“Bitcoin is central to our club’s strategy,” stated Botev owner Anton Zingarevich. “We’re inspired by the global success stories of Bitcoin adoption and are excited to bring this innovation to Botev, our fans, and the city of Plovdiv. JAN3’s cutting-edge tools are instrumental in this journey.”

This collaboration introduces innovative measures to integrate Bitcoin into the club’s operations and engage with its fan base. The AQUA Wallet, developed by JAN3, also introduces “Botev Mode,” aiming to make transactions more accessible and efficient for fans and the local community.

JAN3 told Bitcoin Magazine that with the integration of their AQUA wallet, the idea is for the club to introduce discounts or even a cashback program for paying in bitcoin, and that “the club will also aim to educate Bulgarian fans that take an interest in Bitcoin, teaching them how to use it not only for team purchases but also integrate in their daily lives.”

As part of the partnership, Botev Plovdiv’s team jerseys will feature JAN3’s logo. The integration of the AQUA wallet into the club’s ecosystem marks a significant milestone in bridging the gap between professional sports and Bitcoin.

As part of the partnership, Botev Plovdiv’s team jerseys will feature JAN3’s logo. The integration of the AQUA wallet into the club’s ecosystem marks another milestone in bridging the gap between professional sports and Bitcoin.

“Very few things in life are as universal as football and Bitcoin,” commented JAN3 CEO Samson Mow. “With this partnership we hope to bring Bitcoin closer to football, and the billions of football fans around the world closer to Bitcoin. We have already seen what Bitcoin can do for companies and countries, now imagine what it can do for your favorite team.”

This partnership between Botev Plovdiv FC and JAN3 sets the stage for more pioneering Bitcoin-focused initiatives, solidifying the club’s status as a beacon for Bitcoin adoption and achieving greater success in UEFA competitions.

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Ever since the Bitcoin community embarked on discussions surrounding the optimization of covenants, there’s been a growing interest in learning more about their tradeoffs and the covenants already deployed on the Liquid Network.

In light of this renewed interest and to encourage further discussion, let’s review some of Liquid’s current covenant offerings, comparing them with the leading proposals on Bitcoin and examining their respective use cases.

History of Covenants on Liquid

Covenants on Liquid can be traced back to the deployment of the first Elements sidechain, Alpha. This sidechain introduced the opcodes OP_CHECKSIGFROMSTACK (CSFS) and OP_DETERMINISTICRANDOM along with a number of others to Elements. Alpha also enabled fixed versions of opcodes disabled in early Bitcoin, such as OP_CAT—an opcode many are choosing to revisit in the growing dialogue across social media. These new opcodes further improved the expressivity of the version of Bitcoin Script available in Elements, and a proof-of-concept Möser-Eyal-Sirer vault was developed utilizing CSFS to illustrate the new possibilities.

One of the learnings from implementing CSFS was that it makes covenants more complex by requiring transaction data to be pushed on the stack when performing a covenant spend. It was also observed from developer experience that with CSFS covenants, the transaction data that make up the signature hash has to be reconstructed on the stack, potentially forcing developers to push data irrelevant to the transaction inputs/outputs they are interested in.

To simplify covenant construction, more than 30 new opcodes called introspection opcodes were introduced in Liquid’s Taproot upgrade for a more modular approach. Introspection opcodes with CSFS, for example, enable the inspection of more granular parts of the transaction during a spend by placing it on the stack. This alleviates the responsibility of assembling partial transaction data via the witness and, therefore, the signature hash on the stack.

Leading Covenant Proposals

Currently, the Bitcoin community is discussing a laundry list of potential covenant proposals, including SIGHASH_ANYPREVOUT (APO), OP_TXHASH, CSFS, OP_CAT, OP_TLUV, the MATT opcode OP_CHECKCONTRACTVERIFY (CCV), OP_VAULT, and OP_CHECKTEMPLATEVERIFY (CTV). Simplicity, a next-generation scripting language that could implement functionality similar to many covenants at a lower level, is also a potential route for Bitcoin (we’ll revisit this later).

