The bull market is more than halfway through. Does the Bitcoin ecosystem still have a chance?

The Bitcoin network, with its outstanding stability and security, has not only endowed BTC with lasting value, but also accumulated impressive capital.

With the approval of the BTC spot ETF, the massive influx of traditional funds has pushed its market value to over $1.3 trillion.

However, people often overlook the difference between Bitcoin as a network and BTC as a digital asset. To realize the full potential of Bitcoin, the key is to use network functions to transform Bitcoin from a simple value storage 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 "Inscription" not only focused the attention of the public and developers on the Bitcoin ecosystem, but also made people see the possibility of releasing 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, showing an astonishing growth rate. Even today, the daily NFT transaction volume on the Bitcoin network is greater than that of Solana.

However, the market's high expectations for the Bitcoin ecosystem also brought about setbacks.

The rapid cooling of the inscription craze, the performance of the highly anticipated Runes "Runes" after the launch was below expectations, and the dramatic turn of the Merlin project from the peak of TVL to the plunge in coin prices after the coin was issued, all made the market confused about the future of the Bitcoin ecosystem.

With the rise of Memecoin, market attention has also been greatly diverted.

This wave of ups and downs in the Bitcoin ecosystem is just like the "high temperature annealing" process in semiconductor technology. This process is designed to release the internal stress of the material and increase its ductility and toughness.

We believe that this principle also applies to the development of the Bitcoin ecosystem. After the FOMO sentiment fades, which projects are still actively built? What is the development direction and trend of the Bitcoin ecosystem?

This article will be classified by track, and will deeply explore the development trends and representative projects of the Bitcoin ecosystem, analyze how they cope with challenges, and the role they play in the Bitcoin ecosystem.

BTC Layer

As the first successful cryptocurrency, Bitcoin's network design was originally designed to focus on security and decentralization, which also brought inherent limitations in programmability and transaction speed.

Although upgrades such as SegWit and Taproot have improved these issues to some extent, the Ordinals asset issuance boom has clearly exposed the limitations of the network: severe network congestion, rising gas fees, and an urgent need for more powerful smart contract functions.

With the growing demand for scalability and additional functions beyond the original functions of Bitcoin, the Bitcoin ecosystem has begun to explore various expansion solutions. Most of these solutions draw on the expansion experience of the Ethereum ecosystem and adopt a modular layered architecture, which gave birth to the concept of "Bitcoin layer".

This architecture includes the L2 layer (such as lightning networks, side chains, and Rollup solutions), which aims to increase transaction throughput by transferring transactions to off-chain processing while maintaining a secure connection with the main chain;

The settlement layer further optimizes the performance and functionality of specific application scenarios; the data layer, which provides data availability and storage solutions; and the application layer, which develops various decentralized applications based on the underlying infrastructure.

This multi-layer architecture improves programmability, making more complex smart contracts possible; significantly increases transaction processing speed; improves data availability; and expands the possibility of ecology.

In the most competitive Bitcoin Layer2 track, most of them use the EVM technology stack and cooperate with cross-chain bridges to solve the Bitcoin expansion problem. Although this method can quickly build an 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 the same time, using Ethereum's account model and EVM to expand UTXO-based Bitcoin is, to some extent, inconsistent with the concept of "Bitcoin Native". There are roughly three types of L2 from the perspective of technical routes:

Rollup system: This type of solution attaches great importance to the verifiability of Layer1 and is committed to extending the security of Layer1 to Layer2.

Sidechain: The advantage of this type of solution lies in its relatively mature technology and ecosystem.

Client verification: This type of solution emphasizes the use of Layer1's native data availability (DA).

While pursuing Layer1 verifiability, Rollup solutions control the user's trust cost through a variety of modular designs. This approach not only ensures security, but also reduces the user's trust burden to a certain extent.

In contrast, although the sidechain system has an advantage in technical maturity, it may face more challenges in inheriting Layer1 security.

Although the client verification solution can largely ensure that all ledger records are carried out on Layer1, it requires users to maintain a high degree of trust in the client. This trust cost is endogenous and difficult to completely eliminate.

Rollup

The emergence of Ordinals has made the Bitcoin network a highly secure database that can store various data, including Rollup proof data.

However, simply uploading Rollup proof data to the BTC network is not enough to ensure the validity and correctness of Rollup internal transactions. The core problem facing BTC Rollup lies in verification.

Currently, most BTC Rollups may choose the sovereign rollup (client verification) method, that is, the validator synchronizes all the Rollup data off-chain and checks it by itself.

