BRC-21 Token Standard

Proposal for minting & redeeming fully decentralized, cross-chain BRC-20 tokens

Version 0.1 - May 7th 2023

Introduction

This proposal outlines a standard to mint and redeem BRC-20 tokens to/from Bitcoin that were first created on other "source" chains, such as Ethereum (ETH, DAI, ...), Cosmos, Polkadot, or Interlay.

The proposed method does not require trust in any 3rd party.

Technical Requirements

Custom indexer that validates the BRC-21 mint, transfer, and redeem operations om Bitcoin, as well as the contract state on the SOURCE chain.
SOURCE chain contract that handles mint and redeem operations on the SOURCE chain.
BTC-Relay: a BTC-light client implemented as a smart contract on the "source" chain, capable of verifying of inclusion of BTC transactions and parsing them. See e.g. here for a specification, here for a PoC implementation on Ethereum, and here for an audited production implementation in Rust on Interlay.

Use Cases

While using BRC-21 assets to represent ETH, DOT, SOL etc. on Bitcoin is possible, we believe the main use case that will emerge from this standard is deploying decentralized stablecoins onto Lightning Network or similar payment protocols.

Decentralized stablecoins (read this paper for a good overview of different models) like MakerDAO, Liquity, or RAI require sophisticated mint, redeem, and liquidation mechanisms to retain their peg. These protocols cannot be deployed directly on Bitcoin due to lack of programmability - and it is unlikely that this will change in the near future. Instead of investing time in engineering protocols onto Bitcoin that can be represented by a few lines of code elsewhere, we believe this fully decentralized method of minting and redeeming cross-chain assets to/from Bitcoin has a much higher chance of achieving mass adoption.

Definitions

CHAIN: the source chain, e.g. Ethereum or Interlay
COIN: token created/hosted on the source chain, to be minted as BTC-21 token on Bitcoin
bCOIN: BRC-21 representation of COIN
CONTRACT: smart contact on CHAIN that handles mint and redeem operations of COIN on CHAIN
BTC-RELAY: smart contract on CHAIN that is capable of verifying the Bitcoin main chain (incl. difficulty adjustments), verifying transaction inclusion, and parsing transaction data (specifically, extracting the BRC-21 witness data from P2TR transactions).

Protocol

Deploy on Bitcoin

The deploy operation stays similar to that of BRC-20 tokens, with minor modifications.

max field is made optional: max supply is defined on the source chain. Specifying it in the BRC-21 deployment is hence optional but can serve as a failsafe.
lim field introduced in the BRC-20 standard is removed for scalability reasons. Since BRC-21 tokens follow strict mint and redeem rules, there is no need to impose limits on how many tokens can be minted in a single transaction.
src field added to specify the chain from which we are "importing" the tokens. Can be a string such as "Ethereum" or a unique integer identifier (would require an agreed-upon directory)
id field added to act as unique identifier of the token on the source chain, e.g. the ERC-20 contract address on Ethereum. Alternatively, this can be a unique ID assigned to the ERC-20 token by CONTRACT

{ 
"p": "brc-21", 
"op": "deploy", 
"tick": "bCOIN", 
"max": "10000000" (optional), 
“src”: “CHAIN”,
“id”: “contract-address-on-CHAIN” 
}

Deploy on SOURCE chain

The deployment procedure depends on the implementation of the source chain. Requirements of the CONTRACT smart contract are:

Lock COIN token and emit "Lock" event
Unlock COIN token if and only iff a corresponding "redeem" operation was included in a transaction on Bitcoin. Uses BTC-RELAY to verify and validate (i.e. parse) the corresponding Bitcoin transaction.

This assumes a BTC-RELAY contract is already deployed on CHAIN or that CHAIN has built-in Bitcoin light client functionality. For requirements, see here.

Mint

Locks X COIN tokens on CHAIN and mints X bCOIN BRC-21 tokens on Bitcoin

The "mint" operation on Bitcoin is defined as follows (inscription):

{
"p": "brc-21",
"op": "mint",
"tick": "bCOIN",
"amt": "100",
"src": "CHAIN"
}

Inscribe a BRC-21 mint operation on Bitcoin, specifying the amount to be mined in the amt field and the source chain in the src field, e.g. 100 bCOIN from Ethereum
Lock 100 COIN on CHAIN and pass the inscription or transaction ID to the CONTRACT alongside a transaction inclusion proof. The simplest way to achieve this is to submit the raw Bitcoin transaction and the Merkle-Tree path proving inclusion in a Bitcoin block to CONTRACT which in turn calls BTC-RELAY to complete the verification.
Indexers will now accept the BRC-21 bCOIN as valid

Note: we create the Bitcoin transaction first as this is the easiest way to create a unique, 1:1 mapping between Bitcoin and the CONTRACT on CHAIN. Alternatively, a "request" transaction can be made on CHAIN, generating a unique ID that must be included alongside the Mint transaction on Bitcoin.

Transfer

Transfer operation remains the same as specified in the BRC-20 standard.

{ 
  "p": "brc-21",
  "op": "transfer",
  "tick": "bCOIN",
  "amt": "100",
}

Redeem

Burns X bCOIN tokens on Bitcoin and unlocks X COIN on CHAIN.

The "redeem" operation is defined as follows:

{ 
"p": "brc-21", 
"op": "redeem", 
"tick": "bCOIN", 
"amt": "1000",
“dest”: “CHAIN”,
“acc”: “account-on-CHAIN” 
}

The dest field specifies the destination CHAIN and MUST be the same as the src field in the mint operation. The acc field specifies the recipient account of COIN on CHAIN.

Inscribe “redeem” operation on Bitcoin, specifying amt, dest and acc
Submit raw BTC transaction and transaction inclusion proof to CONTRACT which in turn calls BTC-RELAY to complete verification
If BTC-Relay returns "true", the CONTRACT unlocks X COIN to the account specified in the acc field. BRC-21 indexers will now consider the X bCOIN as burned and will no longer track them on Bitcoin.

Changelog

May 7th 2023 12:40 UTC: version 0.1 completed

Last updated 1 year ago