Institutional-Grade Layer-2 for Bitcoin DeFi on Cardano, in collaboration with BitcoinOS, Tesseract and More

[GENERAL] Name and surname of main applicant

Sheldon Hunt

[GENERAL] Are you delivering this project as an individual or as an entity (whether formally incorporated or not)

Entity (Not Incorporated)

[GENERAL] Co-proposers and additional applicants

Main Proposer: Sheldon Hunt - Independent

Co-Proposer: Shay Gammer - Tesseract 

Co-Proposer: Edan Yago - BitcoinOS

Partner: Jing Xiong Hwang - Solv

Partner: Jack Yang - LTP

Partner: Anastasia Labs

[GENERAL] Requested funds in ada

1800000

[GENERAL] Please specify how many months you expect your project to last (from 2-12 months)

9

[GENERAL] Please indicate if your proposal has been auto-translated into English from another language

No

[GENERAL] Summarize your solution to the problem (200-character limit including spaces)

A Bitcoin-centric Cardano L2 for enhanced scalability, increased speed, and cost-efficiency for DeFi, high-frequency trading, asset minting, and Bitcoin staking - without congesting the L1.

[GENERAL] Does your project have any dependencies on other organizations, technical or otherwise?

Yes

[GENERAL] If YES, please describe what the dependency is and why you believe it is essential for your project’s delivery. If NO, please write “No dependencies.”

1) Collaborative work with Anastasia Labs in collaboration with Midgard’s technological development for L2 functionality.

2) BitcoinOS's Grail Bridge for trustless BTC-ADA linkages through ZK technology.

[GENERAL] Will your project’s output/s be fully open source?

Yes

[GENERAL] Please provide here more information on the open source status of your project outputs

All infrastructure outputs will be fully open-source under MIT licence, and available on Github.

[METADATA] Horizons

L2

[SOLUTION] Please describe your proposed solution

Introducing Sundial - a revolutionary approach to joint BTC-ADA DeFi that will create a seamless application layer between Bitcoin's vast liquidity and Cardano's advanced smart contract capabilities. With over $500B+ in Bitcoin currently dormant and unable to participate in DeFi activities, our solution addresses a critical market gap while maintaining the highest standards of security and compliance that institutions demand, all while onboarding new users and liquidity to Cardano.

Hybrid Layer-2 Architecture

At the core of Sundial lies an innovative layer-2 solution that leverages Cardano's robust infrastructure. Built in collaboration with Anastasia Labs and their layer-2 Midgard, our architecture will ensure both security and high performance for institutional users. The system will maintain security through regular checkpointing to Cardano mainnet while handling high-frequency transactions efficiently at the layer-2 level.

Key architectural features include:

• Optimised transaction processing for institutional volumes
• Advanced mempool management for predictable execution
• Efficient reward distribution mechanisms
• Scalable infrastructure designed for growing demand

Trustless Bitcoin Bridge

Through our partnership with BitcoinOS a groundbreaking trustless bridge is being built that eliminates the risks associated with traditional Web3 bridging solutions. Powered by ZK-proofs, this system enables secure cross-chain transactions while maintaining the decentralised nature of both networks.

The bridge implementation provides:

• Zero-knowledge proof validation for Bitcoin transactions
• Automated custody and release mechanisms
• Real-time transaction verification
• Multi-signature security protocols (if selected for)

Institutional-Grade Features

Sundial is to be designed from the ground up to meet the exacting requirements of institutional clients. We understand that institutional adoption requires more than just technical excellence – it demands a comprehensive suite of features that enable compliance, reporting, and risk management.

We partnered with Tesseact Investment to help design the institutional infrastructure that will include comprehensive compliance tools, sophisticated reporting systems, and advanced security measures. The platform will support multi-signature wallet integration and provide detailed audit trails for all transactions, meeting the stringent requirements of institutional risk management frameworks.

Native Token Utility

The planned Sundial token will serve as the cornerstone of the ecosystem, enabling multiple crucial functions within the network. Through careful tokenomic design, we'll create a sustainable system that incentivises network security and promotes wider ecosystem growth and development.

