BTC Lightning ↔ Hydra Atomic Bridge (HTLC Non-Custodial MVP)

[Proposal setup] Proposal title

Please provide your proposal title

BTC Lightning ↔ Hydra Atomic Bridge (HTLC Non-Custodial MVP)

[Proposal Summary] Budget Information

Enter the amount of funding you are requesting in ADA

185000

[Proposal Summary] Time

Please specify how many months you expect your project to last

5

[Proposal Summary] Translation Information

Please indicate if your proposal has been auto-translated

Yes

Original Language

vi

[Proposal Summary] Problem Statement

What is the problem you want to solve?

Cardano lacks a non-custodial bridge to Lightning, preventing Hydra and Cardano dApps from receiving micropayments, enabling atomic swaps, and accessing the Lightning user ecosystem.

[Proposal Summary] Supporting Documentation

Supporting links

• https://github.com/Vtechcom/hydra-htlc-demo
,
• https://youtu.be/LQXRNLZo5o0?si=D1-w3zzX5VVD5rT7

[Proposal Summary] Project Dependencies

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

Yes

Describe any dependencies or write 'No dependencies'

Although most of the project’s architecture and codebase can be implemented independently, there are key technical dependencies tied to the ongoing development of Hydra maintained by IOG. However, this risk is mitigated by our direct experience working with the Hydra Core Team at IOG

[Proposal Summary] Project Open Source

Will your project's outputs be fully open source?

Yes

Please provide details on the intellectual property (IP) status of your project outputs, including whether they will be released as open source or retained under another licence.

The entire project source code will be open-sourced under the Apache 2.0 license.

[Theme Selection] Theme

Please choose the most relevant theme and tag related to the outcomes of your proposal

Layer2

[Campaign Category] Category Questions

Describe what makes your idea innovative compared to what has been previously launched in the market (whether by you or others).

Our idea introduces capabilities not previously available on Cardano or in the broader market:

• First-ever Lightning <-> Hydra atomic bridge using HTLCs — no existing project connects Bitcoin L2 to Cardano L2 through a non-custodial mechanism.
• Non-custodial, stateless design — no user funds held, no centralized liquidity provider, significantly reducing bridge risk.
• HTLC validator running fully inside a Hydra Head — enabling the first atomicity between the UTxO and eUTxO models.
• Real-time micropayments with <2-second latency — unlocking new use cases such as streaming, IoT, and gaming.
• Open-source educational infrastructure that Cardano developers can reuse for future L2/L2 bridging solutions.

Describe what your prototype or MVP will demonstrate, and where it can be accessed.

The MVP delivers a fully functional Lightning <-> Hydra atomic transfer demo, publicly accessible:

• A working HTLC-based fund transfer from Lightning Network → Hydra Head → Lightning.
• A browser-based UI demo showing the full state machine in real time: lock → claim → refund.
• An Aiken HTLC validator running inside a Hydra Head, demonstrating the feasibility of cross-L2 eUTxO HTLCs.
• An open-source codebase on GitHub (Bridge Service, Lightning regtest scripts, Hydra SDK integration).
• A Docker Compose environment allowing any developer to run the demo within minutes.

Describe realistic measures of success, ideally with on-chain metrics.

Measurable and verifiable outcomes:

• 500+ successful Lightning <-> Hydra HTLC swaps executed in the demo environment.
• Latency < 2 seconds for LN → Hydra claim operations (recorded in bridge metrics).
• Zero lost funds across all test scenarios (atomicity fully verified).
• 100% of milestone test cases PASS, including timeout/refund flow, hash-lock validation, and crash recovery.
• GitHub engagement metrics: repository achieving 100+ stars/forks from the Cardano & Lightning developer community.
• Developer adoption: at least 5 developer teams/hackathon groups using the MVP to explore cross-L2 integrations.

[Your Project and Solution] Solution

Please describe your proposed solution and how it addresses the problem

Currently, Cardano has no decentralized, trustless (non-custodial) mechanism for transferring value between the Lightning Network (Bitcoin L2) and Hydra Head (Cardano L2). This prevents Cardano dApps from accessing millions of Lightning users, receiving micropayments, and slows down Hydra/Cardano adoption due to the lack of real external liquidity.

Our solution is to build a fully open-source Lightning <-> Hydra HTLC Bridge, enabling cross-L2 value transfers that are atomic, trustless, and near-instant. This approach directly solves the problem through HTLCs — a proven cryptographic primitive deployed on both Lightning and Hydra.

