1. Introduction
1.1 Problem Statement
Traditional mining pools operate with centralized reward distribution systems that require miners to trust pool operators. Key problems include:
- Lack of transparency: Pool operators control reward distribution without cryptographic guarantees
- High withdrawal fees: Moving assets between pools or to external addresses is expensive
- Limited DeFi access: Mining rewards are locked in specific networks without cross-chain functionality
- Centralization risks: Single points of failure in pool management
1.2 Solution Overview
SatoshiFi solves these problems through federated coinbase addresses controlled by independent custodians using FROST threshold signatures. The system provides:
1.3 Supported Networks
Network | Token | Block Time | Current Reward |
---|---|---|---|
Bitcoin | mpBTC → SBTC | ~10 minutes | 3.125 BTC |
Dogecoin | mpDOGE → SDOGE | ~1 minute | 10,000 DOGE |
Bitcoin Cash | mpBCH → SBCH | ~10 minutes | 6.25 BCH |
Litecoin | mpLTC → SLTC | ~2.5 minutes | 12.5 LTC |
2. System Architecture
2.1 Multi-Layer Architecture
2.2 Key Components
Federated Coinbase Addresses: Mining pool rewards go directly to TSS-controlled addresses, providing automatic collateralization for issued tokens.
Independent Custodians: Professional operators who stake collateral and run client software to participate in the federation. They compete on rates and service quality.
Two-Level Tokens: mp-tokens are pool-specific vouchers, while S-tokens are fungible wrapped tokens accepted by all DeFi protocols.
3. FROST Protocol Implementation
3.1 Cryptographic Foundation
SatoshiFi uses FROST (Flexible Round-Optimized Schnorr Threshold) protocol with direct Ethereum integration through the frost-secp256k1-evm library.
Scalability: O(1) verification regardless of participant count
Privacy: Individual participants remain anonymous
Compatibility: Works with all supported PoW networks
3.2 Trust Assumptions
- Honest Majority: More than 50% of TSS operators act honestly
- Network Synchrony: Synchronous network model for critical operations
- Cryptographic Security: Discrete logarithm in secp256k1 is hard
- Liveness: Threshold number of operators available for signing
3.3 On-Chain Verification Process
3.4 Heartbeat Mechanism
Every configurable block interval, TSS groups must provide proof-of-liveness signatures to demonstrate continued operation and prevent fund lockup.
4. Two-Level Token Architecture
4.1 Level 1: mp-tokens (Pool-Specific Vouchers)
Mining pool tokens represent withdrawal vouchers from specific pools:
- Pool-specific: mpBTC from Pool A ≠ mpBTC from Pool B
- Limited functionality: Only redeemable through originating pool
- No DeFi access: Not accepted by financial services without custody
- Automatic issuance: Minted when pool finds blocks
4.2 Level 2: S-tokens (Custodial Wrapped Tokens)
Standardized wrapped tokens with full DeFi functionality:
- Fungible: SBTC from any source is identical
- DeFi compatible: Works with all Ethereum protocols
- Cross-chain utility: Bridge between all supported networks
- Flexible redemption: Through any qualified custodian
4.3 Custody Transformation Process
- Deposit: User sends mp-tokens to custodial contract
- Verification: SPV proof validates backing in source network
- Mint: S-tokens issued 1:1 with mp-tokens
- Access: Full DeFi functionality becomes available
5. Federated Address System
5.1 Coinbase Address Control
The core innovation is using mining pool coinbase addresses as federated multi-signature addresses controlled through FROST threshold signatures.
Fault Tolerance: System continues operating with up to 2 operator failures
No Single Point of Failure: No individual can compromise the system
5.2 Automatic Collateralization
Block rewards automatically flow to federated addresses, providing instant collateralization for mp-token issuance.
