@covenance/dlc/src/cet/transactions.ts

Crypto and Bitcoin functions for Covenance DLC implementation

import * as bitcore from '../btc';
import { Script, Address, Transaction, Networks, crypto } from '../btc';
import { DlcInitTx, UTXO, OracleEvent, OracleCET, LoanConfig, P2trOutputScript } from './types';
import { PubKey, Sighash, Signature } from '../crypto/types';
import { Tap } from '@cmdcode/tapscript';
import { sigToTaprootBuf } from './signature';
import { encodeXOnlyPubkey } from '../crypto/general';

const Opcode = (bitcore as any).Opcode;

// const multisigWitnessVBytes = 55; TODO
const p2wpkhWitnessVBytes = 27;

// Base input and output vbytes, excluding witness and scripts
const baseInputVBytes = 41;
const baseOutputVBytes = 9;

const p2wpkhOutputScriptVBytes = 22;
const p2trOutputScriptVBytes = 34;

const dustThreshold = 330;

/**
 * Creates a 2-of-2 multisig witness script
 * @param borrowerPubKey Borrower's public key
 * @param lenderPubKey Lender's public key
 * @returns The witness script for 2-of-2 multisig
 */
function createMultisigWitnessScript(
  borrowerDlcPubKey: PubKey,
  lenderDlcPubKey: PubKey
): Script {
  return new Script('')
    .add(encodeXOnlyPubkey(borrowerDlcPubKey))
    .add(Opcode.OP_CHECKSIGADD)
    .add(encodeXOnlyPubkey(lenderDlcPubKey))
    .add(Opcode.OP_CHECKSIGADD)
    .add(Opcode.OP_2)
    .add(Opcode.OP_EQUAL);
}

/**
 * Creates a P2TR output script from a witness script
 * @param witnessScript The witness script to create P2TR for
 * @returns The P2TR output script
 */
function createP2trOutputScript(witnessScript: Script): P2trOutputScript {
  const witnessScriptBuffer = witnessScript.toBuffer();
  const tapleaf = Tap.encodeScript(witnessScriptBuffer);
  const bip341UnspendablePubKey = '0250929b74c1a04954b78b4b6035e97a5e078a5a0f28ec96d547bfee9ace803ac0';
  const [tPubKey, cBlock] = Tap.getPubKey(bip341UnspendablePubKey, { target: tapleaf });
  return {
    scriptPubKey: new Script(`OP_1 32 0x${tPubKey}}`),
    tPubKey,
    cBlock
  };
}

/**
 * Creates a DLC initialization transaction that locks funds in a 2-of-2 multisig output
 * @param collateralUtxos Array of collateral UTXOs controlled by the borrower
 * @param collateralAmount Amount of collateral to lock in the DLC
 * @param borrowerPubKey Borrower's public key for the DLC
 * @param lenderPubKey Lender's public key for the DLC
 * @param changeAddress Address to receive any change from the transaction
 * @param feeRate Fee rate in satoshis per vB
 * @param network Network to use for addresses
 * @returns DLC init transaction object containing the transaction, multisig script and address
 */
export function createDlcInitTx(
  collateralUtxos: UTXO[],
  collateralAmount: number,
  borrowerDlcPubKey: PubKey,
  lenderDlcPubKey: PubKey,
  changeAddress: Address,
  feeRate = 5,
  network = Networks.testnet
): DlcInitTx {
  // Create a new transaction
  const tx = new Transaction();

  // Add all collateral UTXOs as inputs
  tx.from(collateralUtxos as Transaction.UnspentOutput[]);

  // Create 2-of-2 multisig script
  const witnessScript = createMultisigWitnessScript(borrowerDlcPubKey, lenderDlcPubKey);
  const p2trOutputScript = createP2trOutputScript(witnessScript);
  const p2trAddress = new Address(p2trOutputScript.scriptPubKey, network, 'taproot');
  
  let vBytes = (tx as any).vsize;
  vBytes += tx.inputs.length * p2wpkhWitnessVBytes;
  vBytes += baseInputVBytes + p2trOutputScriptVBytes;
  vBytes += baseInputVBytes + p2wpkhOutputScriptVBytes;
  
  const totalInputAmount = collateralUtxos.reduce((acc, utxo) => acc + utxo.satoshis, 0);
  const fee = Math.ceil(vBytes * feeRate);
  const change = totalInputAmount - collateralAmount - fee;
  
  // Add outputs
  tx.to(p2trAddress, collateralAmount);
  
  // Add change output if there is any change
  if (change > dustThreshold) {
    tx.to(changeAddress, change);
  }
  
  const dlcUtxo: UTXO = {
    txId: tx.id,
    outputIndex: 0,
    satoshis: collateralAmount,
    script: p2trOutputScript.scriptPubKey,
    address: p2trAddress
  };
  
  return {
    tx,
    dlcUtxo,
    witnessScript,
    cBlock: p2trOutputScript.cBlock,
    tPubKey: p2trOutputScript.tPubKey
  };
}

