From On-Chain Indexing to Docking Layer

Author: Gary Ma

On October 23, the exSat Network, a Bitcoin scaling solution, officially launched its mainnet. Just weeks later, on November 5, it introduced a cross-chain bridge, unlocking Bitcoin staking capabilities. This innovation provides users with a new opportunity to earn rewards for staking Bitcoin. The exSat cross-chain bridge was developed in collaboration with leading custodians such as Ceffu, ChainUp, Cobo, and Cactus. After a thorough audit by Blocksec, the bridge allows individual users to stake Bitcoin on the exSat network to earn XSAT token rewards.

As of this writing, exSat Network has attracted over $670 million in total value locked (TVL), supported by more than 42 validators, with over 53% of Bitcoin’s hash rate synchronizing data on the network. Key industry partners involved in exSat Network include Matrixport, Spiderpool, Antpool, viaBTC, Everstake, HashKey Cloud, Blocksec, OKX, BitTrade, Bitget, ChainUp Cloud, and Cactus Custody.

As an innovative scalability solution designed to expand and enhance the Bitcoin ecosystem, exSat Network brings Bitcoin’s UTXO data on-chain through a hybrid consensus mechanism and a decentralized asset custody protocol, establishing a modular ecosystem that supports smart contracts and cross-chain asset circulation. This vision enables Bitcoin to not only meet the current demands of the crypto market but also support the development of decentralized applications (DApps), foster integrations with other Bitcoin Layer 2 solutions, and drive growth in emerging decentralized finance (DeFi), and Bitcoin-finance (BTCFi) sectors.

This article attempts to decode the system architecture of exSat Network, including its hybrid consensus mechanism, state data indexing, XSAT tokenomics, and its future outlook and challenges.

Architectural Analysis

Consensus Layer: PoW + PoS Hybrid Consensus

The hybrid consensus mechanism of exSat combines Proof of Work (PoW) and Proof of Stake (PoS) to ensure the accurate synchronization of Bitcoin block data onto the exSat network, thus expanding the Bitcoin ecosystem.

● PoW Component: By engaging Bitcoin miners, exSat leverages Bitcoin’s existing security framework to maintain data integrity across the network. Miners not only solidify data synchronization but also act as synchronization nodes in mining pools, ensuring the accurate synchronization of raw Bitcoin block data to exSat.

● PoS Component: The PoS validation layer introduces an additional verification mechanism where validators stake BTC and XSAT tokens to participate in governance and block validation, verifying data provided by mining pool synchronizers to enhance network stability and align validator incentives with network security.

Data Layer: Decentralized State Data Storage and Indexing

Within the exSat system, Bitcoin data synchronized by PoW mining pool nodes is validated and parsed by PoS validators, then stored in EOS’s RAM — a choice driven by its distinct advantages. Notably, exSat Network founder Yves La Rose is also the founder and CEO of the EOS Network Foundation, further highlighting the synergies between the two ecosystems.

This approach ensures data consistency and reliability. Asset data is accessible solely for DApp reading, with update permissions limited to block parsing contracts. Data can be retrieved directly via smart contracts or through RPC endpoints calling off-chain services, supporting the expanding Bitcoin ecosystem.

The exSat indexing system accommodates various asset types, such as BTC, Ordinals, Runes, BRC20, BRC-721, and ARC20. This versatility ensures broad support for diverse assets and DApps, significantly enhancing the platform’s appeal to users and developers.

Additionally, exSat leverages RAM to store BTC asset data, including UTXO and other protocol index data, enabling smart contracts to directly access this information without relying on external oracles. This direct access improves security and facilitates seamless integration of smart contracts with BTC assets.

The exSat solution is open to other Layer 2 networks. While most Layer 2 networks find it expensive to generate their own index data, exSat makes such data accessible to everyone. Anyone can use exSat’s EVM smart contracts to access UTXO data.

Overall Architecture

Positioned as a docking layer between the Bitcoin mainnet and its ecosystem, exSat Network maximizes the utilization of Bitcoin data and assets to extend its robust trust mechanism to broader application scenarios. This data- and asset-driven integration approach enables Bitcoin assets to achieve broader functionality, scalability, utility, and interoperability, providing a solid foundation for a cross-chain application ecosystem aimed at delivering purpose-driven user experiences to Web3 users.

As an extension interface layer for Bitcoin, exSat adopts both “downward” and “upward” approaches:

● Downward: exSat maps Bitcoin’s core elements, such as block data and state, onto the exSat network and establishes asset custody between exSat and Bitcoin. This approach enables Bitcoin developers to leverage exSat’s scalability while preserving Bitcoin’s consensus, creating opportunities to develop new decentralized application (DApp) models. Developers can build “modular” DApps where trust remains rooted in Bitcoin, while business logic is executed on exSat, achieving a balance between efficiency and security.

● Upward: exSat provides trusted data and assets from Bitcoin to DApp developers and various Bitcoin Layer 2 solutions, such as Antelope-powered solutions, Rollups, or other Bitcoin extension projects. This not only significantly enhances performance but also allows developers to create customized blockchain solutions, offering richer possibilities for Bitcoin application scenarios and supporting its broader adoption.

Through this dual expansion model, exSat becomes a critical component of the Bitcoin ecosystem, liberating Bitcoin assets and trust from the Bitcoin network and integrating them into a wider Bitcoin ecosystem. This mechanism not only opens new horizons for the development of Bitcoin DApps but also lays a solid foundation for the unlimited expansion of Bitcoin applications.