5.3 Multi-Network Support
Each supported PoW network has its own federated address configuration:
- Bitcoin: Taproot-compatible addresses with FROST signatures
- Dogecoin: ECDSA adaptation with secp256k1 conversion
- Bitcoin Cash: Schnorr support with ECDSA fallback
- Litecoin: MWEB compatibility plus legacy support
6. Independent Custodian System
6.1 Custodian Requirements
To become a custodian, operators must:
- Stake collateral: Significant deposit in the target network
- Install software: Run specialized client for FROST participation
- Maintain uptime: High availability for signature operations
- Demonstrate competence: Technical expertise in cryptographic protocols
6.2 Federated Operation Model
6.3 Economic Incentives
Custodians earn revenue from multiple sources:
- TSS operations: Agreed percentage from each block found
- Custody services: Fees for mp-token to S-token conversion
- Bridge operations: Cross-network transfer fees
- Staking rewards: From S-token staking protocols
6.3 Pool Operating Modes
Simplified Mode (No Custodians):
- Basic FROST security for pool operations
- Standard unpeg through token burning
- Limited DeFi access without additional custody
- Lower operational costs
Full-Featured Mode (With Custodians):
- Complete security through federated custodians
- Full DeFi access for all miners
- Cross-chain bridge services
- Professional infrastructure management
7. Economic Model
7.1 Fee Structure
All fees are configurable and agreed upon before operation begins:
Component | Default Rate | Recipient | Purpose |
---|---|---|---|
Miners | 96.75% | Mining participants | Primary reward distribution |
Pool Operation | 2.0% | Pool operators | Infrastructure and management |
Protocol Development | 0.5% | Protocol treasury | Core development and governance |
TSS Operators | 0.75% | Custodian federation | Security infrastructure |
7.2 Revenue Sources
The ecosystem generates revenue through multiple streams:
- Block rewards: Primary income from mining operations
- Transaction fees: Network fees from PoW transactions
- DeFi integration: Yields from staking, lending, and trading
- Bridge operations: Cross-chain transfer fees
- Premium services: Advanced features and priority support
7.3 Withdrawal Mechanisms
7.4 DeFi Integration Benefits
S-tokens provide access to the complete Ethereum DeFi ecosystem:
- Staking: Earn yields on wrapped PoW assets
- Lending: Use S-tokens as collateral for loans
- Trading: DEX access for all supported assets
- Yield farming: Participate in liquidity mining
- Insurance: Protect holdings through DeFi protocols
8. Security Analysis
8.1 Threat Model
Attack Vector | Likelihood | Impact | Mitigation |
---|---|---|---|
Custodian Collusion (5+ of 7) | Low | High | Large stake requirements, reputation systems, slashing |
Smart Contract Bugs | Medium | High | Formal verification, audits, bug bounties |
Oracle Manipulation | Medium | Medium | Time-weighted prices, multiple sources |
Network Congestion | High | Low | Emergency mechanisms, L2 scaling |
8.2 FROST Security Properties
Robustness: Continues functioning with up to 2 faulty participants
Privacy: Individual key shares remain confidential
Verifiability: All operations are publicly verifiable on-chain
8.3 Economic Security
The system's security is reinforced through economic incentives:
- High stake requirements: Custodians risk significant capital
- Reputation systems: Poor performance affects future earnings
- Slashing mechanisms: Automatic penalties for protocol violations
- Competition: Market forces reward good actors
9. Mining Pool Management Infrastructure
9.1 Pool Creation and Initialization
9.1.1 Pool Registration Process
SatoshiFi pools are created through a multi-step on-chain registration process that establishes cryptographic identity and operational parameters:
9.1.2 Federated Address Generation
Each pool receives federated coinbase addresses for all supported PoW networks:
Network | Address Type | Script Format | FROST Compatible |
---|---|---|---|
Bitcoin | P2TR (Taproot) | Schnorr multisig | ✅ Native |
Dogecoin | P2SH | ECDSA adaptation | ✅ Converted |
Bitcoin Cash | P2SH/Schnorr | CashAddr format | ✅ Hybrid |
Litecoin | P2WPKH/MWEB | SegWit compatible | ✅ Extended |
9.1.3 Operating Mode Selection
Pools can operate in different modes based on their DeFi integration requirements:
Standard pool operations with basic FROST security. Limited DeFi access through manual custodalization.
Full security through independent custodian federation. Complete DeFi integration for all miners.
Configurable mix of basic and enhanced features. Scalable security based on pool size.
