Analysis and Development Trend Prediction of Bitcoin Ecosystem
Author: Louis Wang, Core Contributor of Biteye
Editor: Crush, Core Contributor of Biteye
The Bitcoin network, with its outstanding stability and security, has not only endowed BTC with enduring value but also accumulated remarkable capital.
With the approval of BTC spot ETF, the influx of traditional funds has driven its market value to exceed 1.3 trillion US dollars.
However, people often overlook the distinction between Bitcoin as a network and BTC as a digital asset. To fully unleash the potential of Bitcoin, the key lies in utilizing the network's functionality to transform Bitcoin from a simple value store to the core infrastructure of the Bitcoin economy.
In December 2022, the emergence of the Ordinals protocol brought an unexpected innovation to the Bitcoin ecosystem.
The explosion of "Inscriptions" not only focused the attention of the public and developers on the Bitcoin ecosystem but also revealed the possibility of unleashing the huge potential of Bitcoin.
In just 12 months, the total market value of Bitcoin inscription tokens based on Ordinals exceeded 3.5 billion US dollars, demonstrating astonishing growth. Even today, the daily NFT transaction volume on the Bitcoin network exceeds that of Solana.
However, the market's excessive expectations for the Bitcoin ecosystem have also led to subsequent setbacks.
The rapid cooling of the inscription craze, the underperformance of the highly anticipated Runes after its launch, and the dramatic reversal of the Merlin project from TVL peak to a sharp drop in coin price after issuance have left the market in confusion about the future of the Bitcoin ecosystem.
With the rise of Memecoins, market attention has also shifted significantly.
The ups and downs of the Bitcoin ecosystem are akin to the "high-temperature annealing" process in semiconductor technology. This process aims to release internal stress in materials, increasing their ductility and toughness.
We believe that this principle also applies to the development of the Bitcoin ecosystem. After the FOMO sentiment subsides, which projects are still actively building? What are the development directions and trends of the Bitcoin ecosystem?
This article will categorize and delve into the development trends and representative projects of the Bitcoin ecosystem, analyzing how they are addressing challenges and the roles they play in the Bitcoin ecosystem.
01 BTC Layer
As the first successful cryptocurrency, Bitcoin's network design originally focused on security and decentralization, which also brought inherent limitations in programmability and transaction speed.
Although upgrades such as SegWit and Taproot have to some extent improved these issues, the asset issuance craze of Ordinals clearly exposed the network's limitations: severe network congestion, escalating gas fees, and an urgent need for more powerful smart contract functionality.
As user demand for scalability and additional functionality beyond Bitcoin's original features continues to grow, the Bitcoin ecosystem has begun to explore various scaling solutions. These solutions mostly draw on the scaling experience of the Ethereum ecosystem, adopting a modular layered architecture, giving rise to the concept of "Bitcoin Layer."
This architecture includes the L2 layer (such as Lightning Network, sidechains, and Rollup solutions), aimed at increasing transaction throughput by moving transactions off-chain while maintaining a secure connection to the main chain; settlement layer, further optimizing performance and functionality for specific use cases; data layer, providing data availability and storage solutions; and application layer, developing various decentralized applications based on the underlying infrastructure.
This multi-layer architecture enhances programmability, making more complex smart contracts possible; significantly improves transaction processing speed; improves data availability; and expands the possibilities of the ecosystem.
In the fiercely competitive Bitcoin Layer2 track, the majority of solutions adopt EVM technology stack and cross-chain bridges to address Bitcoin's scalability issues. While this approach can quickly build the ecosystem in the short term, these solutions lack a strong binding relationship with the Bitcoin main chain and are highly dependent on cross-chain bridges, increasing potential security risks.
At present, there are roughly three technical routes for L2:
Rollup solutions: These solutions highly value the verifiability of Layer1 and aim to extend the security of Layer1 to Layer2.
Sidechain solutions: These solutions have the advantage of relatively mature technology and ecosystem.
Client verification: These solutions emphasize using Layer1's native data availability (DA).
Rollup solutions, in pursuit of Layer1 verifiability, control users' trust costs through modular design, ensuring security while reducing user trust burden to some extent.
In contrast, sidechain solutions, while having an advantage in technological maturity, may face more challenges in inheriting Layer1 security.
Client verification solutions, while largely ensuring that all ledger records are on Layer1, require users to maintain a high level of trust in the client, which is inherent trust cost that is difficult to completely eliminate.
