Crypto glossary
Statechain
A statechain transfers ownership of a whole Bitcoin UTXO off-chain by handing over a key share, with a coordinator co-signing and a timelocked exit as backup.
Proposed by Ruben Somsen in 2018, a statechain locks coins in an output controlled jointly by the current owner and a statechain entity, a coordinator. To transfer the coins, the owner hands their key share to the new owner and the coordinator updates its own share so that the old owner's key becomes useless. Nothing is broadcast on-chain, so transfers are instant and cost no fees.
Each owner also receives a pre-signed backup transaction with a timelock that lets them withdraw on-chain if the coordinator disappears, with later owners getting shorter timelocks so they can always exit first. Implementations such as Mercury Layer use blind signing so the coordinator does not even learn which coins it is handling.
Statechains move entire UTXOs, so they work best with fixed denominations rather than arbitrary amounts. Security depends on trusting the coordinator to delete old key shares and not collude with a previous owner; if it does, that owner could steal the coins. Adoption has remained small compared with Lightning.
Example
Alice holds a 0.1 BTC statecoin and sells it to Bob over the counter; she transfers her key share, the coordinator updates its share, and Bob now controls the coin without any on-chain transaction.