Token utilities encompass:

• Governance participation rights
• Network security incentives
• Liquidity provision rewards
• Cross-chain transaction fee optimisation

Target Market

Our solution specifically addresses:

• BTC holders seeking yield on previously dormant assets
• Institutional investors requiring secure, compliant DeFi access
• Cardano ecosystem participants looking for enhanced liquidity
• Holders of Wrapped-BTC on EVM chains who are looking for more security and functionality then is currently available to them

[IMPACT] Please define the positive impact your project will have on the wider Cardano community

Sundial's introduction to the Cardano ecosystem will create substantial value across multiple dimensions, filling gaps, fostering growth, and innovating all while maintaining security and decentralisation.

Ecosystem Growth

The integration of Bitcoin liquidity into Cardano's DeFi ecosystem through BitcoinOS represents a watershed moment for both networks. We anticipate achieving $100M+ in Total Value Locked (TVL) within the first twelve months of mainnet operation, driven by institutional participation and enhanced liquidity options.

This growth will manifest through:

• Active institutional participation in Cardano DeFi
• Enhanced liquidity across existing protocols
• New yield opportunities for Bitcoin holders
• Cross-chain trading activities

Technical Innovation

Beyond immediate financial metrics, Sundial advances Cardano's technical capabilities in several crucial ways. As the first institutional-grade layer-2 solution on Cardano, we're establishing patterns and practices that will benefit the entire ecosystem.

Institutional Adoption Framework

We're creating a clear pathway for institutional participation in the Cardano ecosystem. This includes developing compliant DeFi infrastructure, professional trading capabilities, and enhanced security measures that meet institutional standards.

Success metrics will be tracked through both quantitative and qualitative measures:

Quantitative Metrics:

• Daily active users and transaction volumes
• Average transaction size and frequency
• Number of institutional participants
• Cross-chain flow measurements

Qualitative Assessments:

• Institutional user feedback and satisfaction
• Ecosystem partner integration success
• Community engagement levels
• Developer adoption rates

[CAPABILITY & FEASIBILITY] What is your capability to deliver your project with high levels of trust and accountability? How do you intend to validate if your approach is feasible?

Capability to Deliver with Trust and Accountability

To ensure Sundial’s success, we have assembled a skilled team with extensive experience in blockchain development, DeFi, and cross-chain solutions. Our team includes blockchain engineers with experience in the Cardano ecosystem, cryptography experts for secure cross-chain transactions, and project managers experienced in delivering complex blockchain products on schedule and within scope. Additionally, we have partnered with established security auditors who specialise in decentralised finance and cross-chain protocols to ensure Sundial meets the highest standards of trust and security.

To build accountability:

• Transparent Development Process: We commit to regular updates and open-source parts of our codebase to allow community feedback and auditing. Using GitHub and community forums, we will keep stakeholders updated on our progress, including timelines, achievements, and challenges.
• External Audits and Code Reviews: All critical elements of the protocol, such as our staking engine, cross-chain bridge, and smart contracts, will be audited by third-party security firms before launch. This includes testing for security, resilience, and regulatory compliance to instil confidence in our approach.
• User-Focused Testing: We will conduct a thorough public testnet phase, allowing users and developers to test Sundial’s functionalities. The testnet phase will validate the protocol’s reliability, scalability, and ease of use while providing opportunities for community involvement and feedback.

Approach to Validate Feasibility

To ensure the feasibility of Sundial, our approach will involve rigorous research, prototyping, and testing at every development stage:

• Comprehensive Feasibility Research: In the early phases, we conduct thorough feasibility research, including technical, financial, and regulatory assessments. This will include detailed testing of our integration with BitcoinOS for the trustless bridge functionality and alignment with Cardano’s framework for a seamless layer-2 experience.
• Prototype and Simulation Testing: Before deploying to the testnet, we will develop prototypes of critical components, including the staking and cross-chain bridge modules, to validate their functionality in simulated environments. This testing will ensure that our chosen architecture and technology stack can support the protocol’s intended functionality, security, and scalability.
• Testnet Evaluation and Iteration: We will launch a robust public testnet to test Sundial’s functionality under real-world conditions, allowing us to fine-tune performance based on user behaviour and demand. We will conduct stress testing for transaction volume, bridge functionality, and smart contract interactions. This phase will provide critical data to validate and optimize Sundial before mainnet deployment.