The limitation of this method is that it cannot fully utilize the most powerful feature of the Bitcoin network-the POW consensus of hundreds of thousands of nodes to ensure the security of rollup.

The ideal state is to allow the BTC network to actively verify the proof of Rollup, similar to the way Ethereum does it, and have the ability to reject invalid block data.

At the same time, it is also necessary to ensure that the assets in the Rollup can still be trusted to be withdrawn to the BTC network through a safe escape channel in extreme cases (such as the Rollup's nodes or sorters are down for a long time or refuse to accept transactions).

Bitlayer

• Bitlayer is the first Bitcoin Layer 2 network based on the BitVM solution, designed to provide the same security as Bitcoin while supporting Turing-complete computing power.

• The core technical innovation of the project lies in the adoption of the latest BitVM computing paradigm and OP-DLC bridge, which solves the three main challenges facing Layer 2:

• Trust-free two-way anchoring: Combining OP-DLC with the BitVM bridge to achieve trustless two-way flow of assets between the Bitcoin main chain and Bitlayer

• First layer verification: Inheriting the security of Bitcoin through BitVM

• Turing completeness: Supports multiple virtual machines and achieves an environment that is 100% compatible with the Ethereum Virtual Machine (EVM)

• Bitlayer launched a $50 million ecological incentive plan on March 29 this year to attract early builders and contributors. Currently, many native projects have joined the ecological construction, including DEX, permissionless lending protocols and MEME.

• Recently, Bitlayer announced the completion of $11 million in Series A financing, led by Franklin Templeton and other institutions, becoming the first Bitcoin infrastructure project to obtain institutional investment in ETF licenses.

• The project has been launched on the user center, including three modules: novice tasks, advanced tasks and daily tasks. Users can earn Bitlayer points by completing tasks and get 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 active ecological construction strategies make it one of the Bitcoin Layer 2 projects worthy of attention.

https://www.bitlayer.org/ready-player-one/dapps-center

B² Network

• B² Network is an EVM-compatible Layer2 on BTC, which provides an off-chain trading platform that supports Turing-complete smart contracts, improves transaction efficiency and reduces costs.

• By integrating zero-knowledge proof (ZKP) technology with Bitcoin's Taproot, B² Network ensures enhanced privacy and security of transactions. The network aims to develop Bitcoin into a dynamic platform, setting the stage for innovative applications such as DeFi and NFT, and is applicable to traditional Bitcoin assets and emerging Bitcoin derivative assets.

• B² Network's technical architecture includes two layers:

1. Rollup layer: adopts ZK-Rollup and zkEVM solutions, responsible for executing user transactions and outputting related proofs.

2. Data Availability (DA) layer: including distributed storage, B² nodes and Bitcoin network, responsible for permanent storage of Rollup data, verification of zero-knowledge proofs, and final confirmation on Bitcoin.

• As a key component of B² Network, distributed storage serves as a repository for ZK-Rollup user transactions and proofs, improving network security, reducing single points of failure, and ensuring data immutability.

• Currently, B² Buzz has entered the third phase and launched Buzz Farming, cooperating with well-known BTCFi projects such as Babylon, Unirouter, Lombard, Bedrock, etc. to provide diversified income strategies.

• Buzz Farming income includes:

• Get 14,580 B² tokens from the B² network every day.

• Rewards from BTCFi partner chains and important partners, including Babylon, Aptos, Bedrock, Lombard and other projects.

• As the native revenue aggregator of B² Network, Buzz Farming will continue to bring more benefits and paths to users, reflecting the innovation of the project in the DeFi field.

https://buzz.bsquared.network/farming

QED

• QED Protocol is a ZK rollup on BTC, running on zkevm. Unlike other zk rollups, QED did not choose to generate zk proofs for the entire Rollup transaction, but only created ZK proofs for withdrawal transactions from the rollup to BTC L1, and verified these proofs on BTC L1 by composing scripts into logic circuits.

• Each user's public key acts as a custom ZK circuit with a "smart signature" function similar to a smart contract.

• Similar to the idea of ​​BitVM, QED Protocol composes scripts into logic circuits to verify the ZK proof of withdrawal transactions on BTC L1. Such logic circuits will contain 1,000 UTXOs. Although direct verification is achieved, the cost is huge.

• Decentralized applications built on QED can prove transactions locally, providing users with unlimited computing with fixed gas fees.

