Litepaper V2 — Our Most Capable Wrapping Protocol

10 min readJan 29, 2024

Introduction
Protocol Objectives
Use Cases
Vision
Tokenomics and Utility (cNETA)
Architecture
Roadmap
Future
Conclusion

1. Introduction

The wrapped asset market remains a pivotal force within the cryptocurrency sector.

Foremost among these assets is Wrapped Bitcoin (WBTC), boasting a substantial market capitalization of $4 billion. The persistently high demand for quality wrapped Bitcoin products is apparent.

Protocols capable of efficiently providing these services on the Cardano blockchain are well-positioned to capture a considerable portion of the Wrapped Bitcoin market.

AnetaBTC V1

Our V1 protocol, which launched on June 16th, 2023, is currently the leading wrapped Bitcoin asset on Cardano, having successfully processed over 70 BTC in transactions, totaling well over $3 million of value safely through our protocol.

While we are excited by our V1 accomplishments, we are confident this only scratches the surface of what is possible.

AnetaBTC V2

Our V2 protocol improves several aspects of our V1 protocol, making our V2 protocol state-of-the-art technology, primed to easily allow for large sums of BTC to flow into the Cardano ecosystem — headlined by the ability to use the protocol from any Bitcoin wallet across the world, including directly from centralized exchanges such as Binance and Coinbase, which currently is the home of over 600,000 BTC.

In this litepaper, we highlight cBTC, its use cases, and its potential to revolutionize both DeFi trading and real-world business operations.

2. Protocol Objectives

Our protocol objectives are:

Allow anyone to seamlessly wrap and unwrap BTC into the Cardano ecosystem from any Bitcoin wallet and centralized exchange.
Provide Bitcoin holders easy access to decentralized finance tools on Cardano such as lending and borrowing.
Position the community to lead the direction of the project and ultimately have the project run entirely by global contributors without a centralized authority.

3. Use Cases

Our protocol is focused on 2 main groups of users: native crypto traders looking to maximize opportunities with their Bitcoin, and real-world business owners looking to leverage their assets to help fund and operate their businesses.

The 3 largest use cases for cBTC that we foresee are Lending, Swapping, and Everyday Transactions.

Lending and Borrowing — while BTC is the largest crypto asset class, the Bitcoin protocol is unable to natively facilitate lending and borrowing via smart contracts. With BTC on Cardano, DeFi traders can use their BTC as collateral to access new loans. BTC on Cardano facilitates longing and shorting various assets as traders deem fit. As well, real-world businesses will also be able to utilize their BTC as collateral for DeFi loans to secure working capital for their general operations without the need to liquidate their long-term BTC holdings.
Swapping and Trading — Especially during times of volatility, it is of crucial importance for traders to have the ability to quickly swap between different positions with deep liquidity. For example, it is common for traders to quickly want to take positions in and out of BTC. If a trader believes ADA will move up against BTC, a trader may want to be able to quickly sell their cBTC for ADA, without any tedious overhead or the need to go through a centralized exchange.
Everyday Transactions — cBTC for everyday transactions is simple and elegant. Cross-border transactions are timely and costly in the traditional finance world. Bitcoin helped solve this issue by allowing for cross-border transactions, however, cBTC is a Cardano native token that inherits the qualities of Cardano which fosters a secure platform for cross-border transactions that are far faster and with a significantly lower per transaction cost.

4. Vision

Our vision for AnetaBTC is to be a fully decentralized, secure wrapping protocol that allows Bitcoin holders to be easily onboarded into the Cardano ecosystem. This is highlighted by the ability for any user to easily mint and redeem BTC from any Bitcoin wallet, including centralized exchanges such as Binance and Coinbase.

Furthermore, we aspire to establish AnetaBTC as an organization entirely governed and managed by its community, aligning with the highest standards of decentralized finance. This entails implementing comprehensive on-chain governance mechanisms for transparent voting, instituting multi-signature protocols for the secure management of community treasuries, and engaging a diverse, global pool of development contributors.