There has been a lot of talk about the VAULT opcode, which was created to address the need for easier ways to secure bitcoin for users. This opcode would allow coins to be locked in an address that can only spend to two addresses: a hot wallet after a timelock or immediately to a cold wallet. Several other variant schemes have been proposed, but they depend on adopting CTV first.

CTV is an opcode that reads a hash from the stack and compares it to a hash of a specified subset of the spending transaction’s data. Its flexibility promises to enable a diverse set of applications including but not limited to: congestion control, vaults, and rudimentary payment pools.

Apart from opcodes, there have been proposals for sighashes to enable covenants. The two most popular proposals for this purpose are APO and SIGHASH_GROUP. APO is an evolution of the SIGHASH_NOINPUT opcode, which is widely recognized as a prerequisite for implementing eltoo. One of the many improvements made possible with eltoo is the elimination of the penalty mechanism that forces the other party to forfeit funds when broadcasting an outdated channel state. This allows for a more user-friendly and efficient Lightning Network.

Achieving Similar Functionality with Liquid Opcodes

While Liquid doesn’t have the CTV and VAULT opcodes, it does have CSFS and CAT for covenants. By using these more narrowly defined opcodes with the aforementioned introspection opcodes, developers have opened up new financial possibilities with functionality similar to CTV and VAULT to augment the sidechain.

For example, Burak, a seasoned Liquid developer and creator of the layer-2 protocol Ark, has demonstrated an emulation of VAULT using Liquid covenant opcodes in one discussion with James O’Beirne on X.

Similarly, a way to achieve APO functionality was made possible with CSFS. This demo utilized various opcodes that would enable layer-2 protocols like eltoo on Liquid today but suffers from added complexity and a larger transaction size compared to the proposed usage of the APO-type covenant. Moreover, the construction doesn’t apply to Taproot transactions, which would introduce its own form of added complexity.

Liquid Opcodes in Action

Many applications have already taken advantage of covenant opcodes on Liquid. Steven Roose, a covenant proponent who recently defined a specification for the previously ideated OP_TXHASH, has developed an application for fidelity bonds on Liquid. This covenant is placed on funds that would be burned if evidence of a double spend is presented in the witness.

Fuji Money’s Fuji USD (FUSD), an algorithmic stablecoin developed by Vulpem Ventures is another notable example. It relies purely on oracle information to maintain its peg and can be issued in a decentralized manner. It uses a combination of signature verifications and introspection opcodes to accomplish this, and the most important part is it’s all auditable on chain.

Other applications of covenants on Liquid include options contracts and confidential asset-based loans. The Blockstream Research team released a whitepaper last year (see accompanying blog post) about the former, explaining how such an options contract could be constructed using the new set of introspective opcodes.These new opcodes allow users to trustlessly create tokens representing both sides of a covered call option contract and sell the opposite position they wish to take. Contracts made in this fashion also support partial fills, meaning the user who created the contract can sell positions representing a multiple of a user-specified minimum amount of the collateral asset, called the ‘contract size.’

Why Not on Liquid First?

As the Bitcoin ecosystem continues to have a healthy debate regarding covenant opcodes, Liquid offers its own set of tools, catering to similar objectives but with distinct implementations. As the dialogue evolves, it’ll be intriguing to witness the interplay between Bitcoin’s native proposals and Liquid’s already concrete and live covenant-related features and emulation of Bitcoin covenant proposals implemented using Elements Script.

Another new technology on the horizon is Simplicity, a verifiable programming language for the blockchain. The Simplicity language is defined by operations with very narrow semantics that can make expressive programs when composed together. The language is also verifiable, which means methods can be established to mathematically prove assertions made on Simplicity programs.

Simplicity’s expressive nature allows covenant opcodes from Script to be seamlessly ported, ensuring greater reliability and fewer unexpected behaviors. Bitcoin researcher Sanket Kanjalkar has already done this work for CTV. Using s-lang, a more readable Bitcoin-centric programming language that compiles down to Simplicity, he was able to replicate the semantics in a workable proof-of-concept available for anyone to try today.

Bitcoin developers will soon have the opportunity to use s-lang in a real environment thanks to Liquid’s integration of Simplicity, targeted for Q2 2024. s-lang will bring the construction of more complex applications to Liquid, such as vaults and delegation. The draft PR is available for review at the following link.

