Multicoin Capital: Why We Invested in Arch, a Bitcoin-native Application Platform
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Multicoin Capital: Why We Invested in Arch, a Bitcoin-native Application Platform
Arch is a decentralized execution layer focused on enhancing Bitcoin's programmability. The network is currently in testing phase and is expected to launch on mainnet within a few weeks.
Navigating Web3 tides with focused insightsAuthor: Vishal Kankani, Head of Investments at Multicoin Capital
Translation: xiaozou, Jinse Finance
On May 9, 2024, Multicoin announced it led a $7 million seed round for Arch, a Bitcoin-native application platform. Arch unlocks the potential for bridgeless decentralized finance (DeFi) on Bitcoin—the world’s most valuable blockchain. Other participants in this funding round include OKX Ventures, Big Brain Holdings, Portal Ventures, CMS Holdings, and Tangent.
For nearly a decade, Bitcoin has functioned as digital gold. Although discussions around enhancing smart contract capabilities began over ten years ago, these efforts largely failed—partly because a significant portion of the Bitcoin community believed such trade-offs might jeopardize Bitcoin’s ultimate mission as the largest non-sovereign currency.
The prevailing view within the Bitcoin community was to abandon programmability and related scalability innovations from other chains, aiming instead to maximize its potential without compromising its vision as a non-sovereign currency. Ethereum and other smart contract platforms emerged precisely by seizing this opportunity.
Smart contract platforms have now existed for a decade. Certain smart contract primitives—such as decentralized exchanges, lending markets, and stablecoins—have achieved product-market fit. They are regarded as fundamental components of well-functioning blockchain ecosystems.
Prior to the Taproot upgrade in November 2021, Bitcoin’s smart contract functionality was extremely limited. The Taproot upgrade expanded the witness field space to approximately 4MB, making it easier for developers to write complex scripting logic. This enabled developers to implement scripts for:
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Atomic swap transactions
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Multi-signature wallets
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Conditional payments
Later, in July 2022, Casey Rodarmor introduced "Ordinal Theory"—a scheme for numbering satoshis that enables tracking and transferring individual satoshis. This unlocked the ability for users to directly "inscribe" arbitrary data into Bitcoin transactions—including images, text, games—and thus enabled fully on-chain NFTs on Bitcoin. These NFTs aren’t necessarily just JPEGs or songs; they can also represent state proofs from other chains.
The impact of the Taproot upgrade and Ordinal Theory has been profound. Today, developers are experimenting with Bitcoin at scale like never before.
1. Current State of Bitcoin Development
At the time of writing, over 50 teams are conducting various research initiatives—rollups, drivechains, sidechains, and more—to expand Bitcoin and enhance its programmability. Most of these projects refer to themselves as "Bitcoin Layer 2s," though in some cases this is a broad categorization. Some are already available today, while others await future breakthroughs such as BitVM or OP_CAT.
Within this landscape, each team makes clear design trade-offs. Key variables in these design decisions include:
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Custody model
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Programmability
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Scalability
We believe that, in the short term, the correct trade-offs focus on the first two points:
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Building natively on Bitcoin—enabling interactions with DeFi without introducing additional trust assumptions beyond Bitcoin itself.
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Focusing on making Bitcoin more programmable under self-custody models.
A typical bitcoiner is a security obsessive. When it comes to “Not your keys, not your coins,” Bitcoin users are the most paranoid people on the planet. It's unreasonable to expect Bitcoin holders to move their BTC into new multisig setups, give up even a fraction of self-custody, or worse, take on bridging risks. We firmly believe this because WBTC and tBTC have existed for years but collectively account for less than 1% of total Bitcoin supply. There simply isn’t enough market demand to accept bridging/centralization risks for programmability gains.
Additionally, we observe that most TVL on Ethereum remains on L1 rather than on L2s like Base, Arbitrum, or Optimism.
To truly unlock DeFi on Bitcoin, developers must go where the users are—Bitcoin L1.
Why prioritize BTC programmability over scalability?
If all a developer wants is to create a fast blockchain, there are plenty of alternatives like Solana, which already boasts a thriving developer ecosystem and mature market infrastructure. Even viewed through the most generous lens of Bitcoin’s current technical state, we’re not ready to achieve high-throughput chains without sacrificing custody—a dealbreaker for most bitcoiners. In this regard, most developers building on Bitcoin are "aligned with Bitcoin": they aim to build on the world’s most secure blockchain, not on multisig schemes disguised as L2s. Within Bitcoin’s current technical constraints, we believe the right sequence is to prioritize programmability first, then progressively advance speed and scale along the roadmap.