By following this phased and transparent approach, Sundial will be positioned to deliver a high-quality, trusted, and accountable product to the Cardano and Bitcoin communities.

[PROJECT MILESTONES] What are the key milestones you need to achieve in order to complete your project successfully?

Milestone 1: Research, Tokenomics, and Alignment (Month 1)

Outputs:

• Comprehensive project whitepaper and technical documentation
• Detailed tokenomics model, outlining staking incentives, reward structures, and utility functions
• Alignment with Cardano's ecosystem requirements and integration protocols with BitcoinOS

Acceptance Criteria:

• Approved whitepaper covering Sundial's objectives, technical approach, and value to Cardano and Bitcoin holders
• Tokenomics model validated to ensure balanced incentives, sustainable rewards, and economic viability
• Confirmed strategic alignment with the Cardano Foundation and other on the Cardano side, and compatibility with BitcoinOS protocols

Milestone 2: Requirements and Architecture (Month 2)

Outputs:

• Technical requirements document specifying the layer-2 infrastructure, staking mechanism, and DeFi functionality
• System architecture blueprint detailing component interactions, data flow, and integration points with BitcoinOS and Cardano
• Risk assessment and security planning for cross-chain transactions and digital asset safety

Acceptance Criteria:

• Requirements document approved, with specifications validated by development team and stakeholders
• Completed architecture blueprint ensuring scalability, security, and optimal functionality, approved by engineering leads
• Comprehensive risk assessment, with identified vulnerabilities addressed and mitigation strategies in place

Milestone 3: Core Development (Months 4-5)

Outputs:

• Development of core components, including the staking engine, BitcoinOS bridge, and smart contracts for DeFi features
• Layer-2 infrastructure for efficient staking, rewards distribution, and transaction scaling on Cardano
• Initial user interface prototype for Sundial's staking and DeFi functionalities

Acceptance Criteria:

• Core components functional and passing initial tests for staking, bridge integration, and DeFi transactions
• Operational staking engine on testnet, simulating BTC staking functionality in a controlled environment
• Preliminary user interface completed and approved for internal testing, meeting functional requirements

Milestone 4: Testing and Security (Months 5-6)

Outputs:

• Comprehensive testing of Sundial's infrastructure, bridge protocols, and smart contracts
• Security audits for bridge protocols, staking mechanisms, and cross-chain transactions
• Stress tests to assess scalability and stability under peak transaction volumes

Acceptance Criteria:

• Successful completion of functional tests for staking, bridge integration, and DeFi transactions
• Security audits with no critical vulnerabilities, with all identified issues addressed
• Scalability tests confirm system performance under high transaction volumes without degradation

Milestone 5: Integration and Optimization (Months 7-8)

Outputs:

• Full integration of all components, including staking, trustless bridge, and interoperability with Cardano
• Optimization of smart contracts for performance and cost efficiency
• Enhanced user interface with refined functionality for seamless staking and DeFi experiences

Acceptance Criteria:

• Integrated system performs as expected across Cardano and BitcoinOS, meeting all performance and functionality benchmarks
• Optimised smart contracts improve transaction efficiency, lowering costs and increasing processing speed
• Finalised user interface, achieving positive user feedback and meeting all functional requirements

Final Milestone: Marketing and Testnet - Prep for Launch (Month 9)

Outputs:

• Creation of marketing materials and educational content to inform users about Sundial's features, staking rewards, and usage
• Launch of the Sundial public testnet, enabling selected users to test features and provide feedback
• Final review and completion of all documentation, user guides, and support resources

Acceptance Criteria:

• Marketing strategy executed with materials that engage and educate potential users
• Successful public testnet, with user feedback collected and final improvements identified for mainnet launch
• Completed documentation and support materials, ready for mainnet deployment and user onboarding

[RESOURCES] Who is in the project team and what are their roles?

Our consortium brings together industry leaders in blockchain technology, institutional asset management, and DeFi development. Each partner has been strategically selected for their unique expertise and proven track record, creating a powerful alliance capable of delivering this ambitious project.