The project consists of the following key components:

1. HTLC Smart Contract running inside Hydra Head (Aiken)

We will develop an Aiken validator that implements:

• Hash-lock: funds can only be claimed by revealing the correct preimage.
• Time-lock: funds automatically refund after expiry.
• Atomicity: Hydra unlocks funds only if Lightning has already revealed the valid secret.

This forms the foundation for safe cross-L2 interoperability, and builds directly on the Hydra<->Hydra HTLC demo we released and which was acknowledged by the Hydra Core Team.

2. Bridge Service (stateless coordination engine)

We will build a stateless backend responsible for:

• Creating Lightning and Hydra HTLCs using the same hash h.
• Monitoring Lightning payment events.
• Automatically retrieving preimage x upon LN payment.
• Broadcasting the claim transaction on Hydra.
• Managing timeout and refund logic end-to-end.

A stateless architecture ensures the bridge never holds user funds, requires no liquidity providers, and avoids the centralization risks common in cross-chain bridges.

3. Lightning Regtest Environment

To ensure anyone can reproduce the demo:

• Initialize an LND regtest node via Docker.
• Provide scripts to create invoices, perform payments, and simulate HTLC flows.
• Allow developers to run the full atomic swap pipeline without external infrastructure.

4. Browser-based Demo Interface

The UI will showcase:

• The full HTLC lifecycle in real time: lock → claim → refund
• Event logs from Lightning and Hydra
• Transaction list, swap status, and error cases
• Visual explanations suitable for workshops, hackathons, and education

This helps developers easily understand and adopt cross-L2 models.

5. Complete Documentation & Guides

We will publish:

• Architecture diagrams
• State machine specifications
• dApp integration guides
• Example code
• A 2–3 minute demo video

All made public for transparency and extensibility.

Client Screenshot:

Server Screenshot:

Why this approach is the best fit

• HTLCs are a long-established, reliable cryptographic mechanism used extensively on Bitcoin, Lightning, and other atomic swap bridges.
• Hydra offers fast confirmation and snapshot events, ideal for atomic bridging.
• Lightning is the world’s largest L2 payment network, so connecting it to Cardano creates immediate value.
• The non-custodial design eliminates security and centralization risks.
• Our team is among the very few who have already implemented HTLCs inside Hydra successfully.

Who benefits from this solution

• Cardano dApp developers needing real-time payments or micropayments
• Lightning users wanting access to Cardano’s ecosystem
• Researchers and educators teaching cross-L2 interoperability
• Hydra operators gaining practical use cases
• The broader Cardano community, which gains a pathway to the Bitcoin ecosystem

How we will prove solution effectiveness

We commit to delivering all of the following:

• Fully open-source MVP runnable via Docker
• A live demo of Lightning <-> Hydra value transfer
• 500+ successful test transactions
• Zero lost funds across all timeout/refund scenarios
• Latency benchmark under 2 seconds

Why we propose this after extensive ecosystem research

Through analysis of Cardano’s needs and exploration of Bitcoin’s architecture, we identified strong benefits for Cardano:

This will be the first non-custodial bridge between Cardano and Lightning, creating real liquidity flow, real users, and enabling applications such as:

• Payment streaming
• On-chain gaming
• IoT micropayments
• Hydra multi-hop routing
• Future cross-L2 DeFi models

It lays the foundation for long-term interoperability between Cardano and the Bitcoin ecosystem — a major step forward for Cardano L2.

[Your Project and Solution] Impact

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

The project creates the first decentralized payment bridge between the Lightning Network and Hydra Head, enabling real-time interoperability between Bitcoin’s largest L2 and Cardano’s L2. Its impact spans liquidity, practical adoption, developer community growth, and long-term multi-layer interoperability.

1. Value the project brings to the Cardano ecosystem

a. Unlocking liquidity flow from Lightning → Cardano

Lightning has millions of active users and is the most mature micropayment ecosystem.

The bridge enables:

• Cardano dApps to receive real payments from Lightning users
• Attraction of external liquidity into Cardano
• Increased visibility of Cardano within the Bitcoin community

This creates a direct and measurable boost to ecosystem adoption.

b. Delivering Cardano’s first cross-L2 payment route

With Hydra’s near-instant confirmations, the bridge unlocks new use cases:

• Real-time gaming
• IoT payments
• Streaming & micropayments
• Real-time DeFi

No current project on Cardano provides these capabilities.

c. Strong educational impact

The open-source demo is ideal for:

• Developers studying L2 interoperability
• University workshops
• Hackathons
• Research on atomic swaps and payment channels

This strengthens long-term technical capacity in the Cardano community.

d. Foundation for future multi-L2 interoperability standards

The bridge lays the groundwork for:

• Hydra <-> Hydra multi-hop routing
• Cross-L2 stablecoin payments
• Cross-L2 DeFi
• Interoperability tools for upcoming Cardano L2s

This prepares Cardano for a multi-L2 future.

