What is Lit Protocol? A $420 million asset protection AI agent automation tool.

Lit Protocol (LITKEY) is a decentralized automation layer that achieves secure, programmable control over digital assets and AI agents through threshold encryption and multi-chain infrastructure. The protocol operates on platforms such as Bitcoin, Ethereum, and Solana, securing over $420 million in assets and processing over 34 million transactions, supporting 10,000 daily users across 160,000 wallets.

What is Lit Protocol? Solving the Dilemma of Automation and Security

Lit Protocol resolves the tension between automation and security in Web3. Current blockchain applications face a core contradiction: to achieve automation, private keys must be entrusted to centralized services, which goes against the original intention of decentralization. Lit Protocol allows AI agents or DeFi protocols to execute transactions only when predefined rules (such as time locks or cross-chain triggers) are met by splitting private keys into encrypted shards (using threshold encryption).

This makes use cases such as AI-managed investment portfolios or automated cross-chain swaps possible without exposing full key control. For example, users can set conditions: “If the price reaches X dollars, then exchange ETH for SOL.” When the conditions are met, Lit nodes collectively verify and sign the transaction without requiring manual user intervention or the need to entrust the private key to any single entity. This design eliminates single points of failure while achieving true automation.

The protocol combines decentralized nodes (running secure hardware) with a blockchain-agnostic design. When users set conditions, the nodes will only collectively sign transactions if the verification standards are met. Essentially, Lit Protocol is a decentralized network of nodes that manages decentralized keys and executes arbitrary computations while preserving user privacy and user sovereignty. It is a system that developers can use to build public protocols and applications for developer tools, account abstraction, data markets, embedded wallets (using Web2 login), content authenticity, and more.

Lit Protocol three core functions

Decentralized Access Control: Content is encrypted and hosted in an open space, accessible only to users who meet specific conditions, suitable for personal data management and credential gatekeeping experience.

Programmable Digital Signature: Automatically sign transactions when conditions are met, implemented through PKP (Programmable Key Pair), suitable for event listening, chain abstraction, and AI content verification.

Wallet as a Service (WaaS): Developers can build user wallets, completely avoiding mnemonic phrases, enabling Web2 style authentication, and lowering the entry barrier.

Projects that have already used Lit Protocol include Alchemy, Lens Protocol, DataverseOS, Collab.Land, Fox Corp, Humanity Protocol, Open Campus, among others. The adoption of these well-known projects proves the reliability and practicality of Lit Protocol technology.

Technical Principles of Threshold Encryption and Multi-Party Computation

The security of Lit Protocol is based on cryptography using threshold encryption and multi-party computation (MPC). Multi-party computation enables trustless functionality among multiple parties while maintaining the confidentiality of private keys, as no single party can obtain the entire key information. The threshold signature scheme (TSS) allows the distribution of private keys among multiple participants in the form of shares rather than a single entity, which can then be combined off-chain to collectively produce a digital signature that is equivalent to a traditional signature.

Each Lit node runs a sealed encrypted virtual machine. The term “sealed” means that operators, data center owners, or any other parties cannot access the internals of the processor. Each node contains a JavaScript execution environment and holds key sharing. These nodes together form the Lit Network, which ensures the authenticity of data by requiring nodes to verify the seal of their peers through cryptographic proof.

Lit ensures that data and computations remain secure and private through hardware-level isolation with various nodes. This is achieved through secure encrypted virtualization with Secure Encrypted Virtualization-Secure Nested Paging (SEV-SNP), a security feature created by AMD to provide encryption for virtual machines. With SEV-SNP, each virtual machine has its own unique encryption key managed by a security processor within the CPU. This configuration prevents unauthorized users from accessing encrypted data from other VMs or the Hypervisor.

To perform operations using these keys, such as signing requests, at least two-thirds of the network nodes must participate. Each node must compute authorization in its sealed environment, ensuring that no single node can compromise the system, thereby maintaining a high level of security and trust within the network. This design completely eliminates the risk of a single point of failure, allowing the system to function normally even if some nodes are attacked or fail.

Chronicle Summary and Node Staking Mechanism

Chronicle is a Layer 2 solution compatible with EVM, launched as part of the Arbitrum Orbit chain, settling on Ethereum. Although the Lit Protocol is not a blockchain, it mainly utilizes this solution to coordinate its node set, manage the permissions of PKP, and serve as a persistent layer for shared states among nodes. PKP is represented on Chronicle as an ERC-721 token (NFT), with the permissions associated with PKP also being on-chain, used to verify the signature requests of end users.

To run a Lit node and earn staking rewards, node operators must stake LITKEY within the designated time commitment, and their assets will be locked. The combination of the amount staked and the time lock determines the total reward rate for the operators. Currently, the Lit Protocol is operating with a set of 10 permitted node operators. This validator set will be used for the initial mainnet. Later, the top 30 nodes ranked by staking weight will be included in the active validator set, while the remaining staked nodes will be reserved.

When active validators concentrate more than two-thirds of other nodes reporting node offline or malicious behavior, the node may be penalized. If the challenge is successful, they will not lose any funds and can return in the next period. If unsuccessful, they will lose 5% of the total principal and be transferred to the reserve pool. The reward system of Lit Protocol is divided into node operator and staker rewards, with the maximum profit rate for each node being 5 times the operating cost and the minimum profit rate being 10% of the operating cost.

LITKEY Token Economy and Application Ecosystem

The maximum supply of LITKEY is 1 billion tokens, and the distribution structure is as follows: Team 28.5%, Community 25%, Investors 15.83%, Node Operator Rewards 15%, Association Treasury 15%. LITKEY tokens will be used for gas on Chronicle, staking for node operators to determine the validator set, and protocol governance. Users can also delegate their tokens to specific node operators to earn a share of the network revenue.

As of June 2024, 86 listed projects have been built using Lit Protocol, and the Chronicle rollup has minted over 2.2 million transactions, 275,000 accounts, and 296,000 PKPs. Lit Protocol plans to fully launch its mainnet this year, which will include multiple performance improvements, scaling considerations, support for new signature curves, a new payment model, and LITKEY tokens.

Lit Protocol is changing the paradigm of application development on the decentralized Web. By providing identity-based encryption, it enables developers to create provably private encrypted applications, while programmable digital signatures and wallets allow for highly abstract asset management designs and high levels of automation in new applications.