This method involves the use of covenant emulators and signing servers, where oracle signers are required to post bonds to BitVM auditors. These bonds are subject to a BITVM style fraud proof system, allowing for the seizure of funds if an emulator oracle signs a transaction that breaches the covenant rules. This mechanism aims to secure the system by ensuring that the value locked in the bonds exceeds the value locked in the covenants, which is deemed a feasible restriction for various Layer 2 (L2) applications. Specifically, it targets enabling low-valued transactions, referred to as "vtxo's", that facilitate the emulation of self-custody for small amounts, which would be prohibitively costly to move on-chain otherwise.

The proposal underscores the necessity of analyzing the relationship between the bond lock value and the maximum safe covenant value, alongside the fees paid to oracles versus the potential loss of liquidity. Such analysis is crucial for driving incentives for both potential oracles and users, suggesting that while this model may not be suitable for vaulting use cases, it holds promise for protocols like ark2 and enigma-network, which are designed to support small-value transactions at scale.

For those interested in exploring this concept further, Jeremy provides a link to the paper detailing the proposed approach to unfed covenants, available at https://rubin.io/bitcoin/2024/11/26/unfed-covenants/. This initiative represents a significant contribution to the ongoing conversation among Bitcoin developers about enhancing the flexibility and efficiency of Bitcoin transactions without altering the core protocol.