02 Rollup
The emergence of Ordinals has turned the Bitcoin network into a highly secure database capable of storing various data, including Rollup proof data.
However, merely uploading Rollup proof data to the BTC network is not sufficient to ensure the validity and correctness of internal transactions within Rollup. BTC Rollup faces a core issue in verification.
Currently, most BTC Rollup may choose the sovereign rollup (client verification) approach, where validators synchronize all Rollup data off-chain and independently verify it.
The limitation of this approach is the inability to fully utilize the most powerful feature of the Bitcoin network—POW consensus of tens of thousands of nodes—to ensure the security of Rollup.
The ideal state is to enable the BTC network to actively verify Rollup proofs, similar to Ethereum, and have the ability to reject invalid block data.
At the same time, it is necessary to ensure that assets in Rollup can be securely withdrawn to the BTC network through a trustless escape route in extreme situations (such as long-term downtime or refusal to accept transactions by Rollup nodes or sequencers).
Bitlayer
Bitlayer is the first Bitcoin Layer 2 network based on the BitVM solution, aiming to provide security equivalent to Bitcoin while supporting Turing-complete computational capabilities.
The core technological innovation of the project lies in the use of the latest BitVM computing paradigm and OP-DLC bridge, addressing three main challenges faced by Layer 2:
Trustless two-way anchoring: Combining OP-DLC and BitVM bridge to achieve trustless bi-directional asset flow between the Bitcoin main chain and Bitlayer.
Layer 1 verification: Ensuring security through BitVM inheriting Bitcoin's security.
Turing completeness: Supporting multiple virtual machines to achieve 100% compatibility with the Ethereum Virtual Machine (EVM) environment.
Bitlayer launched a $50 million ecological incentive plan on March 29th this year to attract early builders and contributors. Several native projects have already joined the ecosystem, including DEX, permissionless lending protocols, and MEME, among others.
Recently, Bitlayer announced the completion of a $11 million Series A financing, led by institutions such as Franklin Templeton, becoming the first Bitcoin infrastructure project to receive investment from an ETF-licensed institution.
The project has launched a user center, including three modules: beginner tasks, advanced tasks, and daily tasks. Users can earn Bitlayer points by completing tasks and obtain exclusive racing cars as racers. In the future, Bitlayer plans to distribute $BTR airdrops based on user points and racing car levels.
Bitlayer's innovative technical solutions and proactive ecological development strategy make it one of the noteworthy Bitcoin Layer 2 projects.
B² Network
B² Network is an EVM-compatible Layer2 on BTC, providing an off-chain transaction platform that supports Turing-complete smart contracts, improving transaction efficiency and reducing costs.
By integrating zero-knowledge proof (ZKP) technology with Bitcoin's Taproot, B² Network ensures enhanced transaction privacy and security. The network aims to develop Bitcoin into a dynamic platform, providing a stage for innovative applications such as DeFi, NFT, applicable to both traditional Bitcoin assets and emerging Bitcoin derivative assets.
The technical architecture of B² Network includes a two-layer structure:
Rollup layer: Using ZK-Rollup and zkEVM solutions to execute user transactions and generate related proofs.
Data Availability (DA) layer: Includes distributed storage, B² nodes, and the Bitcoin network, responsible for permanently storing Rollup data, verifying zero-knowledge proofs, and executing final confirmations on Bitcoin.
Distributed storage, a key component of B² Network, serves as a repository for ZK-Rollup user transactions and proofs, enhancing network security, reducing single points of failure, and ensuring data immutability.
Currently, B² Buzz has entered the third phase, launching Buzz Farming in collaboration with well-known BTCFi projects such as Babylon, Unirouter, Lombard, and Bedrock, providing diverse yield strategies.
Buzz Farming yields include:
Daily acquisition of 14,580 B² tokens from the B² network.
Rewards from BTCFi collaboration chains and key partners, including Babylon, Aptos, Bedrock, Lombard, and several other projects.
As a native yield aggregator of B² Network, Buzz Farming will continue to bring more earnings and pathways for users, reflecting the project's innovation in the DeFi field.
QED
QED Protocol is a ZK rollup on BTC, running based on zkevm. Unlike other zk rollups, QED does not choose to generate zk proofs for all transactions of the entire Rollup, but only creates ZK proofs for withdrawal transactions from Rollup to BTC L1, and verifies these proofs on BTC L1 by composing scripts into logical circuits.
Each user's public key acts as a custom ZK circuit, with "smart signature" functionality similar to smart contracts.