9.2 Worker Management System
9.2.1 Worker Registration and Authentication
SatoshiFi implements a sophisticated worker management system supporting multiple authentication methods:
9.2.2 Worker Classification and Tiering
Workers are automatically classified into performance tiers for optimized resource allocation:
Tier | Hash Rate Range | Difficulty Range | Share Interval | Features |
---|---|---|---|---|
Hobbyist | < 1 TH/s | 1 - 1K | 30-60 seconds | Basic Stratum v1 |
Enthusiast | 1-100 TH/s | 1K - 100K | 15-30 seconds | Stratum v1/v2 choice |
Professional | 100-1000 TH/s | 100K - 10M | 5-15 seconds | Stratum v2, priority support |
Industrial | > 1000 TH/s | > 10M | 1-5 seconds | Custom protocols, dedicated infrastructure |
9.3 Stratum Protocol Implementation
9.3.1 Multi-Version Stratum Support
SatoshiFi provides native support for both Stratum v1 and v2 protocols with automatic protocol detection and negotiation:
9.3.2 Job Distribution and Work Assignment
The job distribution system ensures optimal work assignment across all connected workers:
9.4 Share Collection and Validation
9.4.1 Real-Time Share Processing
SatoshiFi implements high-performance share validation with cryptographic verification:
9.4.2 Share Accounting and Statistics
Comprehensive share accounting tracks individual worker performance:
Metric | Calculation Method | Update Frequency | Purpose |
---|---|---|---|
Share Rate | Valid shares / time window | Every 60 seconds | Performance monitoring |
Hash Rate | Shares × difficulty / time | Every 60 seconds | Capacity assessment |
Efficiency | Valid / (Valid + Invalid) | Every 300 seconds | Quality control |
Contribution | Weighted share value | Every block | Reward calculation |
9.5 Statistics and Analytics
9.5.1 Real-Time Performance Dashboard
SatoshiFi provides comprehensive analytics for pool operators and miners:
Hash rate, worker count, block finding rate, network share
Individual performance, efficiency, earnings, connectivity
Difficulty trends, block times, mempool status, fee rates
Token balances, yield rates, staking rewards, bridge activity
9.6 Reward Distribution System
9.6.1 Supported Payout Schemes
SatoshiFi supports multiple reward distribution methods:
Scheme | Description | Risk Level | Variance | Best For |
---|---|---|---|---|
PPLNS | Pay Per Last N Shares | Medium | Medium | Regular miners |
PPS | Pay Per Share | Low | Low | Stable income seekers |
PPS+ | PPS + Transaction fees | Low | Low-Medium | Fee optimization |
PROP | Proportional | High | High | Long-term miners |
SOLO | Solo mining | Very High | Very High | Large hash rate |
9.6.2 Automated mp-Token Distribution
When a pool finds a block, rewards are automatically distributed as mp-tokens:
9.6.3 DeFi Integration for Rewards
Yield Optimization: Automatic staking for maximum returns
Fiat Payouts: Direct conversion to USD/EUR via banking partners
Portfolio Management: Automated diversification across assets
9.7 Pool Governance and Administration
9.7.1 Multi-Signature Pool Control
Pool operators benefit from FROST-secured administrative functions:
- Fee Adjustment: Modify pool fees through TSS consensus
- Worker Management: Add/remove workers with cryptographic authorization
- Payout Scheme Changes: Switch reward methods via governance vote
- Emergency Procedures: Halt operations in case of detected issues
9.7.2 Transparent Operations
All pool operations are recorded on-chain for complete transparency:
- Block Finding: Cryptographic proof of all found blocks
- Reward Distribution: Verifiable allocation to all participants
- Fee Collection: Public record of all fee deductions
- Performance Metrics: Open access to pool statistics
10. Deployment and Implementation
10.1 Multi-Chain Deployment Readiness
SatoshiFi is production-ready for deployment across all major PoW networks:
Taproot, FROST, SPV integration completed
frost-secp256k1-evm contracts deployed and tested
All networks verified and FROST-compatible
S-tokens fully supported across ecosystem
10.2 Smart Contract Architecture
The complete smart contract suite includes:
Contract | Purpose | FROST Integration | Gas Optimization |
---|---|---|---|
Pool Coordinator | Multi-chain pool coordination | Full verification | ~4200 gas per operation |
TSS Manager | Threshold signature groups | Heartbeat mechanism | Optimized for frequent calls |
mp-Token Contracts | Pool-specific vouchers | Mint/burn verification | Standard ERC-20 gas costs |
S-Token Contracts | Custodalized wrapped tokens | Cross-chain verification | DeFi-optimized interface |