• Founder Carter Feldman said that QED can process more than 150,000 transactions per second and plans to launch a test network in the next 3-4 months. The main network will be launched after the community reaches a consensus, and native tokens will be launched to incentivize high-performance infrastructure operations.

• QED has completed a $6 million seed round of financing, with Blockchain Capital as the only investor, and its valuation has reached at least $100 million. It has also previously received $3.25 million in Pre-seed rounds and $1.35 million in angel rounds of financing.

• The ZK technology used by QED is STARK technology, which is a pioneer project of Starkware<>BTC and has received early investment and support from Starkware.

GOAT Network

• GOAT Network is a BTC Rollup Layer2 launched by ZKM, a project incubated by MetisDAO. It is the first decentralized Bitcoin L2 with shared network ownership.

• Technically, the Optimistic Challenge Protocol (GOAT-OCP) is introduced, and the BTC script locks the native security mechanism to ensure security. ZKM Entangled Rollup is used as the general settlement layer to improve transaction inclusion and finality.

• GOAT Network can support direct deposit of assets without introducing additional cross-chain bridges, and protect assets in the decentralized Sequencer network.

• The development team comes from MetisDAO. Metis is currently the only Ethereum Layer 2 project that implements a decentralized sequencer. They have also brought this technical advantage to BTC Layer2. The decentralized Sequencer network allows any Bitcoin holder to lock in a node or delegate to an existing node.

• Currently, GOAT has received a commitment of 5,000 BTC from five institutional node operators. It plans to start with seven node operators and expand to dozens in the future.

• Potential benefits of participating in GOAT Network include:

• Gas fees in the form of BTC

• Mining rewards for GOAT tokens

• yBTC (receipt token after locking BTC on the GOAT network) generates returns

• yBTC can unlock more profit opportunities in the GOAT network ecosystem

• The first phase of the decentralized sorter activity has been launched. Users can bind their wallets (must hold 0.001 BTC), social information, and complete social tasks

https://club.goat.network/goatlist

Mezo

• Mezo is a Bitcoin Layer2 network that aims to promote the transformation of Bitcoin from a "savings technology" to a circular economy.

• The project uses 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, combined with the innovative concept of proof of holding. Users can lock BTC on Mezo. The longer the lock-up period, the higher the HODL score, so that they can contribute to network security and earn income when the mainnet is launched.

• The project was launched by the startup studio Thesis, which has extensive experience in BTC ecosystem development and has developed the tBTC project.

• According to the Mezo official website, the current number of users is close to 12,000, and the total number of BTC pledged has reached 2,333.

• Mezo recently announced the completion of a new round of financing of US$7.5 million, bringing the total financing amount to US$30 million. The new funds will be used to expand network adoption, including integrating more products such as the Bitcoin staking platform Acre.

https://mezo.org/hodl

Bitfinity Network

• Bitfinity Network EVM is an Ethereum-compatible blockchain created based on the Internet Computer (IC) and developed using the Solidity language. Developers can deploy Bitcoin, Ordinals, and BRC-20 smart contracts written in Solidity through Bitfinity, which is expected to enhance the practicality of Bitcoin.

• Thanks to the unique architecture of IC and Chain Key technology, Bitfinity Network EVM is more efficient than traditional EVM implementations, with storage capacity and processing speed on the chain comparable to traditional network services, without the need to pay gas fees.

• Bitfinity plans to integrate Ethereum and other EVM-compatible chains by running light clients on IC, which requires adjusting the network protocol to interface with full nodes of other chains and synchronize the entire blockchain.

• The project supports connecting ICRC-1 tokens and ERC777/ERC20 tokens, as well as Bitcoin as an ICRC-1 token.

• Early this year, it completed a $7 million financing at a valuation of $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, which is an ERC-20 token.

Arch Network

• Arch Network is an innovative Bitcoin native programmability solution, which is different from traditional L2 and aims to directly introduce programmable functions into the Bitcoin network.

• Arch is a parallelized PoS network that uses ZK proofs to enhance Bitcoin native programmability. The network consists of a Rust-based zkVM (ArchVM) and a decentralized validator network.

• The project draws inspiration from Solana and SVM (Solana Virtual Machine) and does not rely on any bridge or L2. Arch has three characteristics: programmability, parallel execution speed, and trustless interoperability and composability.

• In the Arch network, asset transfers and state changes on the Bitcoin chain occur on Bitcoin L1. Arch uses ordinals through the state chain to submit state changes in a single transaction, thereby reducing fees and ensuring atomic execution.

