...

> 3) CTV DLCs can be composed in interesting ways
> Options over DLCs open up many exciting types of instrument where Alice
> can do things like:
> A) Create a Option expiring in 1 week where Bob can add funds to pay a
> premium and "Open" a DLC on an outcome closing in 1 year
> B) Create an Option expiring in 1 week where one-of-many Bobs can pay the
> premium (on-chain DEX?).
>  See https://rubin.io/bitcoin/2021/12/20/advent-23/ for more concrete
> stuff around this.
> There are also opportunities for perpetual-like contracts where you could
> combine into one logical DLC 12 DLCs closing 1 per month that can either be
> payed out all at once at the end of the year, or profit pulled out
> partially at any time earlier.
> 4) This satisfies (I think?) my request to make DLCs expressible as Sapio
> contracts in https://rubin.io/bitcoin/2021/12/20/advent-23/
> 5) An additional performance improvement can be had for iterative DLCs in
> Lightning where you might trade over a fixed set of attestation points with
> variable payout curves (e.g., just modifying some set of the CTV points).
> Defer to you on performance, but this could help enable some more HFT-y
> experiences for DLCs in LN

I'm not sure what is meant concretely by (5) but I think overall
performance is ok here. You will always have 10mins or so to confirm the
DLC so you can't be too fussy about performance!

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