2. How we measure impact

Quantitative indicators

• ≥ 500 successful Lightning <-> Hydra HTLC transactions in demo/test
• < 2-second latency from Lightning payment to Hydra claim
• 0 cases of lost funds, validated through full timeout/refund test scenarios
• ≥ 5 developer/hackathon teams using the toolkit for cross-L2 research

Qualitative indicators

• Positive feedback from Hydra and Lightning developers
• Increased awareness of Cardano’s L2 scalability
• Mentions of the project in AMAs, workshops, and Hydra technical materials

3. How we share results with the community

All components will be open-source and publicly available, including:

• GitHub (Apache 2.0 License): Bridge Service, Aiken HTLC validator, Lightning regtest, UI demo, documentation
• 2–3 minute demo video: shared via X, Discord, GitHub Pages, and Hydra/Cardano developer groups
• Technical documentation & architecture diagrams: published on GitHub Wiki and shared with Cardano developer communities
• Community presentations: at Hydra developer meetings
• Developer guides: enabling anyone to run, extend, or integrate the project

All of this ensures the community can fully benefit from and build upon the results.

[Your Project and Solution] Capabilities & 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?

Hydra is a powerful technology with unique advantages in speed and cost efficiency, creating strong appeal not only for developers but also for investors exploring Cardano. We felt the same — two years ago, we were deeply curious about this technology and became fascinated by its potential for building high-performance applications.

However, Hydra still has several technical challenges, as well as infrastructure and developer tooling gaps, that must be addressed before it can be widely deployed in real-world systems. Over more than a year of research, direct collaboration, and support from our wonderful friends at IOG and within the community, we began building a suite of tools and infrastructure solutions for the Hydra ecosystem, including:

• Hydra SDK (dApp development toolkit for Hydra), available at: https://hydrasdk.com/
• Hydra Playground (transaction builder for Hydra dApp development), available at: https://play.hydrasdk.com/
• Hydra HTLC Demo (asset transfer between Hydra Heads), open-sourced at: https://github.com/Vtechcom/hydra-htlc-demo
• Hydra Wallet, Hydra Explorer, and experimental game applications, available at: https://hydrawallet.app/
• And especially Hydra Hexcore and the Hydra Hub Infrastructure Solution, which provide automated deployment of Hydra Nodes / Hydra Heads, optimized for the lowest operational cost. These are being finalized and prepared for real-world launch at: https://hydrahub.io.vn/

These tools and products are now being adopted by the community and developer teams. Our team supported participants at the Cardano Hackathon Vietnam 2025, and we will continue providing support at the upcoming Cardano Hackathon Asia 2025 – IBW Edition in India (https://indiablockchainweek.com/ ) For this event, we provide Hydra Head environments, integration guidance for Hydra SDK, assistance with off-chain/on-chain transaction workflows, and help teams build complete dApps in a short timeframe.

This experience demonstrates that our team deeply understands Hydra’s architecture, L1–L2 state synchronization mechanisms, and effective smart contract design for Layer 2.

We also continue to actively explore, debug, propose functional ideas, and contribute code to improve the Hydra protocol alongside the IOG Hydra Core Team: https://github.com/cardano-scaling/hydra/issues?q=author%3Aaniadev

We are confident this solution is highly feasible because:

• The technology is based on HTLCs, a mechanism already proven on Lightning & Bitcoin. We do not need to reinvent anything — only apply the correct cryptographic design within Hydra.
• Hydra’s capabilities are ready: full support for events, snapshots, and transaction submission make it ideal for building atomic bridges.
• Our HTLC demo between Hydra Heads has already been successfully implemented — the hardest part of this project.
• Lightning regtest & LND APIs are stable, enabling a fast and reliable MVP.
• Our internal tools (SDK, Playground, Hexcore) significantly accelerate development.

These provide a strong foundation ensuring that the Lightning <-> Hydra Bridge project is entirely within our team’s current capabilities.

