Problem
Research questions and friction points this paper is trying to address.
Bitcoin
DeFi
trust-minimization
programmability
custody
Bitcoin Smart Accounts: Trust-Minimized Native Bitcoin DeFi Infrastructure
🤖 AI Summary
This work proposes a native Bitcoin DeFi infrastructure that operates without modifying the base protocol, addressing Bitcoin’s inherent limitations in programmability and throughput while avoiding the trust risks of existing approaches that rely on majority-honest assumptions or centralized custody. By integrating Partially Signed Bitcoin Transactions (PSBT) to emulate covenants, Taproot scripts, a Trusted Execution Environment (TEE)-based arbitration mechanism, and smart contracts on a destination chain, the system weakens the trust assumption from “honest majority” (m-of-n) to “existence of one honest party” (1-of-k). The architecture enables users to use native Bitcoin as DeFi collateral while retaining self-custody, leveraging a smart account registry and the Lombard Security Alliance to provide liquidity. The design has been formally verified for correctness, security, and practical usability.
📝 Abstract
Bitcoin's limited programmability and transaction throughput have historically prevented native Bitcoin from participating in decentralized finance (DeFi) applications. Existing solutions depend on honest-majority thresholds, or centralized custodial entities that introduce significant trust requirements. This paper introduces Bitcoin Smart Accounts (BSA), a novel protocol that enables native Bitcoin to access DeFi through trust-minimized infrastructure while maintaining self-custody of funds. BSA achieves this through a combination of emulated Bitcoin covenants using Partially Signed Bitcoin Transactions (PSBTs) and Taproot scripts, a Trusted Execution Environment (TEE)-based arbitration system, and destination chain smart contracts that enable DeFi platforms to accept self-custodial Bitcoin as collateral without necessitating protocol-level modifications. The setup leverages liquidity secured by the Lombard Security Consortium which provides a twofold advantage: for a DeFi protocol, liquidators rely on fungible assets with deep liquidity to quickly exit positions, while for a depositor, the general trust assumptions of honest majority (m-of-n) are reduced to existential honesty (1-of-k). We present the complete protocol design, including the Bitcoin architecture, the TEE-based arbitration mechanism, and the Smart Account Registry for protocol management. We provide a security analysis that demonstrates the correctness, safety, and availability properties under our trust model. Our design enables native Bitcoin to serve as collateral in lending markets and other DeFi protocols without requiring users to relinquish custody of funds.
Innovation
Methods, ideas, or system contributions that make the work stand out.
Bitcoin Smart Accounts
trust-minimized DeFi
emulated covenants
Trusted Execution Environment
self-custodial collateral
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