Asset management

All stablecoins issued by a Ducat vault must be backed by at least 160% Bitcoin collateral. However, due to Bitcoin's current limitations, this level of collateralization cannot be managed exclusively through Bitcoin.

Limitations of Bitcoin

• No Transaction Introspection: Bitcoin lacks the ability to directly inspect transaction data, making real-time collateral verification impossible natively.

• Lack of Complex Arithmetic: Operations like OP_MUL and OP_DIV are not supported, as they were removed by Satoshi along with other opcodes.

These constraints mean that the asset management required to track the balance between issued UNIT and locked BTC cannot be handled directly on-chain within Bitcoin.

The MPC System Solution

To address this, Ducat has developed a Multiparty Computation (MPC) system, managed by actors external to the Ducat protocol. Their responsibilities include:

• Custodying a Share of the FROST Key: Each participant holds part of the key required for transaction validation.

• Processing User Presigned Transactions: Ensuring that each request complies with protocol rules as defined in the Master Canonical Reference Set (CRS).

The 2/2 Multisig Structure

All BTC collateral in vaults is locked in a 2/2 multisig:

• Key 1: Controlled by the user.

• Key 2: Distributed through the FROST network.

Benefits of Scriptless Multisig

• Signer Rotation: Allows for seamless signer changes without losing control over previously signed transactions.

• Resistance to Malicious Activity: Reduces the risk of bad behavior by decentralizing signing authority.

• Enhanced Security: FROST requires a larger threshold of participants to collaborate for any potential system compromise.

This system represents a significant improvement over traditional scripted multisigs, offering greater flexibility, security, and resilience.