LIQTO — Confidential OTC RFQ Demo on Liquid (regtest)

A compact, auditable demo that runs a full RFQ → Quote → Atomic settlement flow on a local Liquid-style chain (Elements regtest). It uses Confidential Transactions (CT), PSET, and a CSV timelock reclaim path — no custodians, amounts are blinded.

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What’s in this repo

• rfq_otc.py – the end-to-end demo: creates RFQ, gathers two quotes, builds a blinded joint-settlement PSET with a CSV reclaim path, signs, and broadcasts.
• Uses blech32 addresses for on-chain payments and legacy (P2PKH) addresses for message signing (signmessage / verifymessage), which Elements requires. The script handles this automatically.

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Prerequisites

• Bitcoin Core (unpacked somewhere in $HOME/bitcoin-<ver>/bin)

• Elements Core (on your PATH; tested with 23.x)

• Python 3.10+ and python-bitcoinrpc

  pip install -r requirements.txt

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1) Start Bitcoin Core on an isolated regtest

This keeps mainnet/testnet untouched by using a separate datadir.

# Paths
BTC="$HOME/bitcoin-28.1/bin"   # adjust if needed

# Dedicated datadir + config
mkdir -p ~/.bitcoin-regtest
cat > ~/.bitcoin-regtest/bitcoin.conf <<'EOF'
regtest=1
daemon=1
txindex=1

[regtest]
rpcuser=user3
rpcpassword=password3
rpcbind=127.0.0.1
rpcallowip=127.0.0.1
rpcport=18443
port=18444
fallbackfee=0.0002
EOF

# Start + wait
"$BTC/bitcoind" -datadir="$HOME/.bitcoin-regtest" -daemon
"$BTC/bitcoin-cli" -datadir="$HOME/.bitcoin-regtest" -regtest -rpcwait getblockchaininfo

# Create wallet and mine spendable coins
"$BTC/bitcoin-cli" -datadir="$HOME/.bitcoin-regtest" -regtest createwallet dev
ADDR=$("$BTC/bitcoin-cli" -datadir="$HOME/.bitcoin-regtest" -regtest -rpcwallet=dev getnewaddress)
"$BTC/bitcoin-cli" -datadir="$HOME/.bitcoin-regtest" -regtest generatetoaddress 101 "$ADDR"
"$BTC/bitcoin-cli" -datadir="$HOME/.bitcoin-regtest" -regtest -rpcwallet=dev getbalances

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2) Start Elements (Liquid) regtest with peg-in validation

We’ll peg in regtest BTC → L-BTC on Elements.

# Clean chain if needed (optional)
pkill -f elementsd || true
rm -rf ~/.elements/elementsregtest

# Start Elements with mainchain RPC wired up for peg-ins
elementsd -daemon -chain=elementsregtest -rpcport=18884 \
  -txindex=1 -acceptnonstdtxn=1 -fallbackfee=0.0002 \
  -rpcuser=user -rpcpassword=pass \
  -validatepegin=1 \
  -mainchainrpchost=127.0.0.1 \
  -mainchainrpcport=18443 \
  -mainchainrpcuser=user3 \
  -mainchainrpcpassword=password3

# Wait for RPC
elements-cli -rpcwait -chain=elementsregtest -rpcport=18884 -rpcuser=user -rpcpassword=pass -getinfo

Create a wallet that supports getpeginaddress (non-descriptor):

elements-cli -chain=elementsregtest -rpcport=18884 -rpcuser=user -rpcpassword=pass \
  -named createwallet wallet_name=peg descriptors=false disable_private_keys=false blank=false

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3) Peg in BTC to L-BTC

# Get peg-in address from Elements
PEGJSON=$(elements-cli -chain=elementsregtest -rpcport=18884 -rpcuser=user -rpcpassword=pass -rpcwallet=peg getpeginaddress)
PEGADDR=$(echo "$PEGJSON" | jq -r '.mainchain_address')

# Send 1 BTC on regtest to the peg-in address, then confirm 10 blocks
bc() { "$HOME/bitcoin-28.1/bin/bitcoin-cli" -datadir="$HOME/.bitcoin-regtest" -regtest "$@"; }
TXID=$(bc -rpcwallet=dev sendtoaddress "$PEGADDR" 1)
ADDR=$(bc -rpcwallet=dev getnewaddress)
bc generatetoaddress 10 "$ADDR"

# Produce proof + raw
PROOF=$(bc gettxoutproof '["'"$TXID"'"]')
RAW=$(bc getrawtransaction "$TXID")

# Claim on Elements, then confirm 1 block
CLAIMTX=$(elements-cli -chain=elementsregtest -rpcport=18884 -rpcuser=user -rpcpassword=pass -rpcwallet=peg claimpegin "$RAW" "$PROOF")
MADDR=$(elements-cli -chain=elementsregtest -rpcport=18884 -rpcuser=user -rpcpassword=pass -rpcwallet=peg getnewaddress "" legacy)
UADDR=$(elements-cli -chain=elementsregtest -rpcport=18884 -rpcuser=user -rpcpassword=pass -rpcwallet=peg getaddressinfo "$MADDR" | jq -r '.unconfidential // .address')
elements-cli -chain=elementsregtest -rpcport=18884 -rpcuser=user -rpcpassword=pass generatetoaddress 1 "$UADDR"

# Check L-BTC balance
elements-cli -chain=elementsregtest -rpcport=18884 -rpcuser=user -rpcpassword=pass -rpcwallet=peg getbalances

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4) Run the LIQTO demo

Point the script at your peg wallet:

cd ~/Desktop/liqto
export ELEMENTS_RPC="http://user:[email protected]:18884/wallet/peg"
python3 rfq_otc.py

You should see:

• Pre-flight checks (chain/wallet/RPCs)
• Creation of pay (blech32) and signing (legacy) addresses
• Issuance of a demo asset (as L-USDt)
• Two dealer quotes
• Creation of a blinded PSET with a CSV timelock
• Signing, broadcast, and a settlement TXID

To inspect the transaction:

TXID=<printed-txid>
elements-cli -chain=elementsregtest -rpcport=18884 -rpcuser=user -rpcpassword=pass gettransaction "$TXID"
# Amounts should be blinded (value commitments instead of clear amounts).

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Notes on addresses & signing

• On-chain settlement uses blech32 confidential addresses.
• Message signing uses legacy (P2PKH) addresses because Elements’ signmessage/verifymessage operate on legacy keys.
• The script creates and binds both (pay + signing) per participant; you don’t need to do anything extra.

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Troubleshooting

• “Address does not refer to key” You tried to sign with a confidential address. The script now uses a separate legacy signing address; re-run the demo.

• Fee estimation failed (Bitcoin regtest) Ensure fallbackfee=0.0002 is present in ~/.bitcoin-regtest/bitcoin.conf (under [regtest]), or set a manual fee:

  "$BTC/bitcoin-cli" -datadir="$HOME/.bitcoin-regtest" -regtest -rpcwallet=dev settxfee 0.0001

• Elements lock / already running Only one elementsd instance per datadir. If needed:

  pkill -f elementsd
  rm -f ~/.elements/elementsregtest/.lock

• Old Elements builds Some releases use -chain=liquidregtest instead of elementsregtest. Adjust the -chain flag and CLI calls accordingly.

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Why this matters (quick)

• Privacy by default – CT hides sizes from observers.
• No escrow risk – atomic settlement via PSET.
• Safety valve – CSV timelock lets the client reclaim funds if a dealer stalls.
• Composable RFQ – signed JSON payloads can ride over Nostr/APIs later without changing settlement.

Happy testing 💚