Similar to BitVM's approach, QED Protocol composes scripts into logical circuits, thereby verifying ZK proofs for withdrawal transactions on BTC L1. These logical circuits will include 1000 UTXOs, and while achieving direct verification, they incur significant costs.
Decentralized applications built on QED can locally prove transactions, providing users with fixed gas fees for unlimited computation.
Founder Carter Feldman stated that QED can process over 150,000 transactions per second and plans to launch a testnet in the next 3-4 months, with the mainnet going live after community consensus is reached, and introducing native token incentives for high-performance infrastructure.
QED completed a $6 million seed round of financing, with Blockchain Capital as the sole investor, valuing the project at at least $1 billion. Previously, it also received $3.25 million in pre-seed funding and $1.35 million in angel funding.
The ZK technology used by QED is STARK technology, a pioneering project of Starkware>BTC, receiving early investment and support from Starkware.
GOAT Network
GOAT Network is a BTC Rollup Layer2 project incubated by MetisDAO and launched by ZKM, the first decentralized Bitcoin L2 with shared network ownership.
It introduces the Optimistic Challenge Protocol (GOAT-OCP) for native security mechanisms with BTC script locking to ensure security, and utilizes ZKM Entangled Rollup as a universal settlement layer to enhance transaction inclusivity and finality.
GOAT Network can support direct asset deposits without the need for additional cross-chain bridges, and protects assets in a decentralized Sequencer network.
The development team comes from MetisDAO, the only Ethereum Layer 2 project with a decentralized sequencer. They have brought this technological advantage to BTC Layer 2, allowing any Bitcoin holder to lock in as a node or delegate to existing nodes in the decentralized Sequencer network.
Currently, GOAT has received commitments of 5,000 BTC from five institutional node operators and plans to launch with seven node operators, with future expansion to dozens.
Potential benefits of participating in GOAT Network include:
- Gas fees in BTC
- Mining rewards in GOAT tokens
- Returns from yBTC (receipt tokens generated after locking BTC on the GOAT network)
- Unlocking more profit opportunities in the GOAT network ecosystem with yBTC
The first phase of the decentralized sequencer activity has already begun, where users can bind their wallets (holding 0.001 BTC) and social information to complete social tasks.
Mezo
Mezo is a Bitcoin Layer2 network aimed at transitioning Bitcoin from a "savings technology" to a circular economy.
The project utilizes a unique Proof of HODL mechanism, where users protect the network by locking BTC and MEZO tokens and verifying transactions.
Mezo uses the CometBFT consensus mechanism, combining it with the innovative concept of Proof of HODL. Users can lock BTC on Mezo, and the longer the lockup period, the higher the HODL score, allowing them to contribute to network security and earn rewards at the mainnet launch.
The project is launched by the startup studio Thesis, with a team experienced in BTC ecosystem development, having previously developed the tBTC project.
According to the Mezo official website, the current number of users is close to 12,000, with a total of 2333 BTC staked.
Mezo recently announced the completion of a $7.5 million new round of financing, bringing the total funding to $30 million. The new funds will be used to expand network adoption, including integrating more products such as the Bitcoin staking platform Acre.
Bitfinity Network
Bitfinity Network EVM is a blockchain created based on the Internet Computer (IC) and is compatible with Ethereum, developed using the Solidity language. Developers can deploy smart contracts written in Solidity for Bitcoin, Ordinals, and BRC-20 on Bitfinity, potentially enhancing the utility of Bitcoin.
Thanks to IC's unique architecture and Chain Key technology, Bitfinity Network EVM achieves greater efficiency than traditional EVM, with on-chain storage capacity and processing speed comparable to traditional network services, without the need to pay gas fees.
Bitfinity plans to integrate Ethereum and other EVM-compatible chains by running a lightweight client on IC, which requires adjusting the network protocol to interface with full nodes of other chains and synchronize the entire blockchain.
The project supports the connection of ICRC-1 tokens and ERC777/ERC20 tokens, as well as Bitcoin as an ICRC-1 token.
It completed a $7 million financing at the beginning of this year, valuing it at $130 million.
Token economy: BITFINITY is the official project governance token approved by Bitfinity DAO and the native token of Bitfinity EVM, with a total supply of 1 billion, belonging to the ERC-20 token.
Arch Network
Arch Network is an innovative Bitcoin-native programmability solution that aims to directly introduce programmable features into the Bitcoin network, unlike traditional L2 solutions.
