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Glossary

Funding Transaction

The initial Bitcoin transaction that locks collateral into a Discreet Log Contract, creating the 2-of-2 multisig output.

What is Funding Transaction?

The initial Bitcoin transaction that locks collateral into a Discreet Log Contract, creating the 2-of-2 multisig output. When you take a Lygos loan, the funding transaction is the moment your Bitcoin enters the DLC. But by the time this happens, every possible outcome has already been pre-signed. Your collateral is locked in the 2-of-2 output, and neither you nor Lygos can move it unilaterally. Only the oracle's price attestation, combined with the pre-signed CETs, determines how the funds are ultimately distributed.

Full Definition

The funding transaction is the Bitcoin transaction that moves BTC into the DLC. It creates a 2-of-2 multisig output that requires both the borrower's and lender's signatures to spend. Crucially, the funding transaction is only broadcast after all CETs have been signed by both parties. This ordering guarantee means the borrower knows every possible outcome before their Bitcoin leaves their wallet. The funding transaction is visible on the Bitcoin blockchain but appears as a standard transaction, and DLCs are indistinguishable from regular multi-signature transactions on-chain.

How Lygos Uses This

When you take a Lygos loan, the funding transaction is the moment your Bitcoin enters the DLC. But by the time this happens, every possible outcome has already been pre-signed. Your collateral is locked in the 2-of-2 output, and neither you nor Lygos can move it unilaterally. Only the oracle's price attestation, combined with the pre-signed CETs, determines how the funds are ultimately distributed.

How Lenders Compare

LygosLednNexoUnchained
TechnologyDiscreet Log Contracts (Bitcoin-native)Centralized custodyCentralized custody2-of-3 multisig (manual)
CustodyNon-custodial (DLC)CustodialCustodialCollaborative multisig
Funding SpeedSame day18hr medianInstantNot disclosed
Full comparison

Why this matters for borrowers

Understanding Funding Transaction is essential for evaluating non-custodial lending. This technology is what makes it possible to borrow against Bitcoin without surrendering your keys to a third party.

Related Terms

Discreet Log Contract (DLC)Contract Execution Transaction (CET)Collateral

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