PolyCrypt Demonstrates Bitcoin Lightning Swaps on Cardano Preprod

PolyCrypt has demonstrated a working Cardano Preprod system connecting Bitcoin Lightning payments with Cardano-based assets.

Principal Software Engineer Ilja von Hoessle presented the architecture during a Cardano Developers Office Hours session recorded on August 14 and published on August 24. The prototype combines a modified Lightning Development Kit node, a Rust relay, a Plutus V3 smart contract and a browser interface.

Lightning Payments Connect With Cardano Liquidity

PolyCrypt’s Cardano Lightning Relay supports swaps in both directions between the Bitcoin Lightning Network and tokenized bitcoin on Cardano.

For an incoming swap, a user selects an amount and provides a Cardano address. The relay reserves the corresponding Cardano-side cBTC liquidity and generates a BOLT11 Lightning invoice. Once the invoice is paid through a Lightning wallet, the smart contract releases cBTC to the specified address.

The reverse process starts with a Lightning invoice supplied by the user. After the user transfers cBTC through the Cardano contract, the relay validates the transaction and pays the invoice over the Lightning Network.

Both flows include timeout and refund mechanisms intended to prevent assets from remaining locked when a swap cannot be completed.

The current Preprod deployment uses a custom test version of cBTC rather than bitcoin-backed production liquidity. PolyCrypt has not announced a Cardano mainnet launch date.

The relay and browser application are publicly available on GitHub.

Catalyst Funded Four Development Milestones

PolyCrypt developed the prototype through the Project Catalyst Fund 14 proposal “Bitcoin Lightning Payments on Cardano using Cardinal.”

The project received 100,000 ADA across four milestones covering the Liquidity Manager, the Lightning-to-Cardano connector, Cardinal integration and an end-to-end testnet deployment. Catalyst records list all four milestones as completed and the full allocation as distributed.

Cardinal is designed to support bitcoin-backed assets on Cardano through a federated custody model. Although its integration formed part of the funded development, the demonstrated Preprod flow currently operates with a test asset.

The presentation therefore provided a technical walkthrough of completed development work, rather than announcing a new mainnet product.

PolyCrypt is a German applied cryptography company originating from the Technical University of Darmstadt. Its work covers blockchain interoperability, payment channels and cryptographic protocols.

Relay Security Remains a Mainnet Requirement

The current architecture depends on a relay operated by PolyCrypt. The relay holds signing authority, coordinates both sides of each swap and communicates with the Lightning node and Cardano smart contract.

Von Hoessle acknowledged that a compromised or malicious relay would present a security risk. A possible future improvement is to distribute signing authority among independent operators through threshold signatures, such as requiring two of three relays to approve a transaction.

The implementation also faces a Cardano concurrency constraint. Multiple swaps may attempt to update the same Liquidity Manager state simultaneously, creating contention around its UTxO. PolyCrypt is considering sequencing or batching mechanisms to process concurrent requests more efficiently.

A production service would also need securely backed bitcoin liquidity, a mechanism for balancing funds between Cardano and Lightning, and defined incentives for liquidity providers and relay operators. An automated market maker is one option under consideration but is not part of the current prototype.

PolyCrypt has delivered a testable bidirectional payment flow on Preprod.

Moving it toward production will require distributed relay authority, reliable handling of simultaneous swaps and verifiably backed bitcoin liquidity.