Arch is a parallel PoS network that uses ZK proofs to enhance Bitcoin's native programmability. The network consists of a Rust-based zkVM (ArchVM) and a decentralized validator network.
Drawing inspiration from Solana and SVM (Solana Virtual Machine), the project does not rely on any bridges or L2. Arch possesses programmability, parallel execution speed, and trustless interoperability and composability.
In the Arch network, asset transfers and state changes on the Bitcoin chain occur on the Bitcoin L1. Arch utilizes ordinal-based state chains to submit state changes in a single transaction, reducing costs and ensuring atomic execution.
Arch's fee model includes infrastructure processing fees and a dynamic pricing mechanism. Infrastructure processing fees apply to each BTC transaction, including deploying smart contracts, transactions, minting NFTs, and other operations. The dynamic pricing mechanism is similar to a fast lane fee, adjusting based on network congestion and transaction complexity.
Arch Network completed a $7 million seed round of financing, led by Multicoin Capital, with participation from OKX Ventures, CMS Holdings, and others.
Currently, the product and roadmap for Arch are still under development, and a specific timeline for launch has not been announced.
03 BTC Sidechains
The concept of sidechains originated from the 2014 paper "Enabling Blockchain Innovations with Pegged Sidechains" by Adam Back and others. The concept aims to enhance Bitcoin's service capabilities by allowing assets to transfer between multiple blockchains.
Sidechains are essentially independent blockchain networks running in parallel with the main chain, with the following characteristics:
Strong customizability: Can design specific rules and functions to enhance scalability and flexibility.
Independent security mechanisms: Maintain their own security mechanisms and consensus protocols, with security depending on the sidechain's design.
High autonomy: Possess greater design freedom compared to the main chain.
Interoperability: Interoperability with the main chain may be lower, but support asset cross-chain transfers.
The core function of sidechains is to facilitate the transfer and use of assets from the main chain to the sidechain, typically involving cross-chain transfers and asset locking. This design brings new possibilities to the Bitcoin ecosystem, allowing for the quick implementation of Ethereum-like features linked to Bitcoin. However, it also presents challenges in terms of security and interoperability.
Merlin
Merlin Chain, released by Brc420, is one of the earliest Bitcoin sidechains and has a large Total Value Locked (TVL). According to BTCEden's data, Merlin still leads other BTC L2 projects by a significant margin with a TVL of $1.28 billion, even when the coin price is lower than expected after issuance.
Based on native assets, protocols, and products of the Bitcoin Layer 1, Merlin aims to empower Layer 1 assets, protocols, and user ecosystems on Layer 2. For example, it builds a user-friendly metaverse based on Bitmap and utilizes BRC-420 to build DeFi protocols.
Merlin uses the MPC solution from the cobo wallet to achieve BTC cross-chain transfers. While there are some security gaps compared to Taproot-upgraded BTC multisig, MPC has been extensively verified. It also employs ParticleNtwrk's account abstraction technology, allowing users to interact with the sidechain using Bitcoin wallets and addresses, maintaining user habits. This design is more user-friendly compared to requiring Bitcoin users to interact with Metamask.
Stacks
Stacks is a sidechain tightly integrated with Bitcoin, featuring a unique consensus mechanism and smart contract functionality. The project adopts the innovative Proof of Transfer (PoX) consensus mechanism, where miners participating in consensus no longer destroy Bitcoin but allocate it to a group of participants maintaining network security.
Stacks plans to launch the Nakamoto upgrade this year, which will make it a true Layer 2 solution. The upgrade code has been fully completed and is about to be deployed to the mainnet. This upgrade aims to significantly increase transaction throughput, achieve 100% finality for Bitcoin transactions, and reduce transaction confirmation time from 10 minutes to about 10 seconds.
The Nakamoto upgrade will also enhance Stacks' security, aligning it with the Bitcoin network. Even in the event of a reorganization in the Bitcoin network, most Stacks transactions will remain valid, improving overall network reliability.
In addition to the Nakamoto upgrade, Stacks will introduce sBTC, a decentralized, programmable 1:1 Bitcoin-backed asset deployable and transferable between Bitcoin and Stacks (L2).
sBTC enables smart contracts to write transactions to the Bitcoin blockchain, and in terms of security, transfers are secured by the entire Bitcoin hash power.
Stacks currently has a rich ecosystem, with an on-chain TVL of $200 million. For example, Alex is a DEX in the Stacks ecosystem, which also includes Launchpad functionality, with a TVL of $30 million. The liquidity staking project StackingDAO has locked $100 million in liquidity.
