Why Chakra is Needed

Janak9955

When exploring existing solutions, introducing BTC into ecosystems often encounters security vulnerabilities in bridges. Following the Satoshi belief of "Not your keys, not your coins," most BTC holders distrust any third party, whether it's decentralized bridges or MPC, which directly hinders further development of the BTC ecosystem. Therefore, introducing BTC into the ecosystem through self-custody is more in line with BTC culture, requiring some cryptographic magic.

Bitcoin enthusiasts trust Bitcoin because of its high degree of decentralization and strong security. Therefore, sacrificing security for yield could be a significant concern. Our solution allows Bitcoin holders to participate in staking without moving assets out of their wallets, achieved through time-locked scripts, ensuring there are no third-party risks.

Chakra will truly unlock the potential of the BTC ecosystem, marking the first time that BTC can earn interest without the need to trust external third parties, seamlessly bringing trillions of dollars worth of BTC into the ecosystem. This is similar to what DeFi does for ETH, which will lead to explosive growth in the BTC ecosystem.

Thus, attempts like Babylon, which rely entirely on cryptographic methods to stake BTC in a self-custodial manner to kickstart L2, provide new possibilities for the BTC ecosystem.

Chakra aggregates signatures from a series of users through the MuSig2 protocol to generate UTXOs with time locks, which can be "staked" with Bitcoin for a certain period. Users don't need to transfer BTC to any third-party custody address but can self-custody on L1 through derived addresses. There are only two conditions for unlocking the staked BTC UTXO:

1. Retrieval can occur after joint signing with the Chakra network, which may be initiated by users proposing an early unlocking request within the Chakra network, providing flexibility.
2. After reaching the initially set lock-up period, users will automatically regain control of their BTC. Even if the Chakra network ceases operation, users can still withdraw BTC in a timely manner without worrying about security risks.

The Chakra network is secured by BTC's re-staking proof, allowing staked BTC to be verified in multiple places within the ecosystem. For example, BTC staked in Chakra can also participate in Babylon's staking; liquidity tokens generated during staking can also participate in DeFi and smart contract ecosystems within the network, making Chakra similar to Lido in the Bitcoin ecosystem.

Specifically, after users stake BTC through the Chakra protocol, Chakra will issue stBTC for users on L2, and the staked BTC will be used to participate in Babylon's staking to earn rewards. When users withdraw, destroying stBTC on L2 will release BTC and the corresponding Babylon yield.

Jafar224

I don't understand the need for this either.

Kamal531

There must be reasons for the need.

Iravan774

Nice post.