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 InterlayCOIN
: token created/hosted on the source chain, to be minted as BTC-21 token on BitcoinbCOIN
: BRC-21 representation of COINCONTRACT
: smart contact on CHAIN that handles mint and redeem operations of COIN on CHAINBTC-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 byCONTRACT
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" eventUnlock
COIN
token if and only iff a corresponding "redeem" operation was included in a transaction on Bitcoin. UsesBTC-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):
Inscribe a BRC-21 mint operation on Bitcoin, specifying the amount to be mined in the
amt
field and the source chain in thesrc
field, e.g. 100bCOIN
from EthereumLock 100
COIN
onCHAIN
and pass the inscription or transaction ID to theCONTRACT
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 toCONTRACT
which in turn callsBTC-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.
Redeem
Burns X bCOIN
tokens on Bitcoin and unlocks X COIN
on CHAIN
.
The "redeem" operation is defined as follows:
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
andacc
Submit raw BTC transaction and transaction inclusion proof to
CONTRACT
which in turn callsBTC-RELAY
to complete verificationIf
BTC-Relay
returns "true", theCONTRACT
unlocks XCOIN
to the account specified in theacc
field. BRC-21 indexers will now consider the XbCOIN
as burned and will no longer track them on Bitcoin.
Changelog
May 7th 2023 12:40 UTC: version 0.1 completed
Last updated