2. Bitcoin-Native Applications on Arch
Arch is building the first native Bitcoin application platform. The Arch network is currently in testing and is expected to launch its mainnet in the coming weeks.
Arch is a decentralized execution layer focused on enhancing Bitcoin’s programmability, making several interesting design trade-offs in how it expresses Bitcoin’s design philosophy:
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It acknowledges that most Bitcoin holders will not give up custody to move into multisig setups (which nearly all Bitcoin L2s rely on).
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Its core architecture allows takers in spot trading to interact with applications without taking on new trust assumptions; however, makers face additional trust assumptions (makers are typically professional profit-seekers explicitly assuming risk, rather than principled users holding Bitcoin for self-sovereignty).
Technically, Arch introduces smart contract-like functionality to Bitcoin Layer 1 via a sophisticated architecture leveraging a decentralized network of validator nodes and a purpose-built zero-knowledge virtual machine (zkVM)—the ArchVM. Here’s the general lifecycle of a transaction on the Arch network (from a technical perspective):
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ZKVM: At the heart of the Arch network are zero-knowledge proofs (ZK proofs), which validate transactions and ensure provably secure application execution. The ZKVM is a specialized virtual machine that executes applications and generates cryptographic proofs verifying correct execution. It is powered by Risc0.
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Decentralized Validator Network: The generated ZK proofs are then verified by Arch’s decentralized network of validator nodes. This network plays a critical role in maintaining the platform’s integrity and security. By relying on a decentralized architecture, Arch ensures the validation process is not only secure but also resistant to censorship and single points of failure.
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Integration with Bitcoin Layer 1: Once ZK proofs are validated, the validator network signs unsigned transactions. These transactions—including state updates and asset transfers determined by application logic—are ultimately sent back to Bitcoin. This final step completes the execution process, with all transactions and state updates finalized directly on the Bitcoin blockchain.
While other projects position themselves as Layer 2s, we believe Arch is clearly Bitcoin-native. Arch uniquely positions itself as a Bitcoin-native application platform operating directly on Bitcoin Layer 1. Arch’s direct operation on Bitcoin’s base layer eliminates the complexity and inefficiencies typical of L2 solutions, allowing users to directly benefit from Bitcoin’s security and liquidity while exploring expanded capabilities enabled by Arch.
3. Building on Arch
In the short term, DeFi applications such as lending, decentralized exchanges, and Ordinal markets are obvious candidates for development on Arch. How powerful would it be to enable asset swaps, collateralized loans, and earning BTC yields—all without trust intermediaries?
Moreover, imagine if high-end collectibles could reside entirely on Bitcoin—the most valuable blockchain known to humanity. We anticipate that the world’s highest-value digital collectibles will live on Bitcoin, representing a major technological leap ushering in an internet-native financial era. Many Ordinals collectors clearly value this deeply.
Several projects in the Bitcoin ecosystem have already begun migrating toward Arch. Recently, the Bitcoin lending market Liquidum started integrating liquidity pools, leveraging Arch to support instant liquidity loans and fungible token pools—capabilities that Bitcoin, or even Discrete Log Contracts (DLCs), cannot natively support. At the time of writing, over 20 projects are developing on Arch’s devnet, spanning stablecoins, decentralized exchanges, and lending markets. As excitement around Bitcoin grows, the Arch Foundation plans to support ecosystem growth through upcoming hackathons and funding for a range of projects.
4. The Next Chapter for Bitcoin
Supported by the Taproot upgrade and Ordinal Theory, we are witnessing unprecedented interest in the Bitcoin ecosystem. For the first time in 15 years, there are active, tangible efforts to make Bitcoin more programmable without compromising its vision as a non-sovereign currency.
Arch is the first Bitcoin-native application platform unlocking bridgeless DeFi on Bitcoin—the world’s most valuable blockchain. Arch emerges as a direct response to the Bitcoin community’s desire to leverage Bitcoin’s underlying security and liquidity for more sophisticated applications, similar to what we’ve seen on programmable chains like Ethereum and Solana. By providing a platform for Bitcoin programmability, Arch aligns with the vision and principles of the Bitcoin community and offers an innovative approach to enhancing Bitcoin’s utility while preserving its integrity.
Arch invites us to re-examine the world’s largest and most secure blockchain, bringing advancements and innovations from other blockchains back to Bitcoin.
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