Citrea
Citrea is an innovative Bitcoin scaling solution that achieves scalability within the Bitcoin network using zero-knowledge proof technology, ensuring on-chain verifiability and data availability. The core advantage of the project is its ability to support more complex applications without compromising Bitcoin's security or changing its consensus rules.
Technical features of Citrea include:
- Batch processing of a large number of transactions and generation of concise validity proofs in zkVM
- First implementation of validity proof engraving and local verification on the Bitcoin blockchain
- Built-in native ZK proof validator smart contract on BitVM
Unlike traditional sidechains, Citrea creates a modular ecosystem for Bitcoin through sharding, maintaining settlement and data availability on the Bitcoin main chain.
The project announced the completion of a $2.7 million seed round of financing led by Galaxy in February this year.
Currently, Citrea's public developer network is online, with three one-week testing tasks scheduled from July to August. Users can participate in testing and earn NFT rewards on Galaxy.
Fractal Bitcoin
Fractal BTC is a Bitcoin Layer 2 solution developed by the Unisats team, the only solution to recursively extend an infinite number of layers above the Bitcoin blockchain using the Bitcoin core code, using the BRC20 token Sats as gas fees.
Fractal forked the Bitcoin core code and made some key adjustments. Main features include reducing block confirmation time to 30 seconds. The project plans to implement controversial operations such as OP_CAT and ZK native verification OPCode proposed for the Bitcoin mainnet faster in the future through script to enable smart contracts.
The consensus mechanism uses the same Proof of Work (PoW) as Bitcoin, allowing miners to mine using existing hardware such as ASICs and GPUs.
Fractal introduces the innovative Cadence Mining method, where two out of every three blocks are mined in a permissionless manner, balancing decentralization and security.
As a native scaling solution, Fractal supports secure asset transfers across layers starting from the Bitcoin main chain, including decentralized bridging of BRC-20 and Ordinals assets between the mainnet and the Fractal network.
Key applications include Fractal swap (flexible BRC20 exchange mechanism), Asset bridge (asset bridge between the mainnet and the Fractal network), and UniWorlds (application introducing real-world transactions).
Unisats completed a Pre-A round of financing in May this year, led by Binance, with the specific amount of financing undisclosed.
The translation is complete.
Unisat Swap Product Important Update
Botanix
Botanix Labs is building the first fully decentralized EVM-equivalent L2 on Bitcoin, combining the usability and versatility of EVM with the decentralization and security of Bitcoin.
The project utilizes Bitcoin's Proof of Work (PoW) as the foundational settlement and decentralized Layer 1, while adopting a Proof of Stake consensus model. The stake (in Bitcoin) is securely stored on the distributed network Spiderchain, protected by decentralized multi-signature from a randomly selected subset of participants.
Botanix allows users to directly stake Bitcoin on the Bitcoin network. Upon connecting with MetaMask, a special Bitcoin deposit address is generated, encoding the user's EVM address in Taproot.
This innovative mechanism enables users to send Bitcoin directly from major exchanges to this deposit address and then use Bitcoin in MetaMask. The user experience is similar to Ethereum, but in reality, all operations are conducted using Bitcoin. This innovative approach of combining Bitcoin with EVM compatibility is expected to bring more use cases and user-friendly experiences to the Bitcoin ecosystem.
Botanix announced the completion of an $8.5 million seed round of financing in May this year.
The Botanix testnet went live on November 30, 2023, and as of June, the testnet has connected over 300,000 wallet addresses and launched two applications, AvocadoSwap and Bitzy, for interaction.
04 Client Verification of RGB++
Nervos
Nervos Network is one of the Bitcoin scalability solutions, using a more native approach by modifying the UTXO model that underpins Bitcoin. It adopts a layered architecture, including a Layer 1 blockchain (Common Knowledge Base, CKB) that can be extended through payment channels and RGB++.
CKB leverages the natural structural advantages of POW+UTXO, similar to BTC, and combines innovative "homomorphic mapping" technology to seamlessly migrate the client verification paradigm of RGB to CKB, named RGB++. This approach sacrifices a little privacy but brings significant functionality and flexibility expansion, while forming a strong bond of security with BTC L1.
The RGB++ protocol is an improvement and extension of the original RGB protocol. The original RGB protocol is an L2 solution aimed at implementing smart contracts and asset issuance without altering the Bitcoin mainnet. It achieves asset transfer by binding assets to specific Bitcoin UTXOs, primarily relying on client verification, with transactions processed and verified off-chain.
