Understanding CAT Protocol: The Latest Player in Bitcoin Token Standards

Written By Carylyne Chan

The Bitcoin ecosystem has a new innovator: Covenant Attested Token (CAT) Protocol.

CAT20, released by CAT Protocol, emerges as a fungible token standard, designed to enhance token functionalities on chains with OP_CAT enabled, such as Fractal Bitcoin. Unlike existing protocols, CAT is fully validated by miners and operates using smart contracts, specifically recursive covenants, all enforced by Bitcoin’s built-in scripting language at Layer 1. CAT721 will likely be released at a later date.

What is CAT20?

Key Facts

  • Bitcoin’s Security

    • It is enforced by Bitcoin's consensus rules, inheriting its Proof-of-Work security.

  • Requires OP_CAT

    • It is only available on OP_CAT-enabled networks, such as Fractal.

  • UTXO-based

    • It is UTXO-based, and enforced by Bitcoin Script on L1 without the need for external or off-chain indexers.

  • Allows for Innovation

    • Its modularity and programmable minting enable flexible and composable rules for complex decentralized apps such as AMMs, lending, and staking.

  • Miner Verified

    • It is fully verified by miners for robust security and native enforcement.

  • Interoperable

    • It is cross-chain interoperable, which allows interoperable dApps to be built on Fractal Bitcoin.

  • Lightweight

    • It supports SPV and enables light clients to verify transactions efficiently, preserving decentralization and accessibility.

Comparing CAT Protocol to the Existing Bitcoin Protocols

What is Unique About CAT20?

What makes CAT20 unique is that it allows tokens to be minted under specific conditions, without changing the underlying protocol. This can be done as it does not need an indexer.

These conditions include:

  • Predetermined time

  • Block height

  • Time locks

  • Proof-of-work (PoW) verifications

  • Payment confirmation

  • Exclusive mints

Through these minting conditions, additional functionalities are added. This opens the door to possible use cases using smart contracts and decentralized applications such as:

  • Automated Market Makers (AMMs)

  • Lending protocols

  • Staking protocols

  • Cross-chain interoperability

Harnessing OP_CAT for AdVanced Scripting

A major innovation in the CAT protocol is its use of the OP_CAT opcode. Read more here.

OP_CAT, short for "concatenate," combines two items into one within a Bitcoin transaction script. By utilizing OP_CAT, CAT enables more complex operations without additional data storage or bloating transactions.

Fully Verified by Miners

Another standout feature of CAT Protocol is that its transactions are fully verified by miners. Unlike token standards that may rely on external or third-party validation, CAT20 ensures that all transactions are confirmed directly by Bitcoin’s miners.

Significance of being miner verified:

  • Secure: Backed by PoW mechanism

  • Decentralized: No third-party validators or intermediaries such as indexers

  • Direct Network Enforcement: Direct contact with Bitcoin L1

Why should the dependencies on indexers be reduced?

After all, indexers are off-chain, which means the data source comes from a third party, making it vulnerable to indexer inconsistencies or manipulation. Being verified solely by miners eliminates this risk.

The ideal token transaction should remain transparent, reliable, and fully integrated into the Bitcoin network, which could be achieved through CAT.

Impact of CAT Protocol on Fractal

Managing Network Congestion

The Fractal network went under pressure from the growing demand for blockspace driven by the CAT protocol.

Designed to optimize blockspace, the CAT protocol aims to increase efficiency, but with the current surge in demand, these optimizations may not be enough to prevent rising fees. While the protocol offers robust security and eliminates the need for indexer dependencies, it faces challenges related to network congestion and rising transaction costs, especially for high-volume applications.

Balancing high transaction volumes with effective blockspace utilization remains a critical challenge for the network.

Further Developments of CAT20

As the protocol is still in its infancy there are still many open questions about the feasibility of the protocol. One thing is for sure — the community is excited about this new development in the Bitcoin protocol. It also serves as a lesson if and when OP_CAT is being enabled on Bitcoin.

Innovation on Fractal

For CAT Protocol to function on Bitcoin, OP_CAT must be activated.

With CAT’s use of recursive covenants enabled by the OP_CAT opcode, CAT Protocol presents new and exciting development possibilities.

With the activation of OP_CAT on Fractal, Fractal can support more complex, on-chain smart contracts and decentralized applications. This brings new opportunities for developers to create innovative products with greater utility directly on Bitcoin.

The Future of Bitcoin Tokens on Fractal

Fractal Bitcoin fosters innovations like CAT Protocol to push the boundaries of what Bitcoin can achieve. By being an innovation playground for developers, Fractal is committed to nurturing an evolving ecosystem of standards and applications.

Resources

Explore CAT20 tokens on UniSat here: https://explorer.unisat.io/fractal-mainnet/cat20

Building BRC-20 on Fractal? Refer to our resources here.

Building Runes on Fractal? Refer to our resources here.

Disclaimer: CAT20 and CAT Protocol are not affiliated with Fractal. This blog post is for informational purposes only, and intended to help users understand the technology. Readers and community members are advised to do their own research before engaging with any projects or technologies mentioned. Fractal assumes no responsibility for any decisions made based on this information.

Carylyne Chan
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