According to statistics from l2.watch, there are currently over 80 Layer 2 projects focused on Bitcoin scaling. In this article, PANews will organize Layer 2 projects that follow different technical paths and introduce the latest project developments and funding status in the Bitcoin Layer 2 space.

Author: Weilin, PANews

Bitcoin Layer 2 is a secondary blockchain network built outside the main chain to enhance the scalability, functionality, and transaction efficiency of the Bitcoin blockchain. Although it is often compared to Ethereum Layer 2, it wasn’t until the BRC20 experimental token standard, based on the Ordinals protocol, gained popularity in May 2023 that more people began to believe in the potential for more complex and sustainable applications based on Bitcoin, beyond just issuing tokens.

Currently, according to statistics from l2.watch, there are over 80 Layer 2 projects focused on Bitcoin scaling. In this article, PANews will organize the main Layer 2 projects that follow different technical paths and introduce the latest project developments and funding status in the Bitcoin Layer 2 space.

The current main technical route of Bitcoin Layer 2

State Channels

State channels allow users to establish end-to-end encrypted channels that facilitate multiple off-chain transactions between two or more parties. Only the first and last transactions are recorded on the Bitcoin blockchain, eliminating the need to broadcast every transaction to the main blockchain. As a result, state channels can achieve lower gas fees and support higher transaction throughput.

Representative Project: Lightning Network

Sidechains

Sidechains are separate, independent blockchains that run in parallel to the main chain, allowing users to transfer assets (Bitcoin) from the main blockchain to the sidechain. Once Bitcoin is moved to the sidechain, users can use these assets for smart contracts, token issuance, or implementing new consensus mechanisms. Sidechains validate information from the Bitcoin main blockchain and perform subsequent operations. A two-way peg mechanism connects the sidechain and the Bitcoin blockchain.

Representative Projects: Established projects include Rootstock and Stacks; new projects include BEVM, Merlin Chain, Fractal Bitcoin, Liquid Network, Mint Layer, Babylon, Bison, Botanix, Core, BounceBit, AILayer, etc.

Rollups

Rollups move multiple off-chain transactions from the main Bitcoin blockchain to an independent network for processing, then submit a compressed transaction back on-chain. Unlike sidechains, rollups periodically submit blocks to the main chain, inheriting the security and decentralization characteristics of the main chain, although their average transaction throughput is generally lower than that of sidechains. Common types of rollups include optimistic rollups, ZK-rollups, and sovereign rollups.

Representative Projects: B² Network, Bitlayer, BOB, Citrea, QED Protocol, Zulu Network, GOAT Network, Mezo, Bitfinity Network, Arch Network, etc.

UTXO+ Client Validation

UTXO+ client validation is a scaling solution based on the Bitcoin UTXO (Unspent Transaction Output) account model. It attempts to perform off-chain ledger calculations based on Bitcoin UTXOs and ensures the authenticity of the ledger through client validation. In 2016, Peter Todd introduced the concepts of single-use seals and client-side validation, which facilitated the birth of the RGB protocol. The RGB++ approach is similar to RGB, executing and verifying transactions off-chain and then settling them on the Bitcoin chain. Nervos leverages the advantages of the same POW+UTXO structure as Bitcoin and combines it with innovative “isomorphic mapping” technology to successfully implement client validation of the RGB protocol on CKB. This allows Nervos to extend the functionality and flexibility of the RGB protocol while maintaining security comparable to Bitcoin.

Representative Projects: RGB, RGB++ (UTXO Stack)

Note: In addition to the above technical paths, some classification methods mention the Layer 2 technical path BitVM, represented by projects like Bitlayer and Citrea, which are classified as rollups in this article. In simple terms, BitVM is a computational model that enables developers to run complex contracts on Bitcoin without changing its fundamental rules. Since the concept of BitVM was proposed until the release of its white paper in October 2023, it has garnered widespread attention from the Bitcoin community. Under BitVM, computation is executed off-chain, while verification occurs on-chain, similar to the optimistic rollup mechanism on Ethereum.

New progress on major Bitcoin Layer 2 projects

Lightning Network

The Lightning Network was first proposed in 2015 and began full implementation in 2018. It allows for more transactions through smart contract applications. The network uses Revocable Sequence Maturity Contracts (RSMC) and Hash Time-Locked Contracts (HTLC) to address off-chain transaction confirmations and payment channel issues. The Lightning Network has gained significant attention and adoption, primarily focusing on Bitcoin’s payment scenarios. On July 23 this year, Lightning Labs announced a major update for Taproot Assets on the Lightning Network, enabling support for multi-asset transfers beyond BTC. Lightning Labs believes this update is significant as it can help bring the multi-trillion dollar stablecoin market into Bitcoin, effectively “Bitcoinizing” USD and global financial assets.

Stacks

Stacks (formerly Blockstack) was first proposed in 2013 and held its Initial Coin Offering (ICO) in 2017. The Stacks Network uses a Proof of Transfer (PoX) consensus mechanism, a variation of the proof-of-burn concept, which involves miners transferring Bitcoin to secure the Stacks blockchain and earn rewards. On August 28, after months of delays, Stacks launched the long-awaited Nakamoto upgrade. This upgrade will increase the block production speed of the Stacks network by 120 times, reducing Bitcoin’s confirmation time from an average of 10 minutes to just a few seconds. This upgrade also prepares for the introduction of sBTC, a “programmable Bitcoin asset” that allows users to bridge their BTC to the Stacks network in a relatively decentralized manner. The sBTC code is expected to be completed in September.

Rootstock

Rootstock (RSK) was first proposed in 2015 and officially launched in 2018. In addition to Rootstock, the team has developed various products based on RSK, including DEXs, wallets, and domain services. These dApps are built on a universal protocol covering payment, storage, computing, communication, and gateway/bridging functions. The goal is to establish a comprehensive RIF ecosystem (RSK Infrastructure Framework) unified under RIF OS technology. The Rootstock team closely monitors the progress of the Bitcoin ecosystem, especially the BitVM technology, which is the foundation of their upcoming BitVMX plan. From 2024 to 2025, the team is focused on developing RBTC super applications, solidifying their latest progress in DeFi tools on the Rootstock network.

Merlin Chain

Launched by Bitmap Tech in February this year, Merlin Chain is a Bitcoin Layer 2 solution integrating ZK-Rollup networks, decentralized oracles, and on-chain BTC anti-fraud modules. Bitmap Tech’s metaverse platform, Bitmap.Game, and asset protocol BRC-420 have performed exceptionally well in the market this year.

At the end of August, ZK interoperability infrastructure Polyhedra Network announced it had integrated its Decentralized Validation Network (DVN) with Merlin Chain through LayerZero, allowing over 100 applications in the Merlin ecosystem to benefit from ZK secure interoperability.

On September 9, Merlin Chain released its semi-annual report, reviewing its growth trajectory for the first half of 2024, including: $1.2 billion TVL, $16 billion in bridging volume, 1.9 million on-chain addresses, and 12.7 million transactions. Within 50 days of its mainnet launch, the TVL surpassed $3.9 billion (with 88% being native assets like BTC and Ordinals), and the market capitalization of M-BTC reached $1.2 billion. The asset trading volume exceeded $3 billion, with DEX liquidity exceeding $78 million. It is reported that Merlin Chain plans to continue advancing in technology, ecology, and community in the second half of the year to promote the sustained development of the Bitcoin ecosystem.

Fractal Bitcoin

Fractal Bitcoin improves transaction processing capacity and speed by recursively creating infinitely expandable layers on the BTC main chain using core BTC code, while maintaining full compatibility with the existing Bitcoin ecosystem. Data shows that the block confirmation time of the Fractal network is approximately 30 seconds, with a processing capacity reportedly 20 times that of the BTC main chain.

The development team behind it, Unisat, has continually attracted market attention. The entire team consists of developers proficient in Bitcoin technologies such as SegWit, Lightning Network, and Taproot. Previous projects by the team have also performed well in the BRC20 trading market, with the token $PIZZA demonstrating strong market performance, attracting investors including Binance and OKX.

On September 9, the Fractal Bitcoin mainnet officially launched, bringing renewed attention to the Bitcoin ecosystem. As of September 12 at 5 PM, the total number of FB holding addresses reached 200,165, with 79,484 added in the past 24 hours, and the number of active addresses reached 118,454.

RGB++

Recently, the first over-collateralized stablecoin protocol based on RGB++, Stable++, was launched, using BTC and CKB as collateral while minting the USD-pegged stablecoin RUSD. By leveraging the advanced Leap functionality of RGB++, Stable++ achieves seamless asset transfer within the Bitcoin ecosystem.

Additionally, on August 23, the next-generation public Lightning Network, Fiber Network, built on Nervos CKB and off-chain channels, was launched. It can provide fast, low-cost, and decentralized multi-currency payments and peer-to-peer transactions for RGB++ assets.

Babylon

On August 22, the Bitcoin staking protocol Babylon launched the first phase of its Bitcoin staking mainnet, bringing a third local use case for Bitcoin assets beyond value storage and simple payments: staking to secure PoS networks and earn rewards. The launch of the first phase of the Babylon staking mainnet led to a spike in Bitcoin network gas that night, prompting further market reflection on the returns of Bitcoin staking projects.

B²Network

B²Network, established in 2022, is a Bitcoin Layer 2 network developed based on ZK-Rollup, compatible with EVM, allowing EVM ecosystem developers to seamlessly deploy DApps. On August 28, B² Network reached a strategic partnership with Aptos and Echo Protocol to promote BTCFi’s expansion into the Move ecosystem. This partnership marks BTCFi’s first attempt in the Move ecosystem.

Bitlayer

On March 29, Bitlayer announced the launch of a $50 million ecosystem incentive program to promote the development of its mainnet ecosystem.

On September 2, Bitlayer announced the official launch of its ecosystem application hub, the DApp Center. The Bitlayer Application Center aims to provide users with a one-stop platform to explore and experience innovative applications within the Bitlayer ecosystem. The App Center serves as an important portal for the Bitlayer ecosystem, gathering the latest and most popular applications.

Funding status of Bitcoin Layer 2 in the past five months

In the past five months, the BTC Layer 2 sector has seen frequent financing activities, with 14 public financing rounds totaling over $71.1 million. The highest funding amount was $21 million raised by Mezo in its Series A round.

On August 22, Bitcoin L2 project Ark Labs raised $2.5 million in a pre-seed round; on the same day, Bitcoin Lightning Network payment startup TMRW announced the completion of $1.3 million in pre-seed funding; on July 26, Bitcoin scaling network Mezo completed $7.5 million in financing, led by Ledger Cathay Fund. Additionally, Bitlayer, BOB, and QED Protocol have also shown good fundraising capabilities and have attracted capital interest.

Currently, active VCs in the Bitcoin Layer 2 space include Draper Dragon, ABCDE Capital, Ledger Cathay Capital, Waterdrip Capital, and Polychain. Some domestic investment institutions familiar to users, such as Hashkey Capital, OKX Ventures, and Binance Labs, also have significant involvement.

Overall, there are many Bitcoin Layer 2 projects, even leading to a situation of “inflation.” Each project adopts different technical routes. Well-known Bitcoin Layer 2 projects like Stacks and Rootstock were established relatively early and have explored related technologies for a long time, but they currently lack more highlights. With the maturation of the Bitcoin base protocol, projects like Merlin, RGB++, and Babylon are enriching the possibilities within the Bitcoin ecosystem, providing more opportunities for Layer 2 development.

However, the development of Bitcoin Layer 2 also faces some bottlenecks. According to independent researcher Haotian from CryptoInsight, the chaotic battle in the BTC Layer 2 market has not significantly brought new growth to the BTC ecosystem. While the market remains subdued, debates about whether BTC Layer 2 is a false proposition occasionally arise. Although the lack of standards has given BTC Layer 2 more possibilities for “pick-and-choose,” directly stitching mature scaling solutions onto the already limited BTC mainnet may not deliver the expected Layer 2 benefits back to the mainnet. Instead, it could pose risks to the BTC mainnet user base due to security and stability issues. In Haotian’s view, the prosperity of BTC Layer 2 during the unstandardized phase is nearing its end, and BTC Layer 2 will likely advance toward a direction requiring higher technical thresholds.

As Haotian stated, the narrowing of technical standards for Layer 2 may be a trend for future development. Currently, challenges and opportunities coexist. In the future, we still look forward to more Layer 2 projects that can “break through,” bringing more innovation and surprises to crypto users and the market.

statement:

1. This article is reprinted from [panewslab], the original title is “A glance at the Bitcoin Layer 2 landscape: Sidechains and Rollup have become mainstream routes, and leading projects are attracting money at every turn. Ten Million Dollars”, the copyright belongs to the original author [Weilin ], if you have any objection to the reprint, please contact Gate Learn Team, the team will handle it as soon as possible according to relevant procedures.

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