• Arch's charging model includes infrastructure processing fees and dynamic pricing mechanisms. The infrastructure processing fee is for each BTC transaction, including operations such as deploying smart contracts, transactions, and minting NFTs. The dynamic pricing mechanism is similar to the fast lane tip, which is adjusted according to network congestion and transaction complexity.

• Arch Network has completed a $7 million seed round of financing, led by Multicoin Capital, with participation from OKX Ventures, CMS Holdings, etc.

• Currently, Arch's products and roadmap are still under development, and the specific launch schedule has not yet been announced.

BTC Sidechain

The concept of sidechain originated from the paper "Enabling Blockchain Innovations with Pegged Sidechains" published by Adam Back et al. in 2014. The concept aims to enhance Bitcoin's service capabilities by allowing assets to be transferred between multiple blockchains.

Sidechain is essentially an independent blockchain network running in parallel with the main chain, with the following characteristics:

1. High customization: specific rules and functions can be designed to improve scalability and flexibility.

2. Independent security mechanism: maintain its own security mechanism and consensus protocol, and security depends on the sidechain design.

3. High autonomy: has greater design freedom than the main chain.

4. Interoperability: interoperability with the main chain may be low, but supports cross-chain transfer of assets.

The core function of the sidechain is to realize the transfer and use of assets from the main chain to the sidechain, which usually involves operations such as cross-chain transfers and asset locking. This design brings new possibilities to the Bitcoin ecosystem. The advantage is that it can quickly move a set of Ethereum networks to be linked to Bitcoin, but it also brings challenges in terms of security and interoperability.

Merlin

• Merlin Chain is a Bitcoin sidechain released by Brc420. As one of the earliest Bitcoin Layer2s to land, Merlin has long occupied a huge TVL. Even if the price of the coin is not as expected after the issuance, according to BTCEden data, Merlin is still far ahead of other BTC L2 projects with a TVL of 1.28 billion US dollars.

• Merlin Chain is based on the native assets, protocols and products of Bitcoin Layer 1. The goal is to enable the assets, protocols and user ecology of the first layer through the second layer, such as building a user-friendly metaverse based on Bitmap, and building DeFi protocols using BRC-420.

• Merlin uses the MPC solution of cobo wallet to implement BTC cross-chain. There is still some gap in security compared with the BTC multi-signature after Taproot upgrade, but MPC has been verified for a long time. Using ParticleNtwrk's account abstraction technology, users are allowed to continue to use Bitcoin wallets and addresses to interact with side chains, maintaining user habits. This design is more user-friendly than requiring Bitcoin users to use Metamask for interaction.

https://www.btceden.org/?type=all

Stacks

• Stacks is a sidechain closely integrated with Bitcoin, with a unique consensus mechanism and smart contract functions. The project adopts an innovative proof-of-transfer (PoX) consensus mechanism, in which miners participating in the consensus no longer destroy Bitcoin, but instead distribute it to a group of participants who maintain network security.

• Stacks plans to launch the Nakamoto upgrade this year, which will make it a true Layer2 solution. The upgrade code has been fully completed and will be deployed to the mainnet soon. The upgrade aims to significantly increase transaction throughput, achieve 100% finality of Bitcoin transaction confirmation, and reduce transaction confirmation time from 10 minutes to about 10 seconds.

• The Nakamoto upgrade will also enhance the security of Stacks and align it with the Bitcoin network. Even in the event of a reorganization of the Bitcoin network, most Stacks transactions will remain valid, improving overall network reliability.

• In addition to the Nakamoto upgrade, Stacks will also launch sBTC, a decentralized, programmable 1:1 Bitcoin-backed asset that can deploy and transfer BTC between Bitcoin and Stacks (L2).

• sBTC enables smart contracts to write transactions to the Bitcoin blockchain, and in terms of security, transfers are guaranteed by the entire Bitcoin hash power.

• Stacks currently has a relatively rich ecosystem of projects, with a current on-chain TVL of $200 million.

• For example, Alex is the DEX of the Stacks ecosystem, which also includes the Launchpad function, and currently has a TVL of $30 million; the liquidity pledge project StackingDAO has locked in $100 million in liquidity.

• The token STX is also the highest-valued token in the Bitcoin sidechain ecosystem, and the only token in the top 100 of Coinmarketcap market capitalization.

https://defillama.com/chain/Stacks?pool2=false&staking=false

Citrea

• Citrea is an innovative Bitcoin expansion solution that achieves expansion within the Bitcoin network through zero-knowledge proof technology, ensuring on-chain verifiability and data availability. The core advantage of the project is that it can support more complex applications without compromising the security of Bitcoin or changing its consensus rules.

