L1 Settlement
Bitcoin Layer 1 settlement provides the cryptographic and consensus foundation for all DotSwap Nexus operations. The protocol leverages three core Bitcoin primitives to achieve trustless multi-party coordination without introducing additional security assumptions.
Core Primitives
DotSwap Nexus builds upon Bitcoin's fundamental cryptographic and consensus mechanisms:
UTXO Model: Every transaction output represents verifiable ownership through cryptographic signatures, enabling precise tracking of asset states and ownership transfers
Multi-Signature Scripts: Native Bitcoin functionality requiring multiple parties for spending authorization, eliminating single points of control
PSBT Standard: Secure format for coordinating signatures across multiple parties before transaction broadcast, enabling complex multi-party transactions
Settlement Workflow
The protocol implements a systematic approach to transaction coordination that maintains security while enabling complex operations:
1. Intent Submission → User submits swap parameters with slippage tolerance
2. PSBT Construction → Nexus Composer builds transaction with multi-party inputs/outputs
3. Maker Signature → Liquidity providers sign their respective inputs
4. Taker Signature → User reviews and signs final transaction
5. Broadcast & Settlement → Transaction propagates to Bitcoin network for confirmationTrust Model
DotSwap Nexus achieves cryptographic trustlessness through systematic elimination of trusted third parties and reliance solely on Bitcoin's consensus mechanism.
Fundamental Trust Assumptions:
Bitcoin's consensus mechanism remains secure and operational
Cryptographic signatures provide reliable ownership proof
PSBT standard correctly implements multi-party transaction coordination
Trustless Operation Mechanisms:
Asset Custody
Funds remain in user-controlled wallets until atomic execution
Users verify ownership through private key control
Transaction Execution
All operations embedded in verifiable Bitcoin transactions
Complete blockchain transparency and auditability
Price Formation
Aggregated from publicly declared curves
Real-time verification through node operation or API queries
Settlement Finality
Bitcoin consensus provides irreversible confirmation
Standard block explorer verification
User Verification Capabilities:
Independent Node Operation: Users can run personal Bitcoin nodes to independently verify complete transaction history and UTXO states, Runes and BRC-20 token transfers through blockchain indexing, and DotSwap protocol compliance through transaction analysis.
Protocol Transparency: All protocol operations remain visible through open-source node implementations enabling independent verification, public PSBT templates and signature verification, and transparent fee calculations and distribution mechanisms.
Permissionless Auditing: Any party can verify protocol integrity through blockchain analysis tools tracking all protocol transactions, independent curve verification against published liquidity data, and statistical analysis of execution quality and fee distribution.
Security Guarantees:
No Rug Pull Risk: Impossible due to non-custodial design and atomic execution
No Smart Contract Risk: Pure Bitcoin script execution without complex contract logic
No Bridge Risk: Direct Bitcoin Layer 1 settlement eliminates cross-chain dependencies
No Upgrade Risk: Protocol changes require explicit user adoption rather than forced updates
Channel Extensions
For enhanced performance, the protocol supports additional settlement mechanisms:
2-of-2 Multi-sig Channels: Enable rapid settlement for frequent traders
HTLC Safeguards: Ensure unilateral fund recovery if counterparties become unavailable
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