The Second Half of the Multi-Chain Race: Where Should the BTC Layer2 Market Head?
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The Second Half of the Multi-Chain Race: Where Should the BTC Layer2 Market Head?
"In my view, there are three main breakthrough points: 1) a 'new' narrative for asset issuance; 2) the narrowing of Layer2 'standards'; 3) the launch of yield-generating BTCFi."
Navigating Web3 tides with focused insightsBy Haotian
Recently, both primary and secondary markets have been under immense pressure, as if dark clouds were looming overhead. Many are asking: what's next for Bitcoin Layer2? The answer is clearly not as simple as Eastern and Western capital refusing to prop each other up. After in-depth research into several representative projects, I've gained a deeper understanding.
In my view, there are three key breakthrough points: 1) a "new" narrative for asset issuance; 2) narrowing Layer2 "standards"; and 3) the dawn of yield-bearing BTCFi. Let me elaborate:
A "New" Narrative for Asset Issuance
The Bitcoin ecosystem has evolved from Ordinals, BRC20, BitVM, Runes, to Layer2—but now faces a paradox: technology is becoming increasingly transparent, yet wealth-generation effects are weakening. Why? Because wealth creation so far stems only from information asymmetry among existing capital, while technological upgrades haven't yet attracted new capital inflows.
Take the flawed BRC20 and the privileged-born Runes protocol as examples. Despite widespread criticism, BRC20 did generate wealth effects and drew significant attention to Bitcoin derivatives. However, Runes, despite its superior data storage, indexing logic, and design maturity, failed to spark expected market reactions.
Does this mean the technical direction was wrong? Was OP_Return’s exclusion of UTXO spam transactions misguided? Was the Premine reserve mechanism flawed? Clearly not. I believe the wealth effect triggered by BRC20 inscriptions was an accidental phenomenon driven purely by information asymmetry under unique macro conditions. Whether a narrative for Bitcoin asset issuance can succeed depends not on being first, but on sustained value empowerment by project teams.
Therefore, the previous method of issuing new assets tied to BTC mainnet UTXOs only benefits early movers with information advantages. To keep the story of Bitcoin derivative assets compelling, we must address two challenges—short-term and long-term:
1) Short-term liquidity challenge: Minting a pile of assets isn’t the goal—the real aim is enabling circulation and value creation through trading. Relying solely on the BTC mainnet to support inscription assets is no longer viable. Instead, bridging these assets to Layer2 opens possibilities for activating liquidity within dedicated application ecosystems.
@NervosNetwork CKB uses the RGB++ protocol to enable BTC mainnet inscription assets to leap onto CKB Layer2 for circulation. This approach effectively addresses asset liquidity, especially for high-potential, growth-oriented assets.
2) Long-term project empowerment challenge: Although Runes enjoys strong consensus for asset issuance and allows projects to control supply via Premine, launching assets on mainnet first and then moving to Layer2 creates massive operational costs during early stages. In a FOMO-driven market, these include high token acquisition costs, expensive airdrop fees, community marketing, and maintenance—all making it difficult to discuss “empowerment” meaningfully under such financial strain.
@RoochNetwork, a BTC-native Layer2 built on MoveVM, enables Parallel global state synchronization of BTC, allowing a BTC inscription asset to be issued at low cost and circulated initially on Layer2. Once the asset gains market scale and community consensus, it can later migrate to the BTC mainnet for consensus upgrade. This asset-circulation-first narrative directly tackles the difficulty project teams face in empowering their initiatives within the BTC ecosystem.
In short, while asset issuance narratives mark the beginning of BTC Layer2 development, the real shift lies in whether these community-driven assets can find strong backing from major projects—on L1 or L2—and demonstrate solid circulation value within Layer2 ecosystems.
Narrowing Layer2 "Standards"
Over the past year, the BTC ecosystem has gone through a chaotic phase of uncontrolled growth—"no direction, no standards, no barriers"—leading to a flood of builders into the BTC Layer2 space: EVM-Compatible, UTXO Stack homomorphic binding, UTXO parallel stacking, off-chain Turing-complete BitVM, native RGB, AVM virtual machines, and more. There are reportedly over a hundred BTC Layer2 projects in preparation. Yet, no clear winner has emerged.
However, this Layer2 free-for-all hasn’t brought meaningful growth to the BTC ecosystem. As the market cools, debates resurface about whether BTC Layer2 is even a valid concept. While the lack of standards allows greater "copy-paste" flexibility, directly grafting mature scaling solutions onto Bitcoin’s inherently limited mainchain may not deliver real scalability benefits—and could instead harm BTC users due to security and stability risks.
I believe the era of unstructured, standard-less Layer2 proliferation is ending. The future of BTC Layer2 will move toward higher technical thresholds:
1) UTXO Stack Architecture: Nervos CKB’s RGB++ protocol offers a standardized framework for building BTC Layer2 solutions, widely seen as the most native-compatible extension for Bitcoin. By inheriting Bitcoin’s simplicity and security, UTXO Stack is emerging as a mainstream direction in the near term. Recent upgrades to the RGB++ layer and engineering implementations like UTXO Swap provide foundational infrastructure for developers expanding the Bitcoin ecosystem using UTXO structures.
