Role of the PACT Framework

PACTs can be used by untrusted individuals because the penalty adjudication is consistent. What this means is that what the PACT will observe happening is always what is actually happening, so the adjudication is fair and just.

This is why PACTs can be used both when the actors are individual untrusted persons, but also be used for collateral management for more complex actors that have their own internal security setup, such as multi-sig actors and more. Common multi-sig bridge designs derive their security from the continued use of the bridge.

As long as people trust the bridge, they will use the bridge, fees will accrue, and this gives incentives for the parties to continue being honest. The problem with this setup is that there are no gentle failures like for a PACT.

For example, a multi-sig bridge can have a failure mode where a majority votes on something that is objectively not true. This will typically come in the form of a bridge hack with loss of collateral as a consequence.

In such a bridge failure, the collateral is typically awarded the attacker, with complete loss of confidence in the bridge as a result, while in a PACT the collateral is awarded the wronged party, with little to no loss of confidence in the bridge as a result.

The PACT's consistent penalty adjudication further drives down the collateral requirements and opens up for actors to compete on quality vs price.

Reactive Smart Contracts

Smart contracts that monitor chain events, self-trigger, and coordinate swaps — key to unlocking cross-chain capabilities without external validators.

• Observes on-chain events on two independent blockchains (e.g. BTC on Bitcoin, USDT on Ethereum).
• Holds collateral from one or both parties Validates outcomes using deterministic proof (no voting)
• Adjudicates failures and releases collateral to the correct party

These smart contracts run on Coinweb's WASM-based execution engine and can independently monitor blockchains like Bitcoin, Ethereum, BNB, and others.

Chain Transaction Sentinels (CTs)

The sentinels watch individual blockchain state transitions. They act as independent observers, gathering proof on what is happening on a given blockchain network.

The sentinels are implemented as reactive smart contracts (RCSs) which are long running smart contracts that can block on events happening on a blockchain network.

In a cross-chain PACT, one CTS will observe each blockchain network involved in the PACT. The relevant observations are then sent to the penalty adjudicator for further analysis.

They act like real-time observers, allowing Coinweb to monitor UTXO or account-based chains without compromising decentralization.

Penalty Adjudicator (PA)

The penalty adjudicator has the role of gathering the sentinel data, i.e. proofs of state transitions, and evaluating whether the pact the parties entered into was followed or not.

One can think of the penalty adjudicator as a component that has a valid state machine for the pact, and based on the sentinel data, it matches whether what is actually happening on the blockchain networks matches valid transitions in this state machine.

If the sentinel data does not match the pact's valid state machine, then it is the job of the penalty adjudicator to assign blame and to release collateral to the wronged party.

This guarantees economic finality: you either fulfill the swap or lose your stake. The PA removes the need for off-chain arbitration or dispute resolution.