The objective is to ensure that AnetaBTC epitomizes a wholly decentralized entity, devoid of any centralized vulnerabilities. Such a structure is anticipated to significantly enhance the project’s security.

All code will be open source, ensuring transparency and reproducibility, thereby guaranteeing the project’s operational longevity and resilience, independent of any singular entity.

5. Tokenomics and Utility

There is a total of 700 million cNETA in existence. The current tokenomics breakdown can be found below.

Tokenomics Breakdown

There are currently 14,057 cNETA holders on the Cardano blockchain.

With the 700 million cNETA tokens, this is the current distribution:

Public: 70% → 490,000,000 cNETA
Team: 20% → 140,000,000 cNETA, vested over 4 years
Community Treasury: 10% → 70,000,000 cNETA

150 million of the public cNETA is vested to NETA holders over 2 years, while the other 340 million cNETA is already distributed to the public.

We have been developing the NETA → cNETA transfer mechanism and expect to release the full development details within the next 2 weeks.

The community treasury has a war chest of 75 million cNETA if the community chooses to allocate it to future incentives, development, or however the community sees fit.

Token Utility

Staking.
Revenue sharing.
Governance.
Reduced wrapping fees.

cNETA holders will be able to stake their cNETA, earn revenue from the protocol and community treasury (if voted on), participate in governance, and take advantage of reduced wrapping fees.

6. V2 Architecture

Below is the first glimpse at our V2 protocol user interface. Using our V2 protocol, users can securely mint cBTC from any Bitcoin wallet, including the largest centralized exchanges in the world such as Binance and Coinbase.

Overview

Guardians boast a full duplex communication system, utilizing advanced web sockets for seamless connectivity. They utilize the sophisticated CIP-8 protocol for robust authorization, ensuring a fortified and secure exchange of messages.

In an innovative approach, the web client is meticulously designed to guarantee that each user employs a distinct BTC derivation path, fostering an environment of uncompromised security and individualized operation.

This meticulous separation of the minting and client aspects of the system provides an exceptionally high level of operational security.

This architecture not only enhances safety but also elevates the overall efficiency and reliability of the system, setting a new benchmark in the realm of secure communications.

A visual overview of our V2 protocol can be found below.

Our V2 architecture is as follows:

At a high level, the 3 most important aspects of the protocol are:

Our multi-sig schema, where Guardians control the minting/burning.
cBTC is minted each time and only when BTC is deposited.
BTC is redeemed each time and only when cBTC is burned.

To accomplish these tasks, we consider the consensus, minting, and burning mechanisms.

Consensus Mechanism

Guardians need to craft and submit the following transactions:

Mint

Reject/return UTXO to sender
BTC Consolidation
cBTC minting

Burn:

Reject/return UTXO to sender
Burn cBTC
BTC payment

We will utilize UTXO advantages in this stage by crafting deterministic transactions with deterministic rules where the BTC fee must be agreed upon, and all Guardians must use the same parameters to ensure determinism in forging.

Based on our design goals, Guardians should always create the same transaction. In the case, however, where Guardians create conflicting transactions we have several safeguards that can be used:

Guardians will only sign the transaction they crafted for an event, meaning that if 2 conflicting transactions are created, one will be accepted and one rejected.
We always consume a specific UTXO for any transaction ensuring double mints or redemptions cannot occur.
All transactions should contain a TTL (~4 hours), after that time has elapsed on-chain, guardians can safely retry the operation.
Guardians are started with a list of peers, IP or DNS, and mapping to the pubkey each peer should hold.

5. Guardians initiate connections with each other and handshake with verification messages signed via CIP-8.

The initiator sends a message → Receiver challenges → Initiator challenges → Connection established

6. Guardians propagate all transactions and signatures to all peers immediately upon creation.

7. Guardians Validate all signatures against the peer’s public key.

8. Transactions are submitted as soon as the signatures required are collected.

Minting Mechanism

User sends mint-request transaction containing:

A BTC address derivation path.
The amount of cBTC to mint.
2.5 ADA.