/**
 * Creates a Contract Execution Transaction (CET) that distributes funds between borrower and lender
 * @param dlcUtxo The UTXO from the DLC initialization transaction
 * @param borrowerReceiveAmount Amount of satoshis the borrower should receive
 * @param lenderReceiveAmount Amount of satoshis the lender should receive
 * @param borrowerAddress Borrower's address to receive funds
 * @param lenderAddress Lender's address to receive funds
 * @param network Network to use for addresses
 * @returns The CET transaction
 */
export function createCet(
  dlcUtxo: UTXO,
  borrowerReceiveAmount: number,
  lenderReceiveAmount: number,
  borrowerAddress: Address,
  lenderAddress: Address
): Transaction {
  // Create a new transaction
  const tx = new Transaction();

  // Add the DLC UTXO as input
  tx.from([dlcUtxo as Transaction.UnspentOutput]);

  // Add outputs for borrower and lender
  if (borrowerReceiveAmount > 0) {
    tx.to(borrowerAddress, borrowerReceiveAmount);
  }
  if (lenderReceiveAmount > 0) {
    tx.to(lenderAddress, lenderReceiveAmount);
  }

  return tx;
}

/**
 * Funds the fees for a Contract Execution Transaction (CET) by creating a separate funding transaction
 * that can be unlocked by the CET. Since the CET parties sign it using SIGHASH_ANYONECANPAY, 
 * we can add an additional input without invalidating the signatures.
 * @param cet The Contract Execution Transaction to fund fees for
 * @param feeRate Fee rate in satoshis per vB
 * @param fundsUtxos Array of UTXOs to use for funding the fees
 * @param fundingAddress Address of the final funding output, which will be the CET input
 * @param changeAddress Address to receive any change from the funding transaction
 * @returns Object containing the updated CET and the funding transaction
 */
export function fundCetFees(
  cet: Transaction,
  fundsUtxos: UTXO[],
  fundingAddress: Address,
  changeAddress: Address,
  feeRate = 5
): { cet: Transaction; fundingTx: Transaction } {
  // Create a new funding transaction
  const fundingTx = new Transaction();

  // Add funding UTXOs as inputs
  fundingTx.from(fundsUtxos as Transaction.UnspentOutput[]);
  
  // Calculate the fee required for the CET
  let cetVBytes = (cet as any).vsize;
  cetVBytes += baseInputVBytes + p2wpkhWitnessVBytes;
  const cetFee = Math.ceil(cetVBytes * feeRate);

  // Calculate the funding transaction fee
  let fundingTxVBytes = (fundingTx as any).vsize;
  fundingTxVBytes += fundsUtxos.length * p2wpkhWitnessVBytes;
  fundingTxVBytes += 2 * (baseOutputVBytes + p2wpkhOutputScriptVBytes);
  const fundingTxFee = Math.ceil(fundingTxVBytes * feeRate);

  // Calculate total input amount and change
  const totalInputAmount = fundsUtxos.reduce((acc, utxo) => acc + utxo.satoshis, 0);
  const change = totalInputAmount - cetFee - fundingTxFee;
  
  // Add the CET fee output. We use P2WPKH.
  const cetFeeOutput = new Transaction.Output({
    script: (Script as any).buildWitnessV0Out(fundingAddress),
    satoshis: cetFee
  });
  fundingTx.outputs.push(cetFeeOutput);

  // Add change output if there is any change
  if (change > dustThreshold) {
    fundingTx.to(changeAddress, change);
  }
  
  const cetUtxo = new Transaction.UnspentOutput({
    txId: fundingTx.id,
    outputIndex: 0,
    script: fundingTx.outputs[0].script,
    satoshis: cetFee
  });
  cet.from([cetUtxo]);
  
  return {
    cet,
    fundingTx
  };
}

/**
 * Returns the sighash for a transaction input.
 * @param tx The transaction object
 * @param sighash The sighash flag
 * @param inputIndex The index of the input to hash
 * @param prevScriptPubKey The previous scriptPubKey of the input
 * @param satoshis The amount of satoshis in the input
 * @returns The sighash
 */
export function getTxSigHash(
  tx: Transaction,
  sighash: number,
  inputIndex: number,
  prevScriptPubKey: Script,
  satoshis: number
): Sighash {
  const satoshisBN = new (bitcore as any).crypto.BN.fromNumber(satoshis);
  const satoshisBuffer = (bitcore as any).encoding.BufferWriter().writeUInt64LEBN(satoshisBN).toBuffer();
  const sighashBuffer: Buffer = (Transaction as any).SighashWitness.sighash(
    tx, sighash, inputIndex, prevScriptPubKey.toBuffer(), satoshisBuffer,
  );
  return new Uint8Array(sighashBuffer);
}