• Citrea's technical features include:

• Batch processing of large numbers of transactions and generating concise validity proofs in zkVM

• The first implementation of validity proof burning and local verification in the Bitcoin blockchain

• The native ZK proof verifier smart contract on Bitcoin L1 is built into BitVM

• Unlike traditional sidechains, Citrea creates a modular ecosystem for Bitcoin by implementing sharding, keeping settlement and data availability on the Bitcoin main chain.

• The project announced in February this year that it had completed a $2.7 million seed round of financing led by Galaxy.

• Citrea's public developer network is now online, with three one-week testing missions from July to August. Users can participate in the test and get NFT rewards in Galaxy.

Fractal Bitcoin

• Fractal BTC is a Bitcoin Layer 2 solution developed by the Unisats team. It is the only solution that uses Bitcoin Core code to recursively expand infinite layers on top of the Bitcoin blockchain, using BRC20 tokens Sats as Gas fees.

• Fractal forked the Bitcoin Core code and made some key adjustments. The main features include reducing the block confirmation time to 30 seconds. The project plans to implement "controversial" opcode proposals such as OP_CAT and ZK native verification OPCode faster than the Bitcoin mainnet, and smart contracts can be implemented through scripts in the future.

• The consensus mechanism adopts proof of work (PoW) consistent with Bitcoin, and miners can use existing hardware devices such as ASIC and GPU for mining.

• Fractal introduced the innovative Cadence Mining method, where two out of every three blocks are mined in a permissionless manner and one is mined through merged mining, balancing decentralization and security.

• As a native expansion solution, Fractal supports cross-layer secure asset transfers starting from the Bitcoin mainchain, including decentralized bridges of assets such as BRC-20 and Ordinals.

• Main applications include Fractal swap (flexible BRC20 exchange mechanism), Asset bridge (asset bridge between mainnet and Fractal network) and UniWorlds (applications that introduce real-world transactions).

• Unisats completed its Pre-A round of financing in May this year, led by Binance, and the specific amount of financing was not disclosed.

• Unisats is one of the most reliable infrastructures in this round of Ordinals. Wallets and trading platforms have also occupied the minds of users to a large extent. With a good user base and trading foundation, it would not be abrupt for Unisat to develop such a shadow chain. The new round of financing also shows stronger resource capabilities. We look forward to more pioneering applications.

https://unisat-wallet.medium.com/2024-07-unisat-swap-product-important-update-e974084074a1

Botanix

• Botanix Labs is building the first fully decentralized EVM-equivalent L2 on Bitcoin, combining the ease of use and versatility of the EVM with the decentralization and security of Bitcoin.

• The project uses Bitcoin's Proof of Work (PoW) as the base settlement and decentralized layer 1, while adopting a Proof of Stake consensus model. Stake (represented in Bitcoin) is securely stored on the distributed network Spiderchain and protected by a randomly selected subset of participants through decentralized multi-signatures.

• Botanix allows users to stake Bitcoin directly on the Bitcoin network. After the user connects to MetaMask, a special Bitcoin deposit address is generated, which encodes the user's EVM address in Taproot.

• This innovative mechanism allows 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 fact all operations are performed in Bitcoin. This innovative approach to combining Bitcoin with EVM compatibility is expected to bring more application scenarios and user-friendly experience to the Bitcoin ecosystem.

• Botanix announced in May this year that it had completed a seed round of financing of US$8.5 million.

• The Botanix test network was launched on November 30, 2023. As of June, the test network has connected more than 300,000 wallet addresses and launched two applications AvocadoSwap and Bitzy for interaction.

https://botanixlabs.xyz/en/ecosystem

Client Verification RGB++

Nervos

• Nervos Network is one of the Bitcoin scalability solutions, using a more native approach and modifying the UTXO model that supports Bitcoin. It adopts a layered architecture, including an L1 blockchain (Common Knowledge Base, CKB) that can be extended through payment channels and RGB++.

• CKB takes advantage of its natural structural advantages of being POW+UTXO like BTC, combined with the innovative "isomorphic mapping" technology, and "seamlessly migrates" RGB's client verification paradigm to CKB, named RGB++. This approach sacrifices a little privacy in exchange for a great expansion of functionality and flexibility, and its security is strongly bound to BTC L1.