We commit to a development process that is reliable, transparent, and accountable:

• 100% open-source code on GitHub from day one
• Milestone-by-milestone reporting with 100% PASS test-case CSV/XLSX results
• Public demo videos and technical documentation for the community
• Independent testing via Lightning regtest & Hydra Head environments
• Clear versioning & releases for each milestone
• Secure, non-custodial architecture: the bridge never holds user funds

[Milestones] Project Milestones

Milestone Title

Foundation & Infrastructure Setup

Milestone Outputs

• Full architecture documentation for the Lightning <-> Hydra HTLC Bridge
• LND regtest environment (Docker)
• Hydra Head development environment
• Aiken HTLC validator (skeleton + hashing + time-lock logic)
• API specification (OpenAPI)
• Core data schema & state machine design

Acceptance Criteria

• LND successfully creates invoices and emits events
• Hydra Head launches and broadcasts snapshots correctly
• Hash-lock validated successfully in the HTLC skeleton
• API shows all HTLC-related endpoints

Evidence of Completion

• m1-testcases.xlsx — 100% PASS
• Logs screenshots from LND + Hydra
• API Swagger screenshot
• GitHub commit + tag v1.0-M1

Delivery Month

1

Cost

40000

Progress

20 %

Milestone Title

Core Bridge Logic & Lightning Integration

Milestone Outputs

• Lightning Payment Watcher (listens to invoice updates)
• Preimage extractor
• Full Hydra HTLC validator
• Stateless Bridge Orchestrator
• Timeout & refund logic
• CLI Test Tool (manual end-to-end swap testing)

Acceptance Criteria

• Successful Lightning → Hydra atomic swap (happy path)
• Lightning preimage is used to claim on Hydra
• Hydra timeout → correct refund per time-lock
• Bridge restarts without losing state (stateless recovery OK)
• Swap failure → correct refund behavior

Evidence of Completion

• m2-testcases.xlsx — 100% PASS
• Internal test video clip (non-final demo)
• Logs: invoice paid → preimage → claim → success
• GitHub tag v1.0-M2

Delivery Month

2

Cost

60000

Progress

50 %

Milestone Title

Browser Demo UI + Documentation

Milestone Outputs

Browser UI with 3 panels:

• Lightning Panel
• Hydra HTLC Panel
• Real-time Bridge Logs

State machine visualizer

User Guide, Developer Guide, Architecture Docs

End-to-end Docker Compose environment

Acceptance Criteria

• UI accurately visualizes HTLC states: lock → claim → refund
• Real-time logs from Lightning & Hydra
• UI supports full end-to-end swap cycle
• Documentation enables new users to run the demo in < 30 minutes

Evidence of Completion

We will provide:

• m3-testcases.xlsx — 100% PASS
• UI screenshots
• Docker Compose run video
• GitHub tag v1.0-M3

Delivery Month

1

Cost

45000

Progress

80 %

Milestone Title

Final Demo, Optimization & Release

Milestone Outputs

Goal: Optimize and finalize the official release.

• 2–3 minute public demo video
• Latency benchmark (LN → Hydra < 2s)
• Atomicity & timeout test suite
• Consolidated technical report
• Final release v1.0.0

Acceptance Criteria

We will focus on the following acceptance criteria.

Demo video shows working swaps:

• Happy Path
• Timeout Path

Latency < 2 seconds

Zero cases of lost funds during tests

Public release notes on GitHub

Evidence of Completion

We will provide

• m4-testcases.xlsx — 100% PASS
• Public demo video
• Benchmark report (PDF)
• GitHub tag v1.0.0

Delivery Month

1

Cost

25000

Progress

90 %

Milestone Title

Project Close-out & Community Reporting

Milestone Outputs

Goal: Report results, share outputs, and prepare long-term maintenance materials.

• Final Catalyst Close-out Report
• Summary package: Achievements, Metrics, Lessons Learned
• Future roadmap for Inter-L2 HTLC development
• Maintenance Guide

Acceptance Criteria

We will focus on the following acceptance criteria.

• Full project report following Catalyst templates
• Public links to video, repository, and documentation
• Community can run the demo via Docker without assistance

Evidence of Completion

m5-report-evidence.zip containing:

• PDF report
• GitHub link
• Video link
• Roadmap
• Maintenance documentation

Delivery Month

1

Cost

15000

Progress

100 %

[Final Pitch] Budget & Costs

Please provide a cost breakdown of the proposed work and resources

The budget is allocated across seven primary work categories and one risk-management category. Details are as follows:

1. Research & Architecture – 15,000 ADA

Work includes:

• Reviewing Lightning HTLC mechanisms, LND APIs, and timeout symmetry
• Designing the Aiken HTLC validator (specification, hashing, time-lock logic)
• Mapping event flows between Lightning <-> Hydra (invoice, preimage, snapshot)
• Defining the overall architecture for the bridge engine and state machine
• Writing architectural documents and flow diagrams

2. Smart Contract & Validator Development – 45,000 ADA

Work includes:

• Implementing the complete Aiken HTLC validator
• Creating unit tests and property-based test suites
• Testing atomicity, timeout path, and refund path
• Gas optimization and refinement of hash-lock/time-lock logic
• Integrating the validator with the Hydra Head execution model