Core Technical Partners

Anastasia Labs - Technical Development Lead

Anastasia Labs brings extensive expertise in Cardano protocol development and L2 solutions, with a proven track record of successful deployments. Led by Philip DiSarro, a recognized expert in compiler & programming language research, the team will spearhead the technical development of Sundial.

Key responsibilities:

• L2 architecture design and implementation
• Plutus smart contract development
• Security architecture and auditing
• Performance optimization and scalability solutions

BitcoinOS (Led by Edan Yago) - Bitcoin Integration Lead

As pioneers in Bitcoin protocol development, BitcoinOS brings crucial expertise in trustless bridge architecture. Their team has demonstrated success in creating secure cross-chain solutions and will be instrumental in building the Bitcoin-Cardano bridge.

Core deliverables:

• Implementation of trustless Bitcoin-Cardano bridge
• Security protocol development
• Cross-chain atomic swap mechanisms
• Bitcoin transaction validation system

Strategic Partners

Tesseract (Led by Shay Gammer) - Institutional Integration

Tesseract's deep experience in institutional crypto asset management makes them ideal for leading our institutional integration efforts. Their team understands the unique requirements of institutional clients and will ensure Sundial meets the highest standards of compliance and security.

Focus areas:

• Institutional compliance framework development
• Market making and liquidity provision
• Risk management systems implementation
• Institutional onboarding protocols

Solv (Led by Jing Xiong Hwang) - DeFi Architecture

Solv brings innovative approaches to DeFi protocol development and financial product design. Their expertise in complex DeFi mechanisms will be crucial for creating sophisticated financial products on Sundial.

Primary contributions:

• Financial product design and implementation
• Liquidity management systems
• Yield generation strategies

LTP (Led by Jack Yang) - Strategic Development

With daily trading volumes exceeding $3B and global leadership as a digital prime broker, LTP provides strategic guidance and liquidity development expertise. Their involvement ensures Sundial will be well positioned for institutional adoption and integration.

Strategic focus:

• Market expansion planning - strong focus on Asia
• Partnership development
• Web3 integration frameworks
• Institutional adoption strategies

Technical Implementation

Fluid Tokens - Smart Contract Development

The Fluid Tokens team brings specialised expertise in smart contract development and infrastructure. Led by Matteo Coppola and Raul Antonio Rosa Padilla, they will ensure robust technical implementation.

Implementation priorities:

• Smart contract development and auditing
• Infrastructure optimization
• Off-chain integration systems
• Performance monitoring and enhancement

DeFi Integration Ecosystem

We have established partnerships with leading Cardano DeFi protocols to create a comprehensive financial ecosystem. Each partner brings specific capabilities that enhance Sundial's overall offering: Maestro will provide advanced tooling for backend functionality and infrastructure, while DeltaDeFi adds sophisticated high-frequency trading capabilities, creating an institutional-grade DeFi suite within Sundial's version of Hydra.

Partner contributions:

• Maestro: tooling and infrastructure
• DeltaDeFi: High-frequency trading of derivatives and synthetic assets
• More partnerships in discussion and to be announced soon.

[BUDGET & COSTS] Please provide a cost breakdown of the proposed work and resources

Total Budget Request: 1,800,000 ADA

Milestone-Based Budget Allocation

Milestone 1: Research, Tokenomics and Alignment (Month 1)

Budget: 250,000 ADA

• Research and Tokenomics Team: 100,000 ADA
• Documentation: 50,000 ADA
• Project Management: 50,000 ADA
• Legal and Compliance Initial Review: 50,000 ADA

Milestone 2: Requirements and Architecture (Month 2)

Budget: 350,000 ADA

• Development Team: 200,000 ADA
• Core protocol development
• Smart contract implementation
• Testing framework creation
• Integration Framework: 75,000 ADA
• Project Management: 50,000 ADA
• Documentation: 25,000 ADA

Milestone 3: Core Development (Months 4-5)

Budget: 350,000 ADA

• Security Audits: 150,000 ADA
• Multiple third-party audits
• Penetration testing
• Code review
• Testing Team: 100,000 ADA
• Development Team: 50,000 ADA
• Project Management: 50,000 ADA

