KaleidoSwap has released a proof of concept showing that RGB assets can be issued and transferred on the Liquid Network.

RGB records most asset data off-chain and uses a Bitcoin-style unspent transaction output as a “single-use seal.” 

A small cryptographic commitment included in an on-chain transaction connects that seal to an asset transfer.

According to KaleidoSwap, RGB’s software already identifies Liquid mainnet and testnet, but its transaction-verification system was designed for Bitcoin transactions. 

The company also addressed the limitation with a 207-line software update. The change allows the verifier to process Bitcoin and Liquid transactions.

KaleidoSwap reported that all 45 existing tests continued to pass after the change, while four downstream RGB libraries compiled without modifications. The proposed update has been submitted to RGB maintainers for consideration.

The developers used the modified software to issue an RGB20 asset on Liquid and transfer it between holders. 

They also demonstrated an atomic swap between separate RGB assets on Bitcoin and Liquid, since a single RGB contract cannot move directly between the two networks.

Atomic swaps instead enable participants to exchange assets issued on the two networks without relying on a custodian. The linked transactions either complete together or can be refunded after a timeout.

The proof of concept also explored combining RGB with Simplicity, Liquid’s smart-contract language. 

KaleidoSwap created a test covenant requiring a transaction that spends an RGB seal to include an output shaped like an RGB commitment. 

The company reported that its test network accepted a compliant transaction and rejected a version from which the commitment output had been removed.

This approach could allow Liquid’s consensus rules to enforce certain conditions on the coins controlling RGB assets while leaving the assets’ balances and transaction histories within RGB’s client-side validation system.

KaleidoSwap identified atomic swaps, lending, asset vaults and restricted market-maker wallets as possible applications. 

These concepts largely remain proposed designs and would require additional development and security review.

The proof of concept requires software approval, wallet integration, and swap infrastructure before production use.

The results indicate that RGB’s validation model can be adapted to Liquid without extensive changes to its existing software. 

Whether the proof of concept leads to production use will depend on upstream acceptance, wallet support, and further testing.