Understanding CAT Protocol: The Latest Player in Bitcoin Token Standards
Last updated
Last updated
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.
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.
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
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.
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
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.
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.
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.
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.
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.
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.