✨sBTC and Taproot
Diving into P2TR transactions to enable BTC -> sBTC conversion
The last Bitcoin soft fork in late 2021 enabled Taproot and Schnorr Signatures, so this inevitably lead many teams to research this functionality further, including the Stacks team with sBTC. Taproot scripts with Merkle Abstract Syntax Trees (MASTs) proved to be a potential gamechanger, and in this section we will explore how we can leverage a MAST with Pay to Taproot (P2TR) addresses.
Taproot Script
In the above image, we see an example of a P2TR transaction output. We could implement a transaction to be spendable if one of the scripts in the tree (Script A, B, C or D) are valid (i.e. if the owner behind these public keys signs them). The signers of these scripts could be a federated set of trusted ecosystem partners (e.g. Stacks Foundation, Trust Machines, ALEX team, Arkadiko team, ...). One or more of them could decide to sign the transaction and send the BTC to the sBTC peg-in address, or to some bridge that turns the BTC into sBTC/xBTC/STX.
The exact functionality and how to configure this is still an exercise we are running, but the advantages of this approach are clear:
It is the most flexible solution and allows for dynamic spending conditions
It leverages Taproot, a Bitcoin-native solution
On the other hand, it is currently not clear how this would decentralise the solution, since the actual P2TR transaction still needs to be built (by 1 or more people holding the private keys to the rewards address). Alternatively, the rewards address could be the sBTC peg-in address with some special parameters as the default, but this requires the implementation around sBTC to be final and live on mainnet, delaying the Liquid Stacking protocol by an indefinite amount of time.
We are still working through the following questions as it stands:
Can we build on top of a P2TR to make the process completely trustless?
When will there be sufficient liquidity to convert BTC into sBTC in a decentralised way?
Can we leverage the sBTC peg-in (vs relying on bridge liquidity)?
Can we leverage Clarity or a set of stackers/stakers to build FROST signatures that can build a P2TR transaction?
More information will be added to these documents as this part of the research becomes clear.
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