• The RGB++ protocol is an improvement and extension of the original RGB protocol. The original RGB protocol is an L2 solution designed to implement smart contracts and asset issuance without changing the Bitcoin mainnet. It achieves asset transfer by binding assets to specific Bitcoin UTXOs, mainly relying on client verification, and transactions are processed and verified off-chain.

• Nervos Network solves the limitations of the original RGB through the RGB++ protocol. RGB++ uses CKB as the data availability and execution layer of Bitcoin, and maps Bitcoin UTXO to CKB's Cell through isomorphic binding technology, achieving seamless integration with CKB's Turing-complete smart contracts.

• RGB++ introduces on-chain verification of key transaction elements, improving security and data availability. It also enables transaction folding, shared state masterless contracts, and non-interactive transfers, and cross-chain transfers of Bitcoin can be achieved without a cross-chain bridge.

• RGB++, as an asset issuance protocol, enables BTC L1 to have the ability to issue new RGB assets. RGB++ asset transactions on CKB are completely Turing-complete and programmable. Not only RGB++ assets can be mapped to CKB, 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 second-layer chain issuance platform, which can be understood as a "one-click chain issuance" platform. It focuses on issuing Bitcoin second-layer chains based on the UTXO isomorphic model.

• The project was developed by the CELL Studio team, a blockchain software company incubated by the Nervos Ecosystem Fund. The founder of the company, Cipher, is also the proposer of the RGB++ protocol, which was established to promote the development and prosperity of the Nervos ecosystem.

• UTXO Stack is actually the strategic layout of the Nervos project in the Bitcoin ecosystem. Its positioning is to provide technical support and modular services for projects that want to develop a UTXO model second-layer chain on Bitcoin.

• UTXO Stack can be compared to the Op stack in the Ethereum ecosystem. Just as Base is Ethereum Layer 2 built on the OP Stack toolkit, UTXO Stack provides similar functions for the Bitcoin ecosystem.

• The Bitcoin Layer2 built through UTXO Stack can natively integrate the capabilities of the RGB++ protocol and can use CKB as the data availability layer. This makes UTXO Stack equivalent to the OP Stack + EigenLaye of the Bitcoin ecosystem.

• These UTXO Stack-based Layer2 can adopt the POS consensus mechanism to ensure the security of the second-layer chain by staking BTC, CKB and BTC L1 assets.

Restaking

The security of many emerging PoS chains is limited by the scale of the on-chain economy and there is a risk of being controlled. The Bitcoin staking and re-staking protocol provides security for the PoS network by introducing the most consensus-based Bitcoin assets.

Especially under the education of EigenLayer and a number of re-staking projects, the concept of re-staking has been deeply rooted in people's minds, and it is more natural to derive this concept from the Bitcoin ecosystem.

The advantages of Bitcoin re-staking include:

1. Bitcoin is the most secure blockchain in existence, with an unparalleled foundation of trust.

2. Activate Bitcoin with a market value of approximately $1.3 trillion to create sustainable income opportunities for holders.

3. Bridging the gap between PoW and PoS blockchain systems, and making full use of Bitcoin's security advantages.

4. Bitcoin pledge derivative assets have huge market prospects, including building diversified ecological applications such as mortgage-minted stablecoins, lending and derivative revolving loans and structured products.

Babylon

• Babylon is a Bitcoin staking protocol that allows Bitcoin holders to pledge BTC on the PoS chain and earn income while protecting the security of the PoS chain, applications, and application chains.

• Unlike traditional methods, Babylon uses remote stake staking without the need to bridge, wrap, or host Bitcoin to the PoS chain. This method allows Bitcoin holders to earn income from idle BTC while enhancing the security of the PoS chain and application chain.

• Babylon's core functions expand the application scenarios of Bitcoin, making it not only limited to value storage and exchange, but also extend Bitcoin's security capabilities to more blockchains.

• The project introduced the Bitcoin Timestamp Protocol, placing event timestamps from other blockchains on Bitcoin, giving these events the same timestamp security as Bitcoin transactions. This enables features such as fast pledge unbinding, reduced security costs, and cross-chain security.

• From a technical perspective, Babylon includes two main protocols:

1. Bitcoin Timestamp: Send a concise and verifiable timestamp of any data (such as a PoS blockchain) to Bitcoin.

2. Bitcoin Staking: Allows Bitcoin assets to provide economic security for any decentralized system in a trustless and self-custodial manner.