3. Bridge Service Development – 55,000 ADA

Work includes:

• Developing the Lightning watcher (invoice subscription engine)
• Preimage extractor & event handlers
• Hydra claim/refund orchestrator
• Stateless bridge engine (crash-resilient architecture)
• CI/CD, logging, monitoring, and recovery logic
• End-to-end integration testing for Lightning <-> Hydra

4. Frontend UI/UX + Browser Demo – 25,000 ADA

Work includes:

• Building the Lightning Panel, Hydra Panel, and Log Panel UI
• Real-time HTLC lifecycle visualization
• WebSocket integration
• UX optimization for observers, error cases, and testing flows
• Visual design to illustrate the cross-L2 logic

5. Testing, Documentation & Demo Video – 20,000 ADA

Work includes:

• Preparing full CSV/XLSX test cases for Milestones M1–M4
• Integration testing and stress testing
• Latency benchmarking
• Complete documentation (User Guide, Developer Guide, Architecture Docs)
• Producing a 2–3 minute demo video
• Preparing workshop and hackathon learning materials

6. Operational & Infrastructure Costs – 15,000 ADA

Work includes:

• Servers for Hydra Head testing and LND nodes
• Docker registry & CI pipelines
• Six-month server maintenance
• Monitoring, logging, and backup operations

7. Project Management & Reporting – 10,000 ADA

Work includes:

• Milestone coordination and scheduling
• Preparing Catalyst reports
• Providing regular progress updates
• Presentations during ecosystem events and community calls

8. Contingency Reserve (10%) – 20,000 ADA

Covers:

• Unexpected costs due to ADA price volatility
• Additional support for workshops, hackathons, and developer events

Total Budget: 185,000 ADA ≈ 75,000 USD

[Final Pitch] Value for Money

How does the cost of the project represent value for the Cardano ecosystem?

This project represents a high-value investment for the Cardano ecosystem, as it establishes the first non-custodial bridge between Lightning and Hydra. It delivers long-term tooling for the community, enables cross-chain liquidity flow, expands the practical utility of Hydra and Cardano, and lays the foundation for future multi-L2 interoperability.

Since all project outputs are fully open-source and continue providing value long after completion:

• The HTLC validator on Hydra can be reused for any future cross-L2 application.
• The Bridge Engine can be extended to additional L2 networks.
• The demo UI becomes a reusable asset for education, hackathons, and workshops.
• The documentation & examples accelerate onboarding for new developers.
• The Docker environment enables the community to run tests in under five minutes.

This is not a “one-off MVP,” but rather foundational infrastructure that will benefit Cardano and Hydra for many years of development.

With a total budget of 185,000 ADA ≈ 75,000 USD the proposal is highly cost-efficient compared to the technical complexity involved, especially considering that the solution requires simultaneous implementation of:

• Aiken HTLC validator (complex smart contract with atomicity and time-lock logic)
• Lightning Network integration (invoice events, preimage extraction)
• Hydra orchestration (claim/refund logic, event subscription)
• Stateless bridge engine
• Real-time browser UI
• Full SoM-compliant testing with 100% PASS

This is a technically demanding project involving two fundamentally different L2 architectures (UTxO <-> eUTxO). Therefore, we believe the proposed budget is fully justified relative to the workload and technical risks.

[Self-Assessment] Self-Assessment Checklist

I confirm that evidence of prior research, whitepaper, design, or proof-of-concept is provided.

Yes

I confirm that the proposal includes ecosystem research and uses the findings to either (a) justify its uniqueness over existing solutions or (b) demonstrate the value of its novel approach.

Yes

I confirm that the proposal demonstrates technical capability via verifiable in-house talent or a confirmed development partner (GitHub, LinkedIn, portfolio, etc.)

Yes

I confirm that the proposer and all team members are in good standing with prior Catalyst projects.

Yes

I confirm that the proposal clearly defines the problem and the value of the on-chain utility.

Yes

I confirm that the primary goal of the proposal is a working prototype deployed on at least a Cardano testnet.

Yes

I confirm that the proposal outlines a credible and clear technical plan and architecture.

Yes

I confirm that the budget and timeline (≤ 12 months) are realistic for the proposed work.

Yes

I confirm that the proposal includes a community engagement and feedback plan to amplify prototype adoption with the Cardano ecosystem.

Yes

I confirm that the budget is for future development only; excludes retroactive funding, incentives, giveaways, re-granting, or sub-treasuries.

Yes

[Required Acknowledgements] Consent & Confirmation

I Agree

Yes