2) zkVM General-Purpose Protocol Framework: @ProjectZKM builds on the zkMIPS microprocessor instruction set to create a full suite of ZK Bridgeless cross-chain solutions and Entangled Rollup Networks with interoperability layers. Leveraging the absolute authority of ZK proofs in trustless verification, this introduces a native, general-purpose "cross-chain" solution for the BTC ecosystem.
Its technical principles resemble RGB’s Peg-in/Peg-out commitment verification and unlocking mechanisms, enhanced with BitVM2’s challenge system. Compared to others, zkVM offers broader compatibility, enabling non-UTXO blockchains to natively integrate with the BTC ecosystem—a wider-reaching Layer2 scaling solution powered by ZK tech.
3) RGB Client-Side Verification Framework: The native RGB path relies on peer-to-peer off-chain client infrastructure, using one-single-seal + state channels to achieve native BTC Layer2 expansion. It supports complex applications like smart contracts and integrates with the Lightning Network to expand payment use cases. For example, @BitlightLabs is building wallets, DEXs, and other infrastructure around the RGB protocol.
4) AVM Virtual Machine Framework: By simulating a Bitcoin virtual machine, this approach embeds special encoding to enable smart contract functionality on Bitcoin’s otherwise stateless mainnet. It’s a truly native expansion method that neither depends on off-chain scaling nor violates Bitcoin’s core OP_Codes. @atomicalsxyz has been pioneering this path.
In summary, raising technical barriers and narrowing Layer2 standards will inevitably eliminate opportunistic players, allowing capable developers—with proper funding—to build the kind of scalable ecosystem Bitcoin truly needs. This exploration will take time, much like Ethereum’s journey from Plasma and Validium to Rollup dominance.
The Dawn of BTCFi Yield
Somewhere along the way, BTCFi quietly became the narrative and focal point of the BTC ecosystem. At first, I struggled to grasp the difference between BTCFi and DeFi. Is it simply that DeFi centered on "decentralization," while BTCFi centers on the "Bitcoin chain"? But to turn a standalone asset with massive community consensus into a catalyst for cross-chain liquidity, even the most advanced technologies must eventually bow to Bitcoin—the granddaddy of them all.
Given Bitcoin’s unique scripting language and stateless, programmable limitations, this makes sense. In my view, BTCFi should encompass three core characteristics:
1) Inclusive asset compatibility: Beyond native BTC assets, BTCFi must embrace various derivatives like Runes, ARC20, BRC20, etc. If BTCFi doesn’t aim to activate broader BTC ecosystem assets, it would be indistinguishable from existing DeFi models based solely on BTC outflows and wrapped BTC.
2) Native, bridgeless operation—also known as trustless interoperability. Only native cross-chain capabilities ensure BTC and derivative assets can flow freely without centralized trust intermediaries. This provides the absolute technical prerequisite for yield generation. Only then can POS staking, restaking, and other yield-generating activities on Layer2 remain fully on-chain, traceable, and fair—laying the foundation for rich BTCFi financial innovations.
3) Programmable complexity: Whether UTXO Stack or zkVM-based architectures, the off-chain environments they connect to must support complex programmability. In the short term, UTXO’s structural homogeneity gives it an edge in practical applications. Long-term, ZK technology could serve as a powerful interface linking BTC to high-performance chains like EVM or MoveVM, opening infinite possibilities for what BTCFi ecosystems might become.
For instance, @GOATRollup leverages zkVM to build "native secure cross-chain" and "unified liquidity layer" features, offering a technically robust expansion stack (GOAT Stack) for the BTC Layer2 market.
Earlier mentioned Rooch Network aims not only to provide utility for BTC but also yield opportunities for BTC assets. Similarly, RGB++ layer on UTXO structure follows the same vision. Their solutions align closely with these three technical pillars.
Still, before BTCFi fully emerges, I see it more as an ecological direction than a finalized product. Today’s stagnant market cannot support BTCFi breaking away from DeFi. Thus, technical standards shouldn’t be rigid criteria for labeling a project as BTCFi. Any project with sufficient market consensus can join the BTCFi narrative. Beyond methodology, what matters most is delivering tangible results to the market. Take Blast, still not recognized as a Layer2 by many, yet undeniably influential in shaping the industry.
That’s all.
Note: Though the BTC Layer2 space remains messy in terms of asset issuance, Layer2 standards, and yield mechanisms, I do see signals of "Keep Optimism." Whether inscription mania returns, whether Layer2 achieves Ethereum-like glory, or whether BTC yield can bridge crypto and the real world—the answers lie within our collective optimism.
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Haotian | CryptoInsight
