TBV Glossary

Terms used throughout the Trustless Bitcoin Vault (TBV) public testnet documentation.

Aave Adapter. An Ethereum smart contract for TBV-on-Aave operations. It coordinates adding vaults as collateral, borrowing, repaying, withdrawing, and triggering redemption.

Aave v4 Hub. The central liquidity contract in Aave v4 from which spokes draw borrowable assets. The Babylon Core Spoke draws from the Hub when a depositor borrows; repays and liquidations restore liquidity.

Application Registry. Ethereum contract listing the DeFi applications approved to receive vaults as collateral. Currently the only registered application is the Aave v4 integration.

Application Vault Keeper (AVK). An application-scoped Vault Keeper that holds redemption rights over a vault. Under defined conditions it can claim the vault, and it can challenge invalid claims made by other claimers. Each application may name this role differently; in the Aave v4 integration, the Application Vault Keeper is the arbitrageur.

BABE. Proof-verification construction used by the protocol. BABE establishes the challenge framework between each claimer-challenger pair at vault creation. It uses a cut-and-choose protocol with many candidate garbled-circuit instances for dispute resolution. See How it works.

Babylon Core Spoke. A dedicated, isolated Aave v4 market that accepts vaultBTC as collateral. It has its own risk parameters and draws borrowable assets from the Aave v4 Hub.

BitVM3. Bitcoin-side construction family that lets a zero-knowledge proof generated off-chain be verified by Bitcoin's existing script capabilities, without requiring a Bitcoin soft fork.

BTCVaultSwap. The first Liquidation Liquidity Provider registered for the Aave v4 integration. It lets a seized vault be swapped for a fungible asset so that liquidators on the permissionless path can be paid instantly. A registered Application Vault Keeper later acquires the escrowed vault and finalizes the BTC redemption on the Bitcoin Network.

CapPolicy. Ethereum contract enforcing per-application and per-address BTC exposure caps. At vault activation, the contract checks that the activation would not exceed either cap. See Protocol parameters.

Challenge period. A window during which Vault Keepers or Universal Challengers can dispute a claim on the Bitcoin Network. If no challenge arrives before the window closes, the claim finalizes and the BTC is released to the claimer. See How it works.

Cliff effect. The risk that a single-vault position is fully seized at liquidation because each vault is indivisible. Splitting a depositor's BTC into a sacrificial vault and a protected vault at peg-in mitigates this. See Liquidation risk.

Collateral factor. The fraction of a collateral asset's value counted toward borrowing capacity. With a collateral factor of 78%, the current public-testnet value for vaultBTC, $60,000 of BTC supports up to $46,800 of borrows. See Borrow & repay.

Depositor. The Bitcoin holder who creates a vault to use BTC as collateral. The depositor's keys are required at vault creation and at every depositor-controlled release path. In lending contexts, the depositor is also the borrower.

Depositor claim output. A small Bitcoin output produced by the PegIn transaction and controlled solely by the depositor's key. It anchors the depositor self-claim path during peg-out. See Withdraw & redeem.

Fairness debt repay. Compensation mechanism during partial-position liquidation when the over-seizure surplus is less than the depositor's remaining debt. The surplus reduces the depositor's debt rather than being paid out in WBTC. See Liquidation risk.

Fairness payment. Compensation paid to the depositor in WBTC on full-position liquidation when all debt is covered by the seizure and a surplus remains. The over-seizure value is discounted using the ratio of debt liquidated to collateral liquidated, not valued at raw BTC price. The complementary mechanism for partial-position liquidation is fairness debt repay. See Liquidation risk.

Garbled circuit (GC). A cryptographic construction used in the BABE construction to evaluate complex predicates on the Bitcoin Network.

Hashlock. The SHA-256 hash of a 32-byte secret generated at peg-in. The hash is committed on Ethereum; the secret is revealed at activation to unlock the matching Bitcoin transaction. See How it works.

Health factor. Ratio of risk-adjusted collateral value to total debt value. A position is liquidatable when the health factor drops below 1.0. See Liquidation risk.

Liquidation bonus. A discount on seized collateral granted to the liquidator as an incentive to keep the protocol solvent. On the current public testnet, the maximum bonus is 10%.

Liquidation Liquidity Provider (LLP). A contract that provides instant fungible-asset liquidity, such as a wrapped-BTC token, to liquidators while the underlying BTC redemption finalizes asynchronously.

Partial-position liquidation. When a position holds multiple vaults and only the minimum subset of vaults needed to restore the health factor gets seized. The rest remain in the position. The protocol walks vaults in their stored order during liquidation.

Peg-in / peg-out. Peg-in is the process of locking BTC into a vault on Bitcoin and registering the vault on Ethereum. Peg-out is the reverse: a vault is redeemed and the BTC is released back to a Bitcoin address. See How it works.

Protected vault. In a two-vault position, the vault placed second in the liquidation order. It is designed to remain untouched during partial-position liquidation while the sacrificial vault is seized. See Liquidation risk.

Sacrificial vault. In a two-vault position, the vault placed first in the liquidation order. It is sized to cover the protocol's expected seizure amount so that only this vault is seized if the position becomes liquidatable. See Liquidation risk.

SP1 proof. A zero-knowledge proof generated off-chain to prove that an Ethereum event occurred. The proof is then aggregated and verified on Bitcoin through the protocol's proof-verification construction.

Target health factor (THF). The health factor the protocol aims to restore after partial-position liquidation. It is used to compute how many vaults to seize. See Liquidation risk.

Taproot script. A Bitcoin output type with multiple spending paths encoded as separate leaves in a Merkle tree. Each vault's BTC sits in a Taproot address whose leaves cover the protocol's valid spend paths.

Transaction graph. The set of pre-signed Bitcoin transactions covering every legitimate spending path for a vault. It is constructed and signed by all required participants at vault creation. After creation, no participant can fabricate a new spend.

UTXO. Unspent Transaction Output. Bitcoin's accounting model: each piece of bitcoin in circulation is a UTXO that gets fully consumed when spent. Each vault corresponds to exactly one UTXO.

Vault Provider commission. The percentage of BTC a Vault Provider takes from a vault's redemption payout. The rate is embedded in the pre-signed payout transactions at vault creation.

WOTS (Winternitz One-Time Signature). Each vault commits a WOTS public key hash at peg-in. The corresponding private key can only be used once and is the depositor's authorization for the self-claim path. See Withdraw & redeem.

ZK proof. A cryptographic proof that a statement is true without revealing why. The protocol uses ZK proofs to attest, on Bitcoin, that specific Ethereum events occurred on the finalized Ethereum chain. See How it works.