XSAT Tokenomics

Economic Framework and Fair Distribution

Inspired by Bitcoin’s issuance principles, exSat strives for transparency and fairness. This is reflected in XSAT’s issuance strategy, which ensures equal opportunities for all participants to acquire tokens through a fair launch.

The development of exSat was self-funded, and there were no pre-mine or team allocations for the exSat team itself. Instead, a novel node management model was introduced, accepting donated tokens from nodes (suggested at 20%, with the actual ratio determined by the nodes).

Total Supply and Halving Cycle

● Total Supply: The total supply of XSAT is capped at 21,000,000 tokens. Mining rates are predefined and publicly disclosed to ensure transparency and predictability, resembling Bitcoin’s supply dynamics.

● Halving Cycle: exSat adopts a Bitcoin-like halving model, with each halving cycle consisting of 210,000 blocks. The halving cycle officially starts after the first 840,000 Bitcoin blocks have been synchronized (block height N > 840,000).

Initial Supply and Network Launch Phases

● Initial Supply: During the early stage, the reward per block is set at 50 XSAT. This reward will be halved at the end of each halving cycle to control inflation and ensure the economic sustainability of miner rewards.

● Network Initialization and Launch: The network launch is divided into three phases: Initialization, Network Launch, and the Start of XSAT Staking.

● Initialization: During this phase, the exSat Foundation synchronized the historical data of the first 840,000 Bitcoin blocks as a snapshot, laying the foundation for subsequent network operations. No incentives were provided during this phase.

● Network Launch and Catch-Up Period: Since initialization, the exSat network officially started real-time synchronization of Bitcoin block data. This process allows exSat to continuously receive and process the latest Bitcoin blockchain data, discovering and verifying UTXO and other types of crypto assets. At the same time, exSat’s miner reward mechanism has been activated. As the 840,000 blocks synchronized and audited on the exSat chain represent historical data prior to the current BTC block height, there is a catch-up period to sync additional blocks. During this period, validator rewards areboosted by approximately 300%, with expected APY reaching up to 150%.

● XSAT + BTC Dual Staking Activation: After the catch-up phase is completed, the XSAT staking phase will commence. At this stage, nodes will need to stake 10,000 XSAT to qualify as nodes. The BTC staked by these nodes will determine subsequent rewards. Eligible validators can participate in decentralized cross-chain bridge multi-signature management and earn gas fees.

Future Prospects and Challenges

At a time when the Bitcoin ecosystem is facing growth bottlenecks, exSat emerges as an innovative scalability solution that may serve as a critical driver for broader Bitcoin adoption. Although existing Layer 2 solutions within the Bitcoin ecosystem enable decentralized finance (DeFi) and cross-chain interactions, issues such as cost, speed, and compatibility have hindered their widespread adoption. exSat addresses these limitations through a unique hybrid consensus mechanism and an open integration layer strategy, synchronizing all Bitcoin UTXO data onto EOS RAM to create an open and accessible on-chain UTXO database. While generating index data is prohibitively expensive for most Bitcoin Layer 2 networks, exSat democratizes access to this data, enabling anyone to use exSat’s EVM-compatible smart contracts to retrieve UTXO data.

Roadmap and Development Stages

1. EVM-Compatible Smart Contract Solution: This corresponds to the current mainnet phase, with plans to implement account abstraction in the future for universal gas fee collection.

2. Extensive Collaboration with Mining Pools to Enhance Trust: exSat has already established a strategic partnership with Matrixport, which will issue nBTC — a new wrapped BTC version pegged 1:1 with Bitcoin — on the exSat platform. This asset will be used in various BTCFi applications, such as staking, lending, and trading. Matrixport is also committed to advancing DApps and services on the exSat platform, including BTCFi on-chain applications, RWA, and cross-chain interoperability. Recently, exSat also announced a partnership with ChainUp to provide comprehensive custody services and restaking yield management.

3. Opening for Other Layer 2 Networks: exSat’s open architecture positions it as a foundational data availability (DA) and settlement layer for Bitcoin’s ecosystem, supporting solutions like Rollups and other Layer 2 networks. Developers can build custom on-chain extensions on exSat’s data layer, particularly for zero-knowledge proof (ZKP) validation, asset management, and user interactions. exSat is poised to become a hub for Bitcoin ecosystem Layer 2 networks, offering unparalleled infrastructure support.

4. Driving Broad BTC Ecosystem Adoption: exSat has ambitious plans for ecosystem construction, aiming to foster the sustainable development of BTCFi. As a vital component of the current ecosystem, BTCFi enhances BTC liquidity and can generate significant impact quickly. However, realizing the grand vision of establishing BTC as a novel payment method will require overcoming many challenges. exSat also plans to explore the realms of RWA (Real-World Assets) and DePIN (Decentralized Physical Infrastructure Networks) to create tangible on-chain returns, thereby encouraging the reintegration of ETF-backed BTC assets into on-chain interactions.

Conclusion

As an innovative scalability solution for the Bitcoin ecosystem, exSat Network leverages its hybrid consensus mechanism, EVM compatibility, and open on-chain UTXO database to deliver rich application scenarios and financial opportunities for Bitcoin users and developers.

Compared to other chains aiming to scale Bitcoin, exSat emphasizes extending Bitcoin’s robust consensus and trust beyond its mainnet. Through exSat’s novel approach, diverse users and developers can experience intent-focused operations and unified liquidity. By abstracting complexities, exSat empowers broader audiences to seamlessly leverage Bitcoin and its Layer 2 solutions, fostering a more inclusive and accessible blockchain ecosystem.