Nervos Network addresses the limitations of the original RGB through the RGB++ protocol. RGB++ uses CKB as the data availability and execution layer for Bitcoin, seamlessly integrating Bitcoin UTXOs to CKB Cells through homomorphic binding, achieving seamless integration with CKB's Turing-complete smart contracts.
RGB++ introduces on-chain verification of crucial transaction elements, enhancing security and data availability. It also enables transaction folding, non-custodial contracts with shared states, and non-interactive transfers, achieving cross-chain transfers of Bitcoin without the need for a cross-chain bridge.
As an asset issuance protocol, RGB++ enables BTC L1 to issue new RGB assets, and RGB++ asset transactions on CKB are fully Turing-complete and programmable. Not only can RGB++ assets be mapped to CKB, but assets with UTXO characteristics such as Atomical and Rune can also be mapped to CKB for Turing-complete transactions.
UTXO Stack
UTXO Stack is a modular Bitcoin Layer 2 chain issuance platform, akin to a "one-click chain issuance" platform. It focuses on issuing Bitcoin Layer 2 chains based on the UTXO homomorphic pattern.
The project is developed by the CELL Studio team, incubated by the Nervos ecosystem fund. Cipher, the founder of the company, is also the proposer of the RGB++ protocol. The company's purpose is to drive the development and prosperity of the Nervos ecosystem.
UTXO Stack is essentially a strategic layout of the Nervos project in the Bitcoin ecosystem. Its role is to provide technical support and modular services for projects wishing to develop UTXO model Layer 2 chains on Bitcoin.
UTXO Stack can be likened to the Op stack in the Ethereum ecosystem. Just as Base is built on the OP Stack toolkit for Ethereum Layer 2, UTXO Stack provides similar functionality for the Bitcoin ecosystem.
Bitcoin Layer 2 chains built through UTXO Stack can natively integrate the capabilities of the RGB++ protocol and utilize CKB as the data availability layer. This effectively positions UTXO Stack as the OP Stack + EigenLayer of the Bitcoin ecosystem.
These Layer 2 chains based on UTXO Stack can adopt a Proof of Stake (POS) consensus mechanism, ensuring the security of the Layer 2 chain through staking of BTC, CKB, and BTC L1 assets.
05 Restaking
The security of many emerging PoS chains is limited by the scale of the on-chain economy, posing a risk of control. Bitcoin staking and restaking protocols provide security for PoS networks by introducing the most consensus-strong Bitcoin assets.
Especially under the education of EigenLayer and various restaking projects, the concept of restaking has become deeply ingrained, and its extension to the Bitcoin ecosystem is more natural.
The advantages of Bitcoin restaking include:
Bitcoin is the most secure existing blockchain, with an unparalleled foundation of trust.
Activating the approximately $13 trillion market value of Bitcoin creates sustainable income opportunities for holders.
Bridging the gap between PoW and PoS blockchain systems, fully leveraging the security advantages of Bitcoin.
Bitcoin staked derivative assets have enormous market prospects, including building collateralized stablecoins, lending, diversified ecological applications such as recursive lending and structured products.
Babylon
Babylon is a Bitcoin staking protocol that allows Bitcoin holders to stake BTC on PoS chains and earn rewards while securing the PoS chain, applications, and app chains.
Unlike traditional methods, Babylon uses remote staking without the need to bridge, wrap, or custody Bitcoin on the PoS chain. This method allows Bitcoin holders to earn rewards from idle BTC and enhances the security of PoS chains and app chains.
The core functionality of Babylon expands the use cases of Bitcoin, extending its capabilities beyond value storage and exchange to more blockchains.
The project introduces the Bitcoin timestamp protocol, placing timestamps of events from other blockchains onto Bitcoin, providing these events with the same timestamp security as Bitcoin transactions. This enables fast staking and unstaking, reduces security costs, and enhances cross-chain security.
From a technical perspective, Babylon includes two main protocols:
Bitcoin Timestamp: Sends concise verifiable timestamps of any data (such as PoS blockchains) to Bitcoin.
Bitcoin Staking: Allows Bitcoin assets to provide economic security for any decentralized system through trustless and self-custody means.
In May of this year, Babylon announced the completion of a $70 million financing round led by Paradigm.
Project development stage: Bitcoin Staking Testnet-4 has concluded. When the subsequent testnet is open, active participation in staking tests and completion of corresponding Galaxy tasks is recommended.
