[1IP-82] Request for Grant: Cross-Chain Exchange through Secret Swaps

Author: Danylo

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Research Proposal

1. Introduction

This proposal initiates a research phase to determine the most feasible and secure way to implement cross-chain swaps between Bitcoin and EVM-compatible networks within the 1inch Fusion ecosystem.

The motivation comes from an increasing need to support native BTC interactions without relying on custodial bridges, wrapped assets, or third-party validators. While Ethereum-based systems offer flexibility via smart contracts, Bitcoin's UTXO model and limited scripting capabilities make integration challenging and unexplored.

This research phase will assess Bitcoin’s native technologies, define required order lifecycle steps, and evaluate feasible design strategies. The outcome will be a System Requirements Document (SRD), which outlines architectural options, potential risks, and implementation recommendations.

2. Problem Statement

Despite advancements in DeFi, truly decentralized cross-chain swaps remain elusive. Existing solutions are hindered by reliance on custodians, wrapped tokens, or validator networks—all of which introduce counterparty risk and centralization.

There is currently no trustless standard for Bitcoin ↔ EVM swaps that allows users to remain in full control of their assets, while also achieving verifiable, on-chain settlement. This proposal addresses that gap by exploring native Bitcoin-side mechanisms to support such interoperability.

3. Objectives

• Identify all lifecycle operations required for RFQbased cross-chain swaps (creation, acceptance, escrow, fulfillment, refund, cancellation).

• Investigate technical feasibility on the Bitcoin side using native tools: Taproot, PSBT, Miniscript, hashlocks, etc.

• Conduct comparative analysis of possible designs and prototype key flows on testnet.

• Propose one or more architectures for implementing the required flows.

• Evaluate tradeoffs in UX, complexity, cost, security, and tooling support.

• Produce a System Requirements Document (SRD) including recommendations, risk analysis, and diagrams.

4. System Overview

The goal is to enable secure atomic swaps between Bitcoin and EVM-compatible chains without relying on centralized bridges or wrapped assets. This requires a reliable lifecycle design for swap initiation, escrow management, fulfillment, and cancellation—all enforceable through native Bitcoin scripts and off-chain coordination. This section summarizes the high-level interaction, to be refined during discovery:

Actors:

• Market Maker (MM): Posts quote with price and BTC address.

• Taker: Selects a quote and initiates a swap by locking ETH and participating in a BTC contract.

• Resolver (offchain service): Observes transactions and assists in coordination, but does not hold funds.

High-Level Flow:

1. MM places a quote (off-chain system or signed transaction; research will clarify).

2. Taker accepts and funds ETH escrow.

3. MM or resolver funds BTC output under Taproot script.

4. Secret is revealed and used to complete swap.

5. Timeout and fallback logic ensures refunds if conditions fail.

Outstanding research questions:

• Where and how are quotes stored and signed?

• What validation is required for quote authenticity and timeliness?

• How do resolvers coordinate without introducing trust assumptions?

5. Scope of Work

5.1 Activities

• Requirements workshop (based on 1inch whitepaper)

• Research into Bitcoin scripting models

• Comparative analysis of Taproot trees, PSBT lifecycle

• Design of multiple swap lifecycle flows

• Diagrams: state machine, sequence, system context

• Risk analysis and mitigation planning

• Recommendations on optimal tech path

5.2 Deliverables

1. System Requirements Document (SRD)

2. Architecture overview

3. Comparative analysis of scripting/transaction strategies

4. Tradeoff analysis of approaches

5. Recommended implementation strategy (e.g. library if justified)

6. Optional: BTC testnet scripts to validate concepts

5.3 Timeline

Duration: 3 weeks

Day 1 : Kickoff, goal alignment

Day 2-20 : Research, architecture drafts, flow modeling

Day 21 Review findings, finalize SRD

Budget: $25 000

6. Roles & Responsibilities

Project Manager – Coordinates milestones and stakeholder input.

Blockchain Researcher / Architect – Leads tech discovery, explores Bitcoin primitives.

Business Analyst – Collects functional requirements, aligns with protocol goals.

Address of the recipient: 0xC39f5f17578f44EAceaf85BC00879aAFDa370E45

Payment structure: 100% upfront payment is required