Milestone 4: Testing and Security (Months 5-6)

Budget: 350,000 ADA

• Integration Development: 150,000 ADA
• Performance Optimization: 100,000 ADA
• Partner Integration Support: 50,000 ADA
• Project Management: 50,000 ADA

Milestone 5: Integration and Optimization (Months 7-8)

Budget: 300,000 ADA

• Final Security Audit: 100,000 ADA
• Marketing and Community: 75,000 ADA
• Documentation and Training: 75,000 ADA
• Project Management: 50,000 ADA

Final Milestone: Marketing and Testnet - Prep for Launch (Month 9)

Budget: 200,000 ADA

• Launch Support: 75,000 ADA
• Community Handover: 50,000 ADA
• Final Documentation: 25,000 ADA
• Contingency: 50,000 ADA

Budget Management and Control

To ensure effective budget utilisation, we implement:

1. Milestone-based Release Schedule

• Funds released upon milestone completion
• Clear deliverables tied to each payment
• Regular financial reporting to community

1. Financial Controls

• Multi-signature treasury management
• Monthly financial reviews
• Transparent reporting structure
• Budget variance analysis

1. Value Optimization Measures

• Partner resource leveraging
• Shared infrastructure utilisation
• Efficient team allocation
• Technology reuse where appropriate

Additional Funding Sources

While the requested 1,800,000 ADA covers core development, our partners contribute additional resources:

Partner Contributions:

• BitcoinOS: Bridge infrastructure support
• Tesseract: Market making resources
• Solv: DeFi protocol expertise
• LTP: Partnership and marketing support
• Anastasia Labs: Technical infrastructure

We have to be honest with all involved that there may be a need to have a VC fund raising round to carry the development of Sundial on into completion, as costs for future marketing and ecosystem development aren’t included here and finalising technical development might require additional resources. Should there be a need for additional funding however, there will be no future attempts to draw from Catalyst. The bootstrap funding from Fund 13 will be all that the team will ever request from the Cardano treasury and community.

[VALUE FOR MONEY] How does the cost of the project represent value for money for the Cardano ecosystem?

Sundial represents an exceptional value proposition for the Cardano ecosystem, with potential impact far exceeding the requested funding.

Immediate Market Impact

Our solution unlocks significant value by integrating Bitcoin's massive liquidity into Cardano's DeFi ecosystem. With over $500B+ in Bitcoin currently inactive in DeFi, capturing even a small percentage creates substantial value:

Potential Value Creation:

• 1% market capture = $5B in new TVL
• Enhanced DeFi protocol liquidity
• New revenue streams from institutional trading
• Increased ADA utility and demand

Technical Innovation Value

The development of Sundial advances Cardano's technical capabilities in several crucial areas:

Long-term Benefits:

• First institutional-grade L2 solution
• Reusable components for future development
• Enhanced cross-chain capabilities
• Quantum resistance research advancement

Partnership Leverage

Our budget efficiently leverages partner resources and expertise:

Cost Optimization:

• Shared development costs with partners
• Combined marketing efforts
• Joint security infrastructure
• Collaborative testing environments

Market Competitiveness

The requested budget is highly competitive when compared to similar infrastructure projects:

• Average L2 development costs: $5-10M
• Typical bridge development: $3-5M
• Standard institutional DeFi platforms: $8-15M

Our ability to deliver this solution for 1.8M ADA demonstrates exceptional value, achieved through:

• Efficient resource allocation
• Partner contribution leverage
• Existing technology adaptation
• Team expertise utilisation

Ecosystem Growth Potential

Investment in Sundial catalyses broader ecosystem development:

Growth Drivers:

• New institutional participants
• Enhanced developer tools
• Expanded use cases
• Increased protocol adoption

Sustainable Revenue Generation

The project creates multiple revenue streams for the Cardano ecosystem:

Revenue Sources:

• Transaction fees
• Bridge utilisation fees
• Institutional service fees
• Protocol integration fees

This sustainable revenue model ensures long-term value creation well beyond the initial investment. By creating new economic opportunities while advancing Cardano's technical capabilities, Sundial delivers exceptional value per ADA invested.