• In May this year, Babylon announced the completion of a $70 million financing round led by Paradigm.

• Project development stage: Bitcoin Staking Testnet-4 has been completed. When the subsequent testnet is opened, it is recommended to actively participate in the staking test and complete the corresponding Galaxy tasks.

https://babylonchain.io/

Lorenzo

• Lorenzo Protocol is a liquidity re-pledge protocol built on Babylon, which aims to enhance the application capabilities of Bitcoin by introducing liquidity pledge and privacy enhancement features. The project allows Bitcoin holders to convert BTC to stBTC, participate in Bitcoin staking and receive rewards without locking up funds.

• Lorenzo innovatively divides the Liquidity Re-Pledge Token (LRT) into Liquidity Principal Token (LPT) and Yield Accumulation Token (YAT), which is similar to Pendle's PT and YT. This separation mechanism provides a flexible solution for liquidity re-pledge, enhancing the liquidity and accessibility of Bitcoin re-pledge.

• An important feature of the project is that there is no minimum pledge time requirement and no "unbinding" time. This means that investors can avoid the risk of being locked in the pledge and maintain flexibility when the market fluctuates.

• Lorenzo provides an EVM-compatible Cosmos chain secured by Babylon BTC shared security for the issuance and settlement of BTC liquid re-pledge tokens. This provides a foundation for cross-chain operations and broader DeFi applications.

• In the future, Lorenzo plans to build a series of financial products, including interest rate swaps, lending agreements, structured BTC income products and stablecoins. The project focuses on building an efficient Bitcoin liquidity allocation market and liquidity assetization.

• Although the specific financing information has not been disclosed, it has received support from Binance Labs.

• Currently, the Beta mainnet has been launched.

https://www.lorenzo-protocol.xyz/

Chakra

• Chakra is an innovative Bitcoin re-staking protocol driven by ZK technology. It introduces the concept of SCS (Settlement Consumer Service) and integrates Bitcoin re-staking into the PoS system.

• The core technical features of the project include:

• Lock BTC using time lock

• Generate proof of staking events through ZK-STARK technology

• Off-chain verification mechanism, no need to directly connect to the BTC network

• Use STARK technology to ensure high security without trusted settings

• Chakra's ZK Proofs design has multi-scenario application potential, including artificial intelligence, DeFi, and games. Users only need to stake once, and through authorization, it can be expanded to multiple application scenarios and obtain multiple staking benefits.

• The project has the potential to build an L2 network based on proof of stake, allowing stakers to participate in L2 consensus and governance. These L2s 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, mainly including STARKWARE, ABCDE and some Asian miners.

• Project development progress:

• Has been launched on the testnet and participated in Babylon testnet-4

• In Babylon Testnet-4, Chakra became the number one finality provider

• Confirmed 258 Signet BTC of TVL, accounting for 36% of Babylon's total TVL, showing strong early performance

https://btcstaking.testnet.chakrachain.io/

BounceBit

• BounceBit is an innovative BTC re-pledge infrastructure that provides a base layer for a variety of re-pledge products. The project adopts a CeFi + DeFi hybrid framework to enable BTC holders to obtain returns from multiple channels.

• The core concept is to promote the development of Bitcoin by using assets rather than changing the Bitcoin blockchain. The main strategies include funding rate arbitrage and creating on-chain certificates for re-pledge and mining.

• BounceBit's Layer 1 consists of two key components:

• Dual-currency PoS: a hybrid consensus mechanism where validators can accept both BBTC and BB tokens

• Native LSD module: allows delegation of stakes to validators and obtaining LST certificates in return

• The project's CeFi layer includes:

• Compliant custody: ensure user funds are secure through MPC wallet

• OTC settlement: securely utilize CEX liquidity, and transactions are settled over the counter

• BounceBit completed a $6 million seed round of financing, led by Blockchain Capital and Breyer Capital.

• The project plans to launch Superfast, an on-chain brokerage business, in the third quarter of 2024, aiming to solve the liquidity problems of BBTC and BBUSD and launch a large-scale BB reward activity.

• Superfast will combine the concepts of LCT and CEX to achieve fast settlement and high liquidity of on-chain transactions, and support ultra-liquid exchange of BB, BBUSD and BBTC.

• BounceBit's innovative model is expected to provide Bitcoin holders with more re-staking options and income opportunities, while promoting the expansion of Bitcoin's application in the DeFi field. The project's hybrid architecture and diversified product line show its potential in Bitcoin financial innovation.

https://bouncebit.io/

Lombard

• Lombard is a Bitcoin staking protocol that aims to achieve Bitcoin staking and liquidity release through the Babylon platform.