Lorenzo
Lorenzo Protocol is a liquidity restaking protocol built on Babylon, aiming to enhance the application capabilities of Bitcoin by introducing liquidity staking and privacy-enhancing features. The project allows Bitcoin holders to convert BTC to stBTC, enabling participation in Bitcoin staking and earning rewards without locking funds.
Lorenzo innovatively divides liquidity restaking tokens (LRT) into Liquidity Principal Tokens (LPT) and Yield Accumulation Tokens (YAT), similar to Pendle's PT and YT. This separation mechanism provides a flexible solution for liquidity restaking, enhancing the liquidity and accessibility of Bitcoin restaking.
An important feature of the project is the absence of a minimum staking time or "unbonding" time. This means investors can avoid the risk of being locked in staking and maintain flexibility during market fluctuations.
Lorenzo provides an EVM-compatible Cosmos chain secured by Babylon BTC, used for issuing and settling BTC liquidity restaking tokens. This provides the foundation for cross-chain operations and a broader range of DeFi applications.
In the future, Lorenzo plans to build a range of financial products, including interest rate swaps, lending protocols, structured BTC yield products, and stablecoins. The project focuses on building an efficient market for Bitcoin liquidity allocation and liquidity securitization.
While specific financing information has not been disclosed, the project has received support from Binance Labs.
The Beta mainnet is currently live.
Chakra
Chakra is an innovative Bitcoin restaking protocol driven by ZK technology, introducing the concept of Settlement Consumer Service (SCS) to integrate Bitcoin restaking into PoS systems.
The core technical features of the project include:
Locking BTC using a time-lock mechanism
Generating proofs of staking events using ZK-STARK technology
Off-chain verification mechanism without direct connection to the BTC network
Utilizing STARK technology to ensure high security without the need for trusted setups
Chakra's ZK Proofs design has the potential for multiple applications, including artificial intelligence, DeFi, and gaming. Users only need to stake once and can expand to multiple application scenarios through authorization, earning multiple staking rewards.
The project has the potential to establish a staking proof-based L2 network, allowing stakers to participate in L2 consensus and governance. These L2 networks will share the security of Bitcoin while providing data availability services and execution environments maintained by stakeholders.
Chakra plans to integrate with Babylon to expand its application scope in the Bitcoin ecosystem.
In April 2024, the project announced investment institutions, including STARKWARE, ABCDE, and some Asian miners.
Project development progress:
Testnet is live and participated in Babylon testnet-4
In Babylon Testnet-4, Chakra became the top finality provider
Confirmed TVL of 258 Signet BTC, accounting for 36% of Babylon's total TVL, demonstrating strong early performance.
BounceBit
BounceBit is an innovative BTC restaking infrastructure that provides the foundational layer for diverse restaking products. The project utilizes a CeFi + DeFi hybrid framework, allowing BTC holders to earn rewards from multiple channels.
The core concept is to drive the development of Bitcoin by using assets rather than altering the Bitcoin blockchain. The main strategies include funding rate arbitrage and creating on-chain certificates for restaking and mining.
BounceBit's Layer 1 includes two key components:
Dual Coin PoS: a hybrid consensus mechanism where validators can accept both BBTC and BB tokens
Native LSD Module: allows stakers to delegate staking and receive LST certificates as rewards
The project's CeFi layer includes:
Compliance Custody: ensures user fund security through MPC wallets
OTC Settlement: securely utilizes CEX liquidity, with trades settling off-chain
BTC Restaking: ensures fund security through regulated custody services, with users receiving bounceBTC (BBTC) as staking certificates
BounceClub: a no-code DeFi experience creation platform
Liquid Custody: introduces the concept of Liquid Custody Tokens (LCT) to maintain staked asset liquidity
BounceBit completed a $6 million seed round of financing, co-led by Blockchain Capital and Breyer Capital.
The project plans to launch the on-chain brokerage service Superfast in the third quarter of 2024, aiming to address liquidity issues for BBTC and BBUSD and initiate large-scale BB rewards activities.
Superfast will combine the concepts of LCT and CEX to achieve fast settlement and high liquidity for on-chain trading, supporting super liquidity exchanges of BB, BBUSD, and BBTC.
BounceBit's innovative model is expected to provide Bitcoin holders with more restaking options and earning opportunities, while also driving the expansion of Bitcoin's application in the DeFi space. The project's hybrid architecture and diversified product line demonstrate its potential in Bitcoin financial innovation.
