Evolving the DLC Concept: Practical Innovations by DLC.Link

The original Discreet Log Contracts (DLC) whitepaper presented a fascinating theoretical framework for Bitcoin-based smart contracts. However, as we at DLC.Link have discovered, bringing these concepts into the real world necessitates critical design adaptations. This article explores the key deviations from the original DLC whitepaper in our implementation, illustrating how we're not just imitating theory but breathing life into it with practical, innovative solutions.

1. Bitcoin Oracle Reimagined

The DLC whitepaper envisioned a Bitcoin oracle as an all-knowing entity. In practice, we've broken down this concept into a trio of components: a price feed oracle (like Chainlink or Pyth), a recording blockchain (such as Ethereum), and our own DLC attestor. This attestor runs an Ethereum full node, observing on-chain events to publish attestations. This tripartite approach is more aligned with practical applications and real-world data sourcing.

2. Redefining Bob: From Human to Protocol

In the original Discreet Log Contract (DLC) framework, the setup involved two human participants, Alice and Bob, with each contributing Bitcoin in situations such as a sports bet. However, DLC.Link's implementation has transformed the concept by redefining Bob. Instead of being another human participant, Bob is now a protocol. This shift marks a significant deviation from the original model. Users interact directly with this protocol to lock their Bitcoin, mirroring the interaction patterns seen in contemporary crypto platforms like Curve and AAVE, where users engage with the protocol itself rather than with another individual.

3. The Concept of Self-Wrapping

Originally, both Alice and Bob would deposit BTC. In our practical application, only the human (Alice) deposits Bitcoin, while Bob, as a protocol, does not. This leads to a self-wrapping mechanism where Alice essentially locks funds with herself, enhancing the security and simplicity of the process.

4. Streamlining Liquidation Outcomes

The theoretical model of Discreet Log Contracts permitted scenarios where Bob, the counterparty, could receive BTC. In practice, this posed a counterparty risk, detracting from the self-wrapping feature's benefits. To address this, we've refined our DLCs to support a singular outcome: the return of BTC to the depositor. This modification guarantees that attestors, protocols, or third parties cannot collude or engage in acts of hack, theft, or fraud to misappropriate funds.

5. Adopting PSBTs Over Adaptor Signatures

The original whitepaper leveraged adaptor signatures, a feature not widely adopted by Bitcoin wallets. We pivoted to Partially Signed Bitcoin Transactions (PSBTs) to facilitate our self-wrapping mechanism. This change aligns better with current wallet technologies and user practices, allowing us to integrate more seamlessly into the existing Bitcoin ecosystem.

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At DLC.Link, our approach goes beyond merely replicating the theory of Discreet Log Contracts; we're reshaping it to fit the practical needs of the real world. Our design choices are a testament to our dedication to innovation, security, and functionality. We ensure that our implementation of DLCs is not just theoretically sound but also pragmatically robust, user-friendly, and compatible with the current workings of DeFi on Ethereum. By adapting the core concept of DLCs in this way, we're making it relevant and accessible in today's digital asset landscape, bridging the gap between theoretical models and the practical requirements of users and the broader DeFi ecosystem.