Paper 2026/1123

Cryptographic Collateralized Loan without Smart Contracts

Abstract

Cryptocurrency lending is growing rapidly, and smart-contract-based loans are expected to grow further. However, existing systems are fundamentally limited: they only operate on smart-contract-enabled blockchains, and assets from other blockchains can be used only via tokenized representations. In this work, we propose an oracle-aided cryptographic protocol that implements the logic of collateralized loans without smart contracts, instead only requiring basic transactions from the underlying blockchain and hence, being compatible with limited-scripting blockchains, including Bitcoin. For that, we introduce verifiable graph encryption for signatures (VGES), a new cryptographic primitive that, on input a graph modeling the correspondence between transactions for collateral distribution (vertices) and loan repayments (edges), permits to encrypt the signatures on collateral-distribution transactions ensuring: (1) a signature can only be decrypted after completing loan repayments corresponding to a valid path in the graph from the root (graph enforcement); and (2) anyone can verify that encrypted signatures are valid and can be decrypted after doing the required loan repayments according to the graph (verifiability). We present two provably secure constructions of VGES and the evaluation of our implementation shows that they offer a tradeoff between the number of required on-chain transactions and off-chain computation, while both remain efficient on commodity hardware.