Research Report: Merlin Chain-TVL Steady Growth Leads Bitcoin’s Second-Layer Ecosystem

Author: Penta Lab

Project name: Merlin chain

6-month estimated market value: US$6.6 billion

Penta ten-dimensional score: 92 points

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Official website: pentalab.io

Project Introduction

The Merlin project is a side chain solution for the Bitcoin ecosystem. It aims to use a series of innovative technical strategies to Make up for Bitcoin's shortcomings in smart contracts and decentralized applications. Merlin's goal is to achieve seamless mapping of assets between the Bitcoin main chain and side chains, and to provide a decentralized and secure second-tier network. As a pioneer of Bitcoin sidechains, the Merlin project integrates multiple sidechain technologies to enhance the functionality and scalability of the Bitcoin network. Through its innovative multi-signature and zk-proof solutions, fund security and network reliability are guaranteed.

The only self-developed BTC cross-chain bridge, providing high-performance, high-compatibility BTC ecological expansion solutions.

Merlin side chain is the only self-developed BTC cross-chain bridge, supporting BTC/BRC-20/BRC-420/Bitmap/Ordinals. Follow-up It will support Atomics, Stamps, Runes, and assets such as ETH, Arbitrum, Manta, Tron, etc., with good asset compatibility. Merlin uses BTC-Connect to control the EVM address with a BTC wallet; introduces and invests in dApps that engrave the first layer of assets on the second layer; and implements M-token, allowing users to continue to consume/pledge/borrow their pledged assets.

The Merlin team developed the BRC-420 protocol on BTC Layer1, using content on the chain to achieve inscription modularization and tokenization

Introducing a POS-like node mechanism and a highly secure decentralized asset management mechanism.

Each signer is public and transparent, which means anyone can verify the identity and behavior of the signer. Specifically, Merlin uses zero-knowledge proofs (zk-proofs) technology to ensure privacy and security during the asset mapping and verification process. By transmitting zk-proofs back to Bitcoin’s main chain, Merlin ensures the verifiability of data without sacrificing user privacy. Application of side chain technology The side chain technology of the Merlin project solves some of the limitations faced by the current Bitcoin ecosystem, such as the execution of smart contracts and the second-layer expansion problem. By leveraging sidechains, Merlin is able to bring Ethereum-like functionality to Bitcoin while retaining the security and stability of the Bitcoin network itself.

The combination of the unique multi-node signature mechanism and zk-proofs technology provides a secure and decentralized sidechain environment.

Merlin effectively reduces the risk of unilateral evil through a strict limit signature mechanism and risk sharing among multiple parties. Merlin also proposed a mechanism based on fraud compensation, where second-tier stakers need to stake their coins at a specific location. This mechanism allows users’ funds to be compensated through a third-party layer when errors or malicious behaviors occur, increasing trust in the system.

A pioneer in the Bitcoin ecosystem, actively planning for the future to establish a retail ecosystem.

The Merlin project has achieved significant success in the market. The project's staking effect is remarkable, and its TVL (total locked value) of nearly 4 billion US dollars has surpassed Solana. Merlin further increases its TVL by attracting user funds to enter and earn revenue within its ecosystem, including providing exclusive cooperation projects and staking returns.

In the Bitcoin ecosystem, which is still in its early stages, the income from Bitcoin Layer 1 assets is insufficient for users, while Layer 2 can enable the acquisition of assets from the Bitcoin ecosystem. More income, Merlin has successfully attracted individual user funds through its excellent project ecology, and can handle a large number of assets including Ordi and Sats, winning users' trust and acceptance of the Merlin project. This is confirmed by the authenticity and activity of the data on the chain. Merlin's current number of blocks has reached 3.8 million, 850,000 addresses are in use, and hundreds of dAPPs are online or in preparation.

Merlin has successfully built an active ecosystem by providing diverse asset entry methods and rich financial activities, such as lending, liquidity provision and trading. . The project team realized that in a bull market, a strong ecosystem can provide users with more opportunities. Therefore, Merlin focuses on increasing its ecological alpha and attracting high-quality projects to keep its ecosystem active and attractive.

The future development of the Merlin project will focus on improving the decentralization of its side chain technology, enhancing security, and expanding its application in the Bitcoin ecosystem . Merlin's community is an ecosystem dominated by retail investors. Merlin will continue to use behavior to guide the market and maintain an active community environment with a large user base and high user voice. At the same time, the project will seek new partners and market opportunities to enhance its competitiveness.

Market value estimate:Based on the data of other second-layer chains (Layer2 Solution) in the industry such as Arbitrum, Polygon and Optimism, we have The Merlin project has estimated its market value. First of all, we observe that the second-layer chain head project has experienced about a 50% retracement from its peak TVL, and the current average FDV/TVL ratio of the second-layer chain head project is 11 times. Drawing on this track ratio, and considering that the TVL of the Merlin project is $4 billion, we can infer that under similar 50% drawdown conditions, Merlin's target FDV may be $22 billion. If we further assume that 30% of the first batch of tokens are circulated, Merlin’s target circulation market value will be US$6.6 billion.

This valuation attempts to compare Merlin's performance with similar projects, taking into account common market trends and Merlin's unique properties. However actual valuations may vary due to the project's specific technical merits, market acceptance, liquidity and broader market conditions. So while this valuation provides a frame of reference, it needs to be adjusted based on real-time data and changes in market sentiment.

Main risks:Long-term application of narrative realization risk, competition risk, liquidity risk

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