/**
 * Creates Contract Execution Transactions (CETs) for liquidation events
 * @param events Array of liquidation events
 * @param config Configuration object containing loan parameters
 * @param dlcUtxo The UTXO from the DLC initialization transaction
 * @param borrowerAddress Borrower's address to receive funds
 * @param lenderAddress Lender's address to receive funds
 * @returns Array of OracleCET objects
 */
export function createLiquidationCets(
  events: OracleEvent[],
  config: LoanConfig,
  dlcUtxo: UTXO,
  borrower: Address,
  lender: Address
): OracleCET[] {
  const secsPerYear = 31536000;
  const oracleCets  = new Array<OracleCET>(events.length);

  let tSinceStart = 0;

  for (let i = 0; i < events.length; i++) {
    const ev = events[i];

    tSinceStart  = ev.timestamp - events[0].timestamp;
    const tYears = tSinceStart / secsPerYear;
    const D_t    = config.borrowedAmount * (1 + config.annualInterestRate * tYears);
    const p_liq  = D_t / (config.collateralAmount * config.liquidationThreshold);

    // Find the price in the grid that is the closest to p_liq but still below it.
    // ev.outcomePrices is sorted in ascending order
    let idx = -1;
    for (let i = 0; i < ev.outcomePrices.length; i++) {
      if (ev.outcomePrices[i] <= p_liq) {
        idx = i;
      } else {
        break;
      }
    }
    if (idx >= ev.outcomePrices.length || idx < 0) throw new Error(`No grid price ≤ p_liq for ${ev.id}`);
    const price = ev.outcomePrices[idx];
    const pubKey = ev.outcomeSignaturePoints[idx];

    const L = Math.min(
      config.collateralAmount,
      (D_t + config.borrowedAmount * config.penaltyPercentage) / price
    );
    const B = config.collateralAmount - L;

    oracleCets[i] = {
      cetTx: createCet(
        dlcUtxo,
        Math.floor(B * 1e8),
        Math.floor(L * 1e8),
        borrower,
        lender
      ),
      eventId: ev.id,
      outcomeSignaturePoint: pubKey,
      outcomeLiquidationPrice: price,
      lenderAmount: L,
      borrowerAmount: B
    };
  }
  return oracleCets;
}

/**
 * Creates Contract Execution Transactions (CETs) for the loan maturity event
 * @param event Liquidation event
 * @param grid Price grid
 * @param config Configuration object containing loan parameters
 * @param dlcUtxo The UTXO from the DLC initialization transaction
 * @param borrowerAddress Borrower's address to receive funds
 * @param lenderAddress Lender's address to receive funds
 * @returns Array of OracleCET objects
 */
export function createMaturityCets(
  event: OracleEvent,
  startTime: number,
  config: LoanConfig,
  dlcUtxo: UTXO,
  borrower: Address,
  lender: Address
): OracleCET[] {
  const secsPerYear = 31536000;
  const oracleCets  = new Array<OracleCET>(event.outcomePrices.length);

  // TODO: Derive loan duration from the difference between the first and last event.
  for (let i = 0; i < event.outcomePrices.length; i++) {
    const D_end = config.borrowedAmount * 
      (1 + config.annualInterestRate * ((startTime - event.timestamp) / secsPerYear));
    const p_end = event.outcomePrices[i];

    const pubKey = event.outcomeSignaturePoints[i];
    
    const B = Math.min(
      config.collateralAmount,
      D_end / p_end
    );
    const L = config.collateralAmount - B;

    oracleCets[i] = {
      cetTx: createCet(
        dlcUtxo,
        Math.floor(B * 1e8),
        Math.floor(L * 1e8),
        borrower,
        lender
      ),
      eventId: event.id,
      outcomeSignaturePoint: pubKey,
      outcomeLiquidationPrice: p_end,
      lenderAmount: L,
      borrowerAmount: B
    };
  }
  return oracleCets;
}

/**
 * Creates a Contract Execution Transaction (CET) for repayment that returns the full collateral to the borrower
 * @param dlcUtxo The UTXO from the DLC initialization transaction
 * @param collateralAmount Amount of satoshis to return to the borrower
 * @param borrowerAddress Borrower's address to receive funds
 * @returns The CET transaction
 */
export function createRepaymentCet(
  dlcUtxo: UTXO,
  collateralAmount: number,
  borrowerAddress: Address
): Transaction {
  const tx = new Transaction();

  // Add the DLC UTXO as input
  tx.from([dlcUtxo as Transaction.UnspentOutput]);

  // Add output for borrower with full collateral
  tx.to(borrowerAddress, collateralAmount);

  return tx;
}

/**
 * Applies signatures to a CET
 * @param cet The CET to apply signatures to
 * @param witnessScript The witness script of the CET
 * @param sigBorrower The borrower's signature
 * @param sigLender The lender's signature
 * @param cBlock The cBlock of the CET
 */
export function applySignaturesCet(
  cet: Transaction,
  witnessScript: Script,
  sigBorrower: Signature,
  sigLender: Signature,
  cBlock: string,
  sighash = crypto.Signature.SIGHASH_ALL | crypto.Signature.SIGHASH_ANYONECANPAY,
): Transaction {
  const witnesses = [
    Buffer.from(sigToTaprootBuf(sigLender, sighash)),
    Buffer.from(sigToTaprootBuf(sigBorrower, sighash)),
    Buffer.alloc(0),
    witnessScript.toBuffer(),
    Buffer.from(cBlock, 'hex')
  ];
  (cet.inputs[0] as any).witnesses = witnesses;
  return cet;
}