Lombard
Lombard is a Bitcoin staking protocol aimed at achieving Bitcoin staking and liquidity release through the Babylon platform.
The core product LBTC is a cross-chain liquid Bitcoin token with returns, backed 1:1 by BTC. When users stake Bitcoin through Babylon, Lombard uses LBTC tokens to represent the liquidity and returns of staked Bitcoin.
The main innovation of the project is allowing yield-bearing BTC to move cross-chain without dispersing liquidity, which could become a significant catalyst for bringing in a large amount of new capital into the DeFi ecosystem.
Lombard plans to integrate LBTC into Ethereum's DeFi protocols later in 2024, significantly expanding the application scope and potential of Bitcoin in the DeFi space.
Lombard recently announced the completion of a $16 million seed round of financing led by Polychain.
Currently, Lombard is still in the development stage, and the testnet has not yet been launched.
06 DA Layer
Bitcoin and Ethereum have significant differences in ecosystem maturity, technical genes, and mainnet features. Ethereum's Data Availability (DA) layer is a further enhancement of its relatively rich mainnet functionality. In contrast, Bitcoin's mainnet transaction processing capacity is extremely limited, handling only about 4 transactions per second.
Therefore, for Bitcoin, developing the DA layer is more of an urgent need rather than a simple feature enhancement. There is less competition in this track, and currently, only Nubit has taken shape.
Nubit
Nubit has built a highly scalable and secure Data Availability Layer (DAL) based on Bitcoin's economic security, aiming to significantly increase Bitcoin's data capacity without sacrificing security. It provides support for applications such as Ordinals, layer 2 scaling solutions, price oracles, and indexers.
Nubit integrates Babylon's POS staking solution, ensuring that the economic security of the entire DA ecosystem is determined by native Bitcoin stakers, allowing Bitcoin holders to participate and strengthen the Nubit system, creating the most secure and scalable Data Availability Layer.
In addition to the DA layer, Nubit will also develop an execution layer based on the Nubit DA framework, which is stateless and efficient, allowing users to reliably verify computational results. This will be widely used in Bitcoin wallets and by users.
In terms of financing, it announced a $8 million seed round led by Polychain in June of this year (total financing of $12 million).
Currently, the Alpha testnet is open, and activities include Community Assemble, Light Node Quest, and upcoming Testnet Adventure.
07 Summary
This article provides a rough overview of the progress of some ecosystem projects from the perspective of the Bitcoin layer. In reality, the Bitcoin ecosystem also includes more infrastructure such as cross-chain bridges, wallets, oracles, various asset protocols, and DeFi projects, the scope of which is too extensive to enumerate.
Our discussion is intended to serve as a starting point for further exploration, aiming to provide a glimpse of the characteristics of Bitcoin ecosystem development through these cases.
The development of the Bitcoin ecosystem is facing a balance challenge between technical originality and user demand, which is reflected in the formation of two forces in ecosystem development.
The native tech camp is committed to exploring the potential on the basis of Bitcoin's unique UTXO model and script language, developing projects that truly align with Bitcoin's design principles.
Although this approach is more challenging from a technical perspective, it better maintains consistency with the core values of Bitcoin. Through the analysis of a large number of projects, we found that native tech camp projects generally have a strong academic background, reflecting the high difficulty of developing Bitcoin ecosystem infrastructure.
In contrast, the user-oriented camp focuses more on responding quickly to market demand, using existing mature technologies to rapidly develop and deploy products to serve existing user groups.
These projects more often adopt the experience of Ethereum, with the advantage of reducing user education costs. However, the drawback of this approach is the lack of innovation at the application end, with most landing projects essentially replicating Ethereum's solutions on sidechains.
For each cycle, innovation is an indispensable key element. In the BTC ecosystem, technological innovation should be more focused on breaking through its various limitations.
The Babylon project is a good example, demonstrating how to enhance the practicality of Bitcoin through native technological innovation. By using innovative technologies such as Bitcoin timestamps, Babylon allows users to earn additional income while retaining ownership of BTC.
This method not only minimizes additional asset security risks but also creates new value for users, making it highly attractive to market users. Based on these observations, we believe the future development path of the BTC ecosystem may be:
Through continuous native technological innovation and improvement, develop emerging protocols and projects to increase the capital utilization of BTC.
This approach not only breaks through the original technical limitations of Bitcoin but also meets market demand while maintaining its core values, laying a solid foundation for the long-term healthy development of the Bitcoin ecosystem.
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