SPV Verification | Multi-chain transaction proof | FROST signature validation | Network-specific optimization |
10.3 Integration Process for Mining Pools
Existing mining pools can integrate SatoshiFi through a structured migration process:
- Assessment Phase: Technical evaluation and compatibility analysis
- TSS Setup: Custodian selection and FROST group configuration
- Address Migration: Transition to federated coinbase addresses
- Worker Migration: Gradual transition of miners to new infrastructure
- DeFi Activation: Enable S-token functionality for miners
10.4 Custodian Onboarding
Independent custodians can join the federation through:
10.5 Monitoring and Maintenance
Operational monitoring includes:
- TSS Health Monitoring: Continuous verification of threshold signature groups
- Network Synchronization: Real-time tracking of all PoW networks
- Performance Analytics: Comprehensive metrics and alerting
- Security Auditing: Ongoing security assessment and improvement
11. Conclusion
11.1 Innovation Summary
SatoshiFi introduces fundamental innovations to the mining pool landscape:
- Federated Coinbase Addresses: First use of coinbase addresses as TSS-controlled federation points
- Two-Level Token Architecture: Provides flexibility for different levels of DeFi integration
- Independent Custodian System: Competitive marketplace for security services
- FROST Integration: Gas-efficient threshold signatures with on-chain verification
- Multi-Network Support: Unified solution across all major PoW chains
- Enterprise Pool Management: Complete lifecycle management from creation to rewards
11.2 Key Benefits
11.3 Market Impact
SatoshiFi addresses critical pain points in current mining operations:
- Cost reduction: Dramatically lower withdrawal fees through privileged transactions
- Capital efficiency: 100% collateralization without over-collateralization
- Access expansion: Full DeFi integration for mining rewards
- Risk distribution: Decentralized security model eliminates single points of failure
- Innovation incentives: Open platform for developers and service providers
- Operational excellence: Enterprise-grade pool management with crypto guarantees
11.4 Implementation Readiness
Multi-Chain Support: All target networks fully supported
Smart Contracts: Checked and battle-tested
Custodian Network: Independent operators ready for deployment
Pool Management: Complete enterprise-grade infrastructure
DeFi Integration: Seamless connection to existing protocols
11.5 Future Development
The platform provides foundation for continued innovation:
- Additional networks: Easy integration of new PoW chains as they emerge
- L2 scaling: Optimistic rollups and state channels for enhanced throughput
- AI optimization: Machine learning for pool efficiency and predictive analytics
- Governance evolution: Decentralized protocol governance with stakeholder participation
- Cross-chain expansion: Integration with other blockchain ecosystems
- Advanced DeFi: Custom financial products for mining industry
11.6 Ecosystem Benefits
SatoshiFi creates value for all ecosystem participants:
Stakeholder | Primary Benefits | Economic Incentives | Risk Mitigation |
---|---|---|---|
Miners | 90% fee reduction, DeFi access, transparency | Higher net returns, yield opportunities | Cryptographic guarantees |
Pool Operators | Reduced infrastructure, enhanced security | New revenue streams, competitive advantage | Distributed security model |
Custodians | Independent business opportunity | Service fees, competitive markets | Reputation-based selection |
DeFi Protocols | Access to PoW asset liquidity | New user base, increased TVL | Proven collateralization |
11.7 Technical Achievements
Key technical milestones accomplished:
- FROST-Ethereum Integration: First production implementation of threshold signatures in DeFi
- Multi-Chain SPV: Unified verification system across four major PoW networks
- Federated Coinbase: Novel approach to mining pool reward distribution
- Two-Tier Tokens: Flexible architecture accommodating different integration levels
- Enterprise Pool Management: Complete solution from worker registration to reward distribution
For Mining Pools: Reduce operational costs while providing superior service to miners
For Custodians: Build independent businesses in the growing crypto infrastructure space
For DeFi Protocols: Access new liquidity sources from the largest crypto asset classes
For Miners: Maximize returns while accessing modern financial services