A VTXO can exist in multiple states, depending on its origin, use, and confirmation status:
  1. Preconfirmed State (Unsettled): The VTXO was created offchain through an Arkade transaction, has been validated and cosigned by the Arkade Signer, but has not yet been settled onchain via a commitment transaction. It can be used for further offchain activity but requires trust in the operator.
  2. Unconfirmed State: The VTXO is a leaf in a Batch Output, but the corresponding Commitment Transaction is not yet confirmed onchain.
  3. Confirmed / Bitcoin Finality (Settled): The VTXO is a direct leaf of a batch output that is confirmed on the Bitcoin blockchain. As such, it enjoys full settlement finality and unilateral exit rights.
  4. Recoverable: These VTXOs are valid within Arkade’s offchain protocol but cannot be exited unilaterally. They cannot be reused in offchain transactions, but can be included in Arkade intents. Sub-dust VTXOs, expired VTXOs and Arkade Notes fall in this category.
  5. Spent: The VTXO has been used as an input to another Arkade transaction and is no longer active.
When a server sweeps a VTXO transaction tree, each unspent VTXO turns into a recoverable VTXO.
VTXOs undergo the following lifecycle:
  1. Boarding & Creation: VTXOs are created when users deposit into Arkade or when an existing VTXO is spent, creating new output VTXOs.
  2. Spending: VTXOs can be spent by creating Arkade transactions that consume them as inputs and create new VTXOs as outputs. This process mirrors Bitcoin’s UTXO model, but is executed instantly.d into onchain UTXOs either collaboratively with the operator or unilaterally through the presigned exit path.
  3. Exit: VTXOs can be turned into onchain UTXOs either collaboratively with the operator or unilaterally through the presigned exit path.