Statechain

A statechain is an off-chain protocol that lets the ownership of an entire Bitcoin UTXO move between people without an on-chain transaction. Instead of changing the coin on the blockchain, the parties change who controls the key that can spend it. This enables instant, low-cost transfers of specific coins, with an on-chain transaction needed only when an owner finally withdraws to full self-custody.

The statechain entity

A coordinator called the statechain entity (SE) co-signs alongside the current owner using a shared-key scheme, so neither the SE nor any single party ever holds the complete private key. When ownership is transferred, the key share is updated so the previous owner can no longer spend, and the new owner can. The Mercury Layer implementation uses blinded signatures so the SE does not even learn which coin it is helping to transfer, improving privacy.

Trust model

Statechains are trust-minimized but not fully trustless: an owner relies on the SE deleting its old key material honestly after each transfer. To protect against misbehavior, transfers are backed by pre-signed timelocked transactions (a backup or "kickoff" path) that let an owner reclaim funds unilaterally. This is a different tradeoff from Ark or Lightning, and it works on Bitcoin today without a soft fork.

D-Central documents statechains neutrally as one of several second-layer approaches to scaling Bitcoin custody and transfer. For protocol specifics, consult the Mercury Layer documentation.