Multi-Party Computation (MPC) Network

The MPC Network

The Ducat Protocol derives its security from the Bitcoin network but enforces its metaprotocol rules through a Multiparty Computation (MPC) Network powered by the Flexible Round-Optimized Schnorr Threshold Scheme (FROST). This distributed node cluster functions as a scriptless multisig, producing a single aggregated signature that, combined with the user’s signature, secures Bitcoin collateral. This setup enables the issuance of UNIT debt while preserving Bitcoin's decentralization and security.

Role and Functionality

The MPC Network acts as a decentralized co-signer. It evaluates, reconstructs, and countersigns Partially Signed Bitcoin Transactions (PSBTs) submitted by users. The MPC Network ensures that all transactions comply with Ducat’s protocol rules, such as maintaining required collateralization ratios and validating liquidation conditions. Importantly, the MPC Network does not custody user collateral. Instead, it acts as a verification and enforcement layer, ensuring that protocol operations remain consistent and secure.

Vault Tokens and On-Chain Data Integrity

Protocol data is auditable through Ducat Vaults, with information embedded in transaction inputs and outputs. Each vault-related action includes an OP_RETURN output containing key data:

• UNIT Balance

• Oracle Timestamp

• Liquidation Price

• Threshold Hash

• Vault Action

• Protocol Version

These data points allow for the derivation of essential vault metrics, including collateralization ratios, issued debt, and ownership details. The Vault Token, held in the user’s wallet, references this on-chain data and supports seamless protocol upgrades, maintaining data integrity across protocol versions.

Liquidation Mechanics and Security Layers

Liquidations are triggered when a vault's collateralization ratio drops below the governance-defined Liquidation Threshold. The OP_RETURN output contains a RIPEMD-160 hash, which, together with oracle data, determines the pre-image needed to unlock the liquidation path.

Liquidation security relies on a multi-layered approach:

1. Oracle Blindness: Oracles provide price data without tracking individual vaults, reducing the risk of targeted manipulation.

2. MPC Oversight: The MPC Network acts as a backstop, verifying oracle outputs and using internal price references to prevent malicious liquidations.

3. Decentralized Indexing: Users can operate independent indexers to verify vault status and protocol adherence, enhancing transparency.

Decentralization and Transparency

While Ducat Protocol does not allow for unilateral exits (users cannot bypass protocol controls to withdraw collateral), it maintains transparency through:

• Decentralized Governance: Protocol rules are governed by DUCAT token holders.

• MPC Network Enforcement: Protocol compliance is maintained without centralized custodianship.

• Independent Indexers: Users can verify all on-chain activity, ensuring system-wide integrity.

The MPC Network is not merely a technical component; it’s the protocol's enforcement core, ensuring transaction validity, collateral security, and strict adherence to governance-defined rules.