Bitcoin Restaking Token Issuance and Settlement

To finance Bitcoin restaking, Lorenzo should be capable of issuing and settling Bitcoin restaking tokens.

Settlement of Bitcoin restaking tokens is not a trivial task. For example, Alice stakes 10 BTCs and gets 10 stBTCs in return. After some thoughtful trading, by the time Alice unstakes, Alice owns 15 stBTCs, which would be honored with 15 stBTCs. As a result, the settlement system should be able to take the 5 additional BTCs from other stakers and give them to Alice. This also indicates that the settlement system has to be able to move stakers’ Bitcoins around.

To achieve this capability, the straightforward option is to build a centralized settlement system for Bitcoin restaking. In this case, Lorenzo is the entity to freely move stakers’ BTCs around, without inherent guarantees to the stakers that Lorenzo will not misuse the BTCs under its management. Another option is to build a fully decentralized settlement system on Bitcoin Layer 1, which is the ultimate goal of Lorenzo in the long run. However, due to the limited programmability of today’s Bitcoin network, is it infeasible to build it any time soon.

As a result, Lorenzo adopts a third option, a CeDeFi way. Lorenzo will work with Staking Agents, i.e., a limited group of trustworthy Bitcoin institutions and TradFi giants, to issue and settle Bitcoin restaking tokens. When a user stakes to a ticker listed on Lorenzo, the user has to deposit BTCs to a Staking Agent and request the Staking Agent to stake to the project related to the ticker. The Staking Agent is then obligated to:

  1. Complete timely restaking.

  2. Upload restaking proof to Lorenzo.

  3. Issue LPTs and YATs for the restaking transaction on Lorenzo based on the rules defined by the ticker.

  4. Transfer the LPTs and YATs generated to the staker’s address.

Only qualified institutions will be whitelisted to take stakers’ BTCs for delegated restaking and issue LPTs and YATs. The whitelist is subject to change and misbehavior of a Staking Agent could cause the Staking Agent to be disqualified.

Staking Agents could create BLRPs to stake to specific projects and issue liquid restaking tokens when restaking to the BLRPs, the ID of the Staking Agent will be included in the agentId field of the BLRP.

When a YAT generated by the BLRP is unstaked, the project indicated in the BLRP will return the BTC principal and all accrued yield to the Staking Agent, and the staker should ask the creator of the BLRP to settle both the BTC staked and the yield received.

Lorenzo will be a Staking Agent as well, but if staker stakes with other Staking Agents, since Lorenzo does not have the permission to touch stakers’ BTCs, Lorenzo’s duty will purely be monitoring these Staking Agents and enforcing the rules in the BLRP. If there is any violation from the Staking Agents, Lorenzo will intervene to ensure proper Staking Agent behavior.

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