With a long history of Liquid as an early adopter of ideas that have been later ported to Bitcoin, a suggestion for those looking to showcase the viability of their proposals is to try it live on Liquid to validate ideas first—as multiple covenant-related opcodes have been shown to be emulatable using existing Liquid covenant and introspection opcodes.

So, the next time someone suggests a new covenant, it’s worth asking: why not try it on Liquid first?

This is a guest post by Randy Naar. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.

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Given the increasing transaction fees caused by Ordinals activity in the Bitcoin timechain, many Bitcoiners have sought alternative solutions to keep their transaction fees low during these periods. While Bitcoin Layer 2 options like the Lightning Network offer low transaction fees, it may not be practical for Bitcoin hodlers to migrate their entire holdings to Lightning, as many Lightning wallets are custodial, meaning users must rely on a trusted third party to hold their funds. While this custodial approach may be suitable for small amounts that users are likely to spend, many Bitcoiners will feel uneasy about not having self-custody of their bitcoin. Additionally, achieving self-custody of a substantial stack on Lightning would require significant technical knowledge and still necessitate dealing with the Bitcoin timechain. However, the appeal of low transaction fees has driven some Bitcoiners to explore alternative solutions.

A particular challenge faced by Bitcoiners who follow a dollar-cost averaging (DCA) stacking strategy is withdrawing small amounts, ranging from $5 to $100 worth of bitcoin, from exchanges to the timechain. This practice often leads to a buildup of numerous and small unspent transaction outputs (UTXOs), complicating coin control management and potentially leading to higher fees when combining UTXO inputs for larger transactions. Consequently, alternative low-fee options have emerged to address this issue.

Liquid-Bitcoin (L-BTC) on Blockstream’s Liquid sidechain and wrapped bitcoin (WBTC), an ERC-20 token on the Ethereum network, are two prominent alternatives that aim to enhance liquidity and functionality while, in theory, minimizing transaction fees. Let’s delve into the differences between L-BTC and WBTC, as well as the pros and cons of each:

Liquid-Bitcoin (L-BTC) On Blockstream’s Liquid Sidechain:

• L-BTC operates on the Liquid sidechain, which is a separate blockchain built on top of the Bitcoin network.
• Liquid employs a federated consensus model, where a group of trusted functionaries validate transactions on the Liquid network.
• L-BTC facilitates interblockchain transactions with other assets issued on the Liquid sidechain, providing enhanced privacy features and confidential transactions.
• Pros of L-BTC: Faster transaction confirmations due to shorter block times, improved privacy features, compatibility with other assets on the Liquid sidechain, and the ability to leverage Bitcoin’s liquidity in cross-chain transactions. Participants in the network can run their own node to verify proof-of-reserves and peg in their bitcoin into Liquid without the need for a federated third-party member. Liquid does not perform KYC / AML procedures for users to obtain L-BTC.
• Cons of L-BTC: Reliance on a federated consensus model, limited availability of “decentralized” applications compared to Ethereum, and the need for trust in the functionaries. Additionally, users require a federated third-party member to peg out from Liquid to the main chain.

Wrapped Bitcoin (WBTC) On Ethereum:

• Originally jointly initiated by Kyber, BitGo, and the now defunct Republic Protocol (REN), WBTC is an ERC-20 token on the Ethereum blockchain, utilizing Ethereum’s smart contract functionality to lock up bitcoin and issue WBTC tokens.
• WBTC’s governance involves multiple entities that form part of a decentralized autonomous organization (DAO), merchants who provide liquidity, a single custodian, BitGo, who holds the bitcoin reserves, and token holders who participate in voting.
• WBTC benefits from the extensive Ethereum ecosystem (if that’s what you’re into), enabling seamless interoperability with Ethereum-based decentralized applications (dApps) and smart contracts.
• Faster transaction transfers and cheaper fees compared to Bitcoin’s main chain.
• Pros of WBTC: Integration with the Ethereum ecosystem, wider availability of so-called “decentralized” applications, decentralized governance involving multiple stakeholders, and the ability to leverage Bitcoin’s liquidity within the Ethereum network.
• Cons of WBTC: Slower transaction confirmations and higher fees during network congestion on the Ethereum network, reliance on a single custodial entity for holding bitcoin reserves, and the need to trust the custodian. In contrast to L-BTC, WBTC carries less certain counterparty risk, as its governance is not as well defined. You cannot run your own node, and peg ins and peg outs are solely dependent on the WBTC merchants. Finally, WBTC merchants are required to perform KYC / AML procedures to verify the user’s identity.
• Note: WBTC has some limited use for those using the Tron protocol.

Regarding possible failures or potential risks, it’s important to note that both L-BTC and WBTC rely on trusted intermediaries and custodians for their operations. Failures in custody, governance, or regulatory compliance could pose risks to users’ funds or the stability of these systems. While there have been no major reported failures, risks exist and users should exercise caution and perform due diligence when engaging with L-BTC or WBTC.

It bears noting that 11 of the 15 Liquid Federation functionaries would need to collude in bad faith to rug-pull users from their pegged-in bitcoin, thereby, reducing the possibility of acting in bad faith. The way by which a rug-pull would take place in WBTC is less certain, but with only a single custodian of their locked-in BTC, a central point of failure is one of WBTC’s major weaknesses. What is evident is that for both L-BTC and WBTC, there are increased risk trade-offs from self-custody.

From a Bitcoin-only perspective, using L-BTC or WBTC may raise ethical implications, as it could be seen as deviating from the original vision of Bitcoin as a standalone, decentralized network. Bitcoiners could argue that tokenizing Bitcoin undermines the core principles of the network and introduces additional risks and complexities. They emphasize the importance of Bitcoin’s sovereignty, security, and censorship resistance.

However, proponents of L-BTC and WBTC may contend that tokenized versions of bitcoin can enhance liquidity, scaling, and functionality, thus benefiting the overall ecosystem. Both tokens could be alternatives that allow bitcoin hodlers to access the advantages of other blockchain networks — such as faster transaction confirmations, interoperability with dApps, and additional financial instruments.

WBTC has an advantage over L-BTC when accessing other crypto ecosystems and activity. However, Blockstream’s Liquid Network provides a platform where L-BTC can be exchanged for various digital assets, including stablecoins like USDT (tether) and L-CAD (Canadian dollar-denominated gift certificates issued by Bull Bitcoin). This feature enables users to access different digital assets and expands their options for trading, remittances, and other financial activities within the Liquid ecosystem.

Additionally, as per previous announcements, the Liquid Network will be utilized for the issuance of the El Salvador Bitcoin Bond (recently amended to a Volcano Mining Equity). This demonstrates the network’s capability to facilitate the issuance and management of tokenized financial instruments, further expanding the use cases beyond simple asset exchange.

Everything considered, L-BTC is a superior option compared to WBTC due to its distinct advantages over transaction fees and the speed of transfer times. While WBTC relies on the Ethereum (and Tron) network, which are prone to frequent congestion issues and high fees, L-BTC provides faster and more cost-effective transactions. By leveraging the Liquid Network, L-BTC offers low fees, quicker confirmations, and improved scalability, making it a more efficient and practical solution for willing bitcoin holders. With L-BTC, users can enjoy the benefits of Bitcoin’s main chain while bypassing the limitations and challenges associated with WBTC on the Ethereum network.

To make the most of L-BTC for the purpose of low fees, it is well-suited for short-term and medium-term holding strategies.

Three-Step Process To Leverage The Benefits Of L-BTC

1. Withdrawal from exchange to L-BTC: There are a number of exchanges which support L-BTC and allow you to withdraw directly to a wallet that supports L-BTC (Green Wallet or Aqua). This allows you to bypass additional conversions or transfers, ensuring that you retain the advantages of L-BTC throughout the process. An additional advantage is an option to store L-BTC in cold storage with a hardware device such as Blockstream Jade.
2. Wait for ideal UTXO denomination: Keep adding to your L-BTC stack until you accumulate a sufficient amount of satoshis to create a desirable unspent transaction output (UTXO) denomination. This step helps optimize coin control and simplifies future transactions.
3. Peg out using SideSwap or a similar service: When transaction fees are low you should peg out to reappropriate the funds back to the Bitcoin main chain. You can utilize a service like SideSwap, which facilitates the conversion of L-BTC to BTC, taking into account the conversion fee of around 0.1%. It’s important to consider this fee when planning your transactions to ensure accurate cost calculations.

By following this flow, you can effectively utilize L-BTC for short-term and medium-term hodling, and take advantage of its low fees and faster transaction confirmations. This approach can be particularly useful in a permanent high-fees environment, where L-BTC offers a cost-effective solution compared to on-chain Bitcoin transactions.

Currently, popular Bitcoin exchanges like Swan, Strike, CoinCorner, Relai, Amber, River and Bitonic do not currently have support for L-BTC withdrawals. However, just like many have integrated Lightning withdrawals, they will likely respond to a demand for L-BTC.

For Bitcoin hodlers seeking an alternative to the main chain, L-BTC offers a compelling option compared to WBTC on Ethereum. L-BTC’s advantage lies in its utilization of bitcoin itself, ensuring a closer alignment with the principles and vision of the Bitcoin network. By leveraging L-BTC, users can benefit from faster confirmations, enhanced privacy features, and compatibility with other assets on the Liquid sidechain. From the perspective of preserving the integrity of Bitcoin’s core principles, L-BTC stands as a preferable choice for Bitcoin hodlers seeking alternative low-fee options while maintaining a direct connection to the Bitcoin network. 

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In less than two weeks, the total value locked (TVL) in liquid staking derivatives has increased by 441,110 ether, worth roughly $793 million. While Lido Finance dominates the market with 74.35% of the TVL, competing liquid staking protocols Rocket Pool and Frax Ether have recorded double-digit gains of 34% to 42% in the past 30 days.

Number of Ethereum Locked in Liquid Staking Derivatives Nears 9 Million

Liquid staking protocols continue to grow, with the top decentralized finance (defi) protocols recording an additional 441,110 ethereum (ETH). As of May 12, 2023, the total value locked (TVL) in liquid staking derivatives (LSDs) stands at 8,872,715 ether, equivalent to $16.101 billion. This marks a significant increase from the 8,431,605 ethereum locked in liquid staking protocols on April 30. In just 12 days, the number of ether deposits surged by an impressive 5.23%.

Despite the recent addition of 441,110 ethereum, the TVL in LSDs is currently worth less than it was on April 30, owing to ethereum’s decline in market value. Back then, the TVL held in LSDs was valued at $16.139 billion, making today’s numbers a 0.235% loss, standing at $16.101 billion. Notably, Lido dominates the market with a 74.3596% share, accounting for 6.59 million ETH of the 8,872,715 ether locked in today. The second-largest LSD protocol is Coinbase Wrapped Staked Ether, with 1,145,137 staked ether.

This week, Lido’s TVL jumped by 4.87%, while Coinbase’s staked ETH value dipped by 1.47%. Rocket Pool witnessed an increase, with its TVL jumping by 5.27%. Frax Ether and Stakewise also saw gains, recording a 5.21% and 0.48% increase, respectively, in just seven days. Looking at the 30-day metrics, Lido’s value locked rose by 11.10%, while Coinbase’s staked ETH TVL saw a 3.95% reduction. Frax and Rocket Pool emerged as the 30-day leaders, with Rocket Pool surging by 34.37%, and Frax recording a 42.55% increase.

Rocket Pool is closing in on Coinbase in terms of the number of staked ETH, with 622,633 ETH locked, while Frax Ether only has 187,551 ETH locked. However, Rocket Pool’s deposits would have to grow by 84%, or more than 523,000 ETH, to surpass Coinbase’s number of staked ETH locked into the protocol.

What do you think the future holds for liquid staking protocols? Share your thoughts in the comments section below.

Jamie Redman

Jamie Redman is the News Lead at Bitcoin.com News and a financial tech journalist living in Florida. Redman has been an active member of the cryptocurrency community since 2011. He has a passion for Bitcoin, open-source code, and decentralized applications. Since September 2015, Redman has written more than 7,000 articles for Bitcoin.com News about the disruptive protocols emerging today.