The 1800 BTC incident has caused a lot of buzz. I was interested in the fake TVL of Bitcoin ecosystem projects, so I went to learn more about it.

It's roughly like this. Since Bitcoin uses the UTXO (Unspent Transaction Output) model, the same UTXO can be "approved for use" multiple times.

UTXO can be understood as a banknote of any Bitcoin amount, and a Bitcoin account consists of multiple such banknotes.

For more UTXO content, you can read the referenced article 🔻

The problem lies in this "approval for use", which means: I "plan" to give the Bitcoin represented by this part of UTXO to a certain project party as TVL, but I don't actually transfer the Bitcoin to it, nor will I lock the Bitcoin.

It's a bit like Ethereum and Ethereum compatible chains giving the authority of the tokens in the wallet to other contracts, and the contract can actively transfer the tokens;

However, after this "approval for use" of Bitcoin, the project party still needs the user's consent before using this asset.

Then, this "approval for use" can be multiple times, that is, the Bitcoin represented by the same UTXO can have multiple "plans", such as approving the use of project A, project B, and project C at the same time. Perhaps this is really killing two birds with one stone!

The problem caused by this is not only the false TVL of a single project, but even repeated TVL.

Originally, Pipi thought it was a technical problem, but in fact, it is possible to avoid counting such invalid TVL when counting, such as only counting BTC that has actually been transferred to the project's multi-signature wallet or only counting BTC that has been locked in the project's smart contract.

However, this matter is now a Rashomon, and it is hard to say whether there are any products that really do this.

I don't know if my understanding of this false TVL is correct. If there is any error, please point it out!