delvingbitcoin

Covenant tools softfork

Covenant tools softfork

Original Postby matthewjablack

Posted on: October 1, 2023 20:25 UTC

The recent advancements in the field of Discreet Log Contracts (DLCs) have led to significant improvements in both user interface and user experience aspects, particularly related to downloadable content.

A notable enhancement includes a 30x boost in computation speed, which is even more pronounced in multi-oracle setups. This improvement is crucial as it eliminates the need for exchanging signatures between parties, thereby addressing the bandwidth limitations that currently hamper DLC implementations. In practical terms, these limitations manifest as users having to generate, share, receive, and back up a considerable number of signatures with their counterparties. For instance, managing 5k Contract Execution Transactions (CETs) requires about 5mb for a single party, totaling 10mb when considering both the offeror and the acceptor. This process could take approximately 5-10 seconds on mobile devices for creation and up to 90 seconds or more for exchanging and backing up, cumulatively resulting in nearly 2 minutes to enter a DLC on a mobile application. However, with the new improvements, this time can be reduced to 10 seconds or less since the necessity to exchange and back up signatures is eliminated.

In addition to these technical improvements, the DLC ecosystem has witnessed growth in its community and adoption. Platforms like AtomicFinance, 10101 Finance, and Lava have seen significant traction over the past year, as evidenced by the statistics shared by Atomic Finance Stats last 6 months. These developments indicate a rising interest and engagement within the space.

One innovative solution to enhance DLC usability involves having a counterparty or DLC Service Provider (DSP) commit to a minor profit and loss (PnL) gain, such as 0.1%, for the user within the DLC. Should the user's PnL exceed this threshold, the DSP compensates the user outside of the DLC at settlement. This approach facilitates matching any seller with any buyer without necessitating significant capital lockup from the DSP, although it introduces some level of counterparty risk, deviating from the traditional no-counterparty risk feature of DLCs. Applying this model to Lightning Network (LN) DLCs could potentially broaden access to various financial contract types through a single channel opened to a DSP, marking a strategic shift in how financial contracts are approached within the DLC framework.