• The core product LBTC is a cross-chain liquidity Bitcoin token with yield, backed by BTC at a 1:1 ratio. When users stake Bitcoin through Babylon, Lombard uses LBTC tokens to represent the liquidity and yield of the staked Bitcoin.

• The main innovation of the project is to allow BTC with yield to move across chains without dispersing liquidity, which may become an important catalyst for introducing large amounts of new capital into the DeFi ecosystem.

• Lombard plans to integrate LBTC into Ethereum's DeFi protocol later in 2024, which will greatly expand the scope and potential of Bitcoin in the DeFi field.

• Lombard recently announced the completion of a $16 million seed round led by Polychain

• Currently, Lombard is still in the development stage and the test network has not yet been launched.

DA Layer

Bitcoin and Ethereum differ significantly in terms of ecological maturity, technical genes, and mainnet features. Ethereum's Data Availability (DA) layer is a further enhancement of its already relatively rich mainnet functionality. In contrast, the Bitcoin mainnet's transaction processing capacity is extremely limited, processing only about 4 transactions per second.

Therefore, for Bitcoin, developing the DA layer is more like solving an urgent need rather than a simple functional enhancement. There is less competition in this field, and currently only Nubit has taken shape.

Nubit

• Nubit has built a highly scalable and secure Data Availability Layer based on the economic security of Bitcoin, committed to significantly increasing Bitcoin's data capacity without sacrificing security, and providing support for applications such as Ordinals, second-layer expansion solutions, price oracles and indexers.

• Nubit integrates Babylon's POS staking solution to ensure that the economic security of the entire DA ecosystem is determined by Bitcoin's native stakers, which enables Bitcoin holders to participate in and strengthen the Nubit system to create 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 calculation results, which will be widely used in Bitcoin wallets and users.

• In terms of financing, in June this year, it announced a seed round of financing of US$8 million led by Polychain (a total of US$12 million).

• Currently, the Alpha testnet has been opened, and the activities that can be participated in include: Community Assemble, Light Node Quest, and Testnet Adventure, which will be opened later.

Summary

This article only briefly introduces the progress of some ecological projects from the perspective of the Bitcoin layer. In fact, the Bitcoin ecosystem also includes more infrastructure, such as cross-chain bridges, wallets, oracles, various asset protocols and DeFi projects, and the scope is too wide to list.

Our discussion is only intended to serve as a starting point, and aims to glimpse the characteristics of the development of the Bitcoin ecosystem through these cases.

The development of the Bitcoin ecosystem is facing the challenge of balancing technical nativeness and user needs, which is reflected in the gradual formation of two forces in ecological development.

The native technology school is committed to exploring the potential based on Bitcoin's unique UTXO model and scripting language, and developing projects that truly conform to Bitcoin's design philosophy.

Although this approach is more technically challenging, it can better maintain consistency with Bitcoin's core values. Through the analysis of a large number of projects, we found that the native technology school projects generally have a strong academic background, which reflects the high difficulty of developing Bitcoin's ecological infrastructure.

Due to the limitations of the Bitcoin network itself, these projects need to use new technologies such as advanced cryptography to solve challenges, so they require very strong academic skills.

Relatively speaking, the user-oriented school pays more attention to quickly responding to market demand, using existing mature technologies to quickly develop and deploy products to serve existing user groups.

These projects adopt more of Ethereum's experience, and their advantage is that they reduce the cost of user education. However, the disadvantage of this approach is the lack of innovation on the application side, and most of the landing projects are basically copying Ethereum's solutions on the side chain.

For every cycle, innovation is an indispensable key element. In the BTC ecosystem, technological innovation should be more reflected in breaking through its original limitations.

The Babylon project is a good example of how to enhance the practicality of Bitcoin through native technological innovation. By using innovative technologies such as Bitcoin timestamps, Babylon allows users to obtain additional benefits while retaining BTC ownership.

This BTC interest-bearing method minimizes additional asset security risks and creates new value for users, making it very attractive to market users. Based on these observations, we believe that the future development path of the BTC ecosystem may be:

Through continuous native technological innovation and improvement, develop emerging protocols and projects to improve the capital utilization of BTC.

This approach can not only break through the original technical limitations of Bitcoin, but also meet market demand while maintaining its core value, laying a solid foundation for the long-term and healthy development of the Bitcoin ecosystem.