2. Guardians see incoming transactions:

If the competing mint request is using the same address or is malformed, reject/return UTXO to the sender, where we consider the potential attack by spamming multiple transactions with the same path in a single block with ‘Reject All’ solution.
Otherwise, start watching the BTC address for deposit.

3. Guardians witness BTC deposit to the address reaches the threshold and is confirmed (Mint amount fee).

Create 2 transactions, 1 on BTC sending the amount to the vault, 1 on ADA minting the cBTC.
Signatures are propagated via P2P connections between the watchers.

Burning Mechanism

User sends cBTC to the burn address, including his BTC address in the UTXO datum.
Guardians see the burn request transaction.

If the transaction is malformed reject/return the UTXO to the sender.
Craft the BTC transaction sending the funds to the user.
Burn the cBTC and include the BTC redemption transaction hash in the transaction metadata.
Guardians should verify that UTxOs they attempt to consume on BTC are always unique, and the selection process should attempt to be deterministic.

3. Guardians witness the burning is completed.

Sign and submit the BTC transaction

Early technical considerations:

Selecting an Indexer to use for Cardano → currently analyzing Ogmios (self-made indexer, which is recommended for independent hosting), Blockfrost, or Koios.
Finding an indexer to use for BTC.
Finding a BTC library for NodeJs.

Development Timeline

We estimate development will take 6 months. To be conservative, however, and temper expectations, we are tentatively going for a Q3 mainnet launch.

Our protocol is entirely open source and all code will be pushed to this repository.

Our V1 smart contracts are already open-sourced here.

7. Roadmap

V2 development has already commenced, and we suspect development will be deployed to mainnet by September 2024.

Here are the following steps we are planning.

V2 Testnet → Q2 2024
V2 Mainnet → Q3 2024
DAO → Q4 2024
AnetaBTC V3 → 2025

8. Future

Upon the successful implementation of our V2 protocol, our focus will shift towards the development of the V3 protocol. This new phase will draw inspiration from the Interlay protocol on Polkadot, reflecting our commitment to continuous innovation and improvement.

With the V2 protocol in place, we anticipate that AnetaBTC will have evolved into a fully decentralized protocol. Governed by the collective decisions of our community members, it will feature an open-source codebase, encouraging global contributions and collaborations. This decentralization will be further reinforced by mechanisms allowing the community to democratically appoint and remove guardians as needed.

The primary objective of the current Aneta contributors is to set a solid foundation for the project, ensuring that it can thrive independently of any single entity. Our role is to empower the community to lead the project’s future development, ensuring its resilience and long-term sustainability.

In the realm of decentralized finance, we foresee the growth of cBTC, driven by its ease of minting and burning through various platforms, including Bitcoin wallets and major centralized exchanges. This accessibility is a key factor in its anticipated expansion.

Additionally, we expect to see growth through real-world applications. There is already a rapidly growing interest in AnetaBTC across diverse global regions, including Argentina, India, and Malaysia. These emerging sub-communities are a testament to the protocol’s relevance and adaptability in various economic contexts.

cNETA is the driving force behind the AnetaBTC protocol and plays a crucial role in governance and revenue sharing, further anchoring the protocol’s value and significance in the broader cryptocurrency ecosystem.

9. Conclusion

AnetaBTC is dedicated to unlocking new possibilities with Bitcoin, aiming to enhance the quality of life for those who can benefit the most. We have successfully enabled global access to novel financial solutions, allowing individuals to use their Bitcoin for obtaining loans or executing fast, secure, and affordable cross-border payments through the Cardano network.

Our Version 1 protocol has established itself as a reliable Bitcoin wrapping protocol on Cardano, having securely processed transactions exceeding $3 million. This achievement reflects our commitment to providing secure and efficient financial services.

With the upcoming launch of our Version 2 protocol, we are poised to further integrate Bitcoin into the Cardano ecosystem. This development is an important step in our ongoing journey to deliver financial solutions that are both innovative and accessible.

We appreciate the support of everyone who has joined us in this endeavor. Your involvement has been instrumental in developing a secure, open-source, and decentralized protocol that contributes positively to the financial landscape of the global blockchain community.

For more information on AnetaBTC: