Guest: Charlie Hu, Co-founder of Bitlayer
Interview: momo, ChainCatcher
Under the wave of Bitcoin led by Wall Street institutions and publicly listed companies, the long-silent Bitcoin Layer 2 track may be entering a new stage of technological breakthroughs and ecological explosion.
As a core developer of the BitVM alliance, Bitlayer recently released the 2.0 white paper and launched the first Beta version of a cross-chain bridge mainnet based on the BitVM paradigm, attempting to redefine Bitcoin’s second-layer infrastructure with a “Bitcoin security equivalent” Rollup architecture and a decentralized “challenge mechanism.”
To this end, ChainCatcher interviewed Bitlayer co-founder Charlie Hu. This industry veteran, who was involved in early investments in Polkadot and led the expansion of Polygon’s Asia-Pacific ecosystem, went “All in” on the Bitcoin Layer 2 track in 2023 alongside another co-founder, Kevin He. Currently, Bitlayer has secured $25 million in funding from top institutions such as Polychain Capital, Franklin Templeton, ABCDE, StarkWare, OKX Ventures, Alliance DAO, and UTXO Management, and has established strategic partnerships with the three major mining pools that account for over 1/3 of Bitcoin’s total hash rate.
In this interview, Charlie Hu systematically analyzed the latest technological advancements of Bitlayer, sharing key actions of Bitlayer in commercial cooperation, institutional layout, and TGE plans. He revealed that Bitlayer is about to launch the mainnet V2 version and TGE.
In addition, Charlie Hu also discussed with ChainCatcher how BTCFi can break free from controversy and tap into the real demand for trillions of dormant assets in the era of Bitcoin ‘institutionalization’.
What are the key technological upgrades of Bitlayer?
- ChainCatcher: Bitlayer is positioned to promote the implementation of BitVM as a Bitcoin Layer 2. Why did you choose the BitVM route? Among the many players choosing this route, what are your advantages?
Charlie Hu: We decided to create a Bitcoin Layer 2 mainly because the BitVM white paper was officially released in October 2023, and BitVM has been continuously innovating from its first version to the third version.
During this process, we became core members and core developers of the BitVM alliance, contributing a large amount of code and workload, including tasks such as coordinating with auditing firms. These efforts do not directly generate profits, but we hope to promote the development of the entire Bitcoin ecosystem through these efforts.
We believe that BitVM does not require a soft fork or hard fork of the Bitcoin network, but rather optimizes based on the existing Bitcoin script, achieving secure and efficient transactions through fraud proofs and Rollup technology. Therefore, it has significant advantages in terms of decentralization and security.
Moreover, this technology selection does not require waiting for an upgrade of the Bitcoin network (such as OP_CAT), and is more feasible. Because the OP_CAT upgrade is unlikely to be implemented in the short term.
Therefore, we choose to fully invest in BitVM, while also keeping an eye on and researching other technology options to prepare for possible upgrades in the future.
- ChainCatcher: Bitlayer recently released the 2.0 white paper and launched the Beta version of the BitVM Bridge mainnet. Can you share more details about what your key updates are? Why do you say that your Bridge is the first Bitcoin cross-chain solution based on the BitVM paradigm?
Charlie Hu: These updates mainly revolve around our two core products: BitVM Bridge and Bitcoin Layer2 Rollup. Both products require breakthroughs in the underlying BitVM technology.
The core goal of BitVM Bridge is to activate the liquidity of Bitcoin, enabling it to be used in DeFi scenarios.
Specifically, our BitVM Bridge mainnet Beta version introduces a new mechanism that optimizes on-chain using Bitcoin scripts, similar to the fraud proof mechanisms of Optimism or Arbitrum.
We have designed a “challenge mechanism” which is different from the traditional multi-signature mechanism used by WBTC. In our approach, any member of a group of operators responsible for maintaining security can initiate a challenge to handle potentially problematic malicious transactions.
Compared to WBTC, our bridge has significantly improved in terms of security and decentralization. We define this as a “next-generation Bitcoin cross-chain bridge solution based on BitVM technology,” as it can activate more possibilities.
The 2.0 white paper provides a detailed explanation of the entire bridge’s working mechanism and all processes, ensuring that users and developers can clearly understand each link.
The Bitlayer Network with Rollup architecture is another of our core products, designed to achieve high performance and Bitcoin-equivalent security for transactions. This means that transactions will ultimately be validated on the Bitcoin blockchain, ensuring security equivalent to the Bitcoin main chain.
- ChainCatcher: There are many Rollup models on the market. What are the differences or advantages of Bitlayer Network’s Rollup?
Charlie Hu: The existing Rollups on the market cannot be considered true Layer 2 solutions that are equivalent in security to Bitcoin. They are essentially sidechains. The security of sidechains relies on the maintenance by sidechain nodes, using multi-signature to move liquidity onto the sidechain.
We believe that a true Layer 2 should be transactions that are security-equivalent to Bitcoin. By compressing data through recursive proofs and finally writing it to the Bitcoin block. Once the data is written to the Bitcoin block, it becomes an immutable decentralized record, which is the security of Bitcoin. As long as Bitcoin is not forked and not destroyed by the longest chain logic, the transactions written on the Bitcoin block remain valid.
What we want to achieve is a Rollup model that is securely equivalent to Bitcoin. This is different from sidechains, where asset withdrawals may have issues; if a sidechain node has problems or even forks, assets could get stuck inside. Our Rollup model allows for safer and more convenient asset withdrawals.
In summary, the two core differences between our Rollup architecture and other projects on the market are: first, the security at the technical level, which is equivalent to the security of Bitcoin and higher than that of sidechains.
Secondly, from the perspective of the economic model. The transaction fees of the sidechain are not distributed to Bitcoin miners, resulting in no earnings for the miners, which adds no value to the Bitcoin mainnet. We hope to align the economic model with Bitcoin miners, allowing them to participate in the Layer 2 construction and provide liquidity.
Currently, we are waiting for the code audit of the validator module, and we expect it to go live shortly after the audit is completed.
will soon launch V2 mainnet and TGE
- ChainCatcher: How has the data situation been since the Bitlayer mainnet launch?
Charlie Hu: Since our mainnet launch, we have accumulated nearly 15 million USD equivalent in BTC transaction fees; at the peak, over 200 projects were deployed on the Bitlayer mainnet, with more than 3 million unique addresses participating in interactions, all of which are verifiable real interaction volumes.
- ChainCatcher: In addition to the technical advancements mentioned earlier, what other business expansions have taken place recently?
Charlie Hu: Our core business objective is to map our Bitcoin chain assets YBTC to more networks through a decentralized cross-chain bridge, explore more yield scenarios, and provide greater returns for YBTC holders.
We have established partnerships with multiple public blockchains. In addition to the five major public blockchains Base, Starknet, Arbitrum, Sonic, and Plume Network that were officially announced recently, we have also partnered with Cardano and will advance cooperation with Solana. Some public blockchains have also invested in us and provided grant funding.
We also have a unique collaboration highlight, which is the support of major mining pools that account for over 1/3 of Bitcoin’s hash power, having reached strategic partnerships with Antpool, F2Pool, and SpiderPool.
The core goal of our BitVM bridge is to provide an excellent user experience while ensuring security, allowing bridging transactions to quickly enter the Bitcoin mainnet’s mempool. To achieve this, we need to accelerate the transaction packaging process through mining pools, especially for handling non-standard transactions.
Our BitVM transactions belong to non-standard transaction types. In order for these non-standard transactions to be smoothly written into the Bitcoin mainnet and to be prioritized as much as possible, thereby providing a better user experience, the cooperation and support of mining pools are crucial.
- ChainCatcher: What important developments and goals does Bitlayer have for the second half of this year?
Charlie Hu: First, the V2 mainnet is about to go live, and there is also the TGE event that the community has been concerned about, which will happen soon. Binance’s Pre-TGE activities and Booster activities have already started, and more updates will be disclosed afterwards.
On a technical level, we will continue to implement BitVM technology, including detailed optimizations for Rollup, and promote the development of high-performance Rollup infrastructure for V3.
Although the specific optimizations for V3 may not be implemented until the end of this year or early next year, there are already some ideas in place, and progress is gradually being made from design to engineering and production.
Second, in terms of business expansion, we need to collaborate with various large DeFi protocols and ecosystems to increase the volume of YBTC. Especially in promoting the adoption of YBTC by large holders, we will put in significant effort.
At the same time, we will collaborate with large institutions like 21Shares and Franklin to issue ETP products, Bitcoin interest rate products, and even future Grayscale trust products.
We will also explore cooperation with important industry partners such as Tether, Circle, BitGo, and so on.
In terms of the depth and breadth of ecological cooperation, we have achieved certain results. We have collaborated with custodians (such as Coinbase Prime and BitGo), multi-chain and cross-chain solutions (such as Chainlink and LayerZero), DEX tools (such as DEXTools), Nansen, and have also established partnerships with more than a dozen wallets.
Next, we will continuously deepen the closeness with these partners, truly applying YBTC in practical scenarios, allowing more users to use it, thereby generating income from Gas fees, cross-chain bridge income, and TVL liquidity business income.
Our goal is to become a truly viable infrastructure project with real business scenarios that can generate profits.
How does the “institutionalization” of Bitcoin affect the BTCFi ecosystem?
- ChainCatcher: Do you think the development of the Bitcoin ecosystem narrative you participated in starting in 2023 meets your expectations? The community seems to generally believe that this wave of BTCFi ecosystem started off high but has declined?
Charlie Hu: This phenomenon is similar to Nokia users who, after experiencing the iPhone, can never go back. The infrastructure of the Bitcoin ecosystem is still not完善, and the user experience needs improvement.
The development speed of Bitcoin’s infrastructure is currently basically in line with expectations, but there is still room for improvement. Bitcoin has existed for 15 years, during which it has experienced many ups and downs, and was even once considered unsustainable. However, the Bitcoin ecosystem has been steadily developing.
The development of Bitcoin requires time to gradually improve the infrastructure, ensuring security and stability. While the pace can be faster, overly pursuing speed may lead to problems. The implementation of technology requires rigorous auditing and verification, and continuous optimization is necessary.
In the past two years, the Bitcoin ecosystem has indeed undergone many changes, including new capital inflows and asset appreciation. Overall, these developments are satisfactory.
- ChainCatcher: Looking at it from a longer time frame, since the inception of the Lightning Network, the cryptocurrency community has been experimenting with “leveraging” the liquidity of Bitcoin assets for over 10 years. What substantial progress or noticeable changes do you think the BTCFi industry has made?
Charlie Hu: Before 2021, the Bitcoin ecosystem was almost stagnant. The only significant “event” was the block size debate from 2016 to 2017 - the hard fork between BTC and BCH, and several of our investors today were core OGs from that fork.
The real catalyst that got Bitcoin “moving” was the Taproot upgrade in November 2021. This upgrade elevated the Bitcoin address format and scripting capabilities to a new level. Without Taproot, there would be no Ordinals protocol launched by Casey in early 2023, and consequently, no BRC-20, Runes, and other narratives that followed.
The wave of inscriptions in the spring of 2023 made everyone realize for the first time that Bitcoin can also be used for ecology. Miners who originally did not support it also began to embrace it because they made money.
We have officially initiated the project since the end of November 2023, and it has been 20 months, during which we have fully experienced the “explosion - congestion - reshuffle” of Bitcoin’s second layer. I believe that the entire Bitcoin and even the cryptocurrency ecosystem has undergone tremendous changes, and it is no longer the era of retail investors calling shots and KOLs directing the rhythm. Geeks like Casey and Domo have already faded out of everyone’s sight.
The real steering wheel has been handed over to major hedge funds and listed companies like MicroStrategy, BlackRock, and Franklin, who buy Bitcoin just like they used to hoard gold and government bonds, directly locking them into cold wallets or ETF custody accounts, and rarely moving these assets.
On-chain data is more evident than ever: transactions over $100,000 account for 89% of the entire network, up from 66% three years ago, and the number of coins on exchanges is decreasing. This means that price, sentiment, and even macro narratives mainly depend on the whales’ actions.
- ChainCatcher: BTCFi is currently facing skepticism regarding “pseudo-demand”. What do you believe is the clear market demand for BTCFi? Can you share actual use cases or scenarios?
Charlie Hu: From three aspects. Institutions in Europe and America hold a large amount of Bitcoin, for example, some liquidity funds hope to obtain annualized returns while holding the principal to cover operating costs and gain profits.
As liquidity management based on Bitcoin increases, they are shifting from reliance on traditional financial models to increasingly adopting DeFi models, seeking various yield scenarios on-chain, such as lending and liquidity mining in DeFi protocols.
The same is true for miners; they also have their own asset management teams. Previously, they lent Bitcoin to custody platforms to earn returns, but with the instability of traditional financial models, such as the collapse of Three Arrows Capital and BlockFi, miners are now more inclined to seek on-chain yield products.
On the retail investor side, it is more complex. Some are relatively professional investors who are looking for specific profit scenarios; others are speculators who are chasing “meme coins” or “bottom feeders” and are more focused on short-term gains; and there are also trend followers, mainly participating for the airdrops.
- ChainCatcher: How will Wall Street institutions and publicly listed companies starting to dominate Bitcoin affect the BTCFi industry? Will it give rise to any new demands?
Charlie Hu: Mainly reflected in the following aspects:
Firstly, there is a demand for compliance and security. Institutional investors currently mainly hold Bitcoin through compliant channels such as ETFs, but these assets have not yet been legally and compliantly used in DeFi scenarios.
Once the relevant legislation is passed, institutions will be able to use Bitcoin assets for a wider range of financial applications, such as staking and lending, which will greatly drive the demand for infrastructures like BTCFi.
The increase in institutional holding ratios has gradually converged the volatility of the Bitcoin market, enhancing market resilience. This will provide a more stable market environment for infrastructure like BTCFi, attracting more institutional participation.
Layer 2 solutions such as RGB, BitVM, Babylon, and liquid staking protocols are injecting DeFi and RWA functionalities into Bitcoin, enhancing capital efficiency. The participation of institutions will further promote the development of these ecosystems, providing richer application scenarios for tools like BTCFi.
It is expected that relevant compliance legislation may be passed within the next year and a half, which will provide a legal basis for institutions to deeply engage in the financialization of Bitcoin. Infrastructure such as BTCFi will benefit from this trend, becoming an important tool for institutions to generate profits.
- ChainCatcher: In this new phase dominated by large institutions, what strategic layouts or goals does Bitlayer have? What do you think are the decisive factors for success in the competition among various Bitcoin Layer 2 solutions?
Charlie Hu: Based on the current state of the industry, our goal is to create a truly “out-of-the-box” infrastructure that allows both institutions and large retail investors to participate.
In the long run, our success depends on two core elements:
Firstly, whether the new generation of Bitcoin cross-chain bridge technology can activate those “sleeping” Bitcoin assets, allowing them to provide liquidity and earn returns in various DeFi scenarios.
This is our most core KPI. If this amount is large enough, even surpassing WBTC to become the industry leader, then our value will be very significant. Secondly, can we achieve high performance and transaction security equivalent to Bitcoin?
We are carrying out a series of activities around these two core points.
On one hand, we are actively striving for the “large mining pool + large institutions” strategy: F2Pool, Antpool, and SpiderPool not only ensure node security but have also directly invested in our Bridge; among our list of shareholders, we have traditional asset management giants like Franklin Templeton, as well as some newly joined large institutions that we have yet to officially announce.
On the other hand, we are also carrying out a series of ecological cooperation activities. For example, the Booster event in collaboration with Binance, as well as various campaigns with other Web3 partners. We hope to achieve the following goals:
- Activate more Bitcoin liquidity to provide TVL for DeFi protocols;
- Allow more DeFi users (whether retail or institutional) to earn returns instead of leaving assets idle in wallets;
- Bring more fee income to miners, activate the transaction volume on the network, and let some transactions in the mining pool come from our platform.
In summary, there is only one ultimate goal - to activate the Bitcoin that is dormant in cold wallets without custody and feed it into DeFi for yield. Whoever can achieve the first place in liquidity in this part will gain the pricing power for the next round.
