Understanding and Mitigating a OP_CTV Footgun: The Unsatisfiable UTXO

Protocol Design
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Assuming we’re dealing with an OP_CTV template that commits to exactly one input, I don’t believe we can “replace” an already created, unsatisfiable UTXO in the way one might replace an unconfirmed transaction via RBF. Once a transaction creating such an underfunded OP_CTV UTXO is confirmed, that UTXO becomes a permanent part of the UTXO set. Its OP_CTV script’s requirements (including the exact amount) are set in stone, effectively locking the funds if the received amount doesn’t match the committed amount precisely.

A traditional watchtower monitors for spending attempts of the OP_CTV UTXO - this wouldn’t be able to help with an underfunded funding transaction that has already confirmed. The watchtower would only see the OP_CTV UTXO available for spending, but wouldn’t inherently know that it’s unspendable due to an amount mismatch.

For a watchtower to truly help in this “underfunding” scenario, it would need to:

  1. Be aware of the OP_CTV hash preimage at the time of the UTXO’s creation: This means the watchtower would need to know the exact transaction template that the OP_CTV hash commits to, including the expected input amount, before the funding transaction is even broadcast.
  2. Monitor the funding transaction: It would then have to compare the actual amount received by the OP_CTV output in the funding transaction against the expected amount from the preimage.
  3. Alert the user before confirmation: The watchtower would need to detect the mismatch and alert the user while the funding transaction is still unconfirmed (if it was an RBF-eligible transaction) so that it could potentially be replaced.

The challenge here is that the specific amount committed to within the OP_CTV hash is not readily apparent from data available on-chain when the OP_CTV UTXO is created. This commitment is only fully revealed when an attempt is made to spend the OP_CTV UTXO by providing the pre-image and the full transaction template as part of the witness. Therefore, a watchtower simply monitoring the blockchain wouldn’t know at the funding stage that the UTXO is unsatisfiable.

This reinforces my point about committing to at least two inputs in the OP_CTV template. This design choice effectively provides a “rescue path” for correcting amount mismatches after the UTXO has been created.