Original | Odaily (@OdailyChina)
Author | Fu Ruhe (@vincent 31515173)
Recently, with Trump's return to power, the price of Bit has hit a new historical high. However, the development of the Bit ecosystem has not been optimistic. Looking back on 2023, the Bit ecosystem was once the focus of the market, with a variety of innovative projects emerging one after another, attracting the attention of global investors. However, by 2024 (especially after Q2), the market enthusiasm gradually subsided, and a large number of Bit ecosystem projects stagnated after issuing tokens, and even faded out of the public eye. By early 2025, the overall attention to the Bit ecosystem had dropped to an all-time low, and there was little discussion of Bit-related technological innovation in the industry.
Against this backdrop of depression, how to find new breakthroughs in the Bit ecosystem has become a huge challenge facing practitioners. With these questions in mind, Odaily had the honor of interviewing Kevin He, the co-founder of Bitlayer. Bitlayer is the first Layer 2 based on BitVM, and the team recently launched the Finality Bridge (the first Bit bridge using BitVM technology) testnet. In the winter of the Bit ecosystem, Bitlayer's technical team, driven by technology, has been constantly exploring the boundaries of BitVM technology, and has found new historical opportunities for the development of Bit Layer 2.
Here are some of the insightful views shared by Kevin in the interview, which may bring new inspiration to the industry.
Key Information Summary:
● The Bitlayer V2 testnet is expected to be launched in Q1 2025, and the mainnet migration plan will be completed in Q2 2025.
● BitVM combines the features of Optimistic Rollup and ZK Rollup to achieve state verification on the Bit mainnet.
● Finality Bridge realizes a "1-of-N" trust model, where only one honest participant is required to ensure security, which is the "minimized trust" Bit bridge.
● Finality Bridge will service the Bit verification mechanism, which will promote industry collaboration and ecosystem sharing.
● Yield BTC integrates security, programmability and yield attributes, meeting users' new demands for BTC assets.
● Bitlayer's ultimate goal is to build a commercial closed loop that realizes value creation and value release, thereby becoming a profitable business. The main source of income is fees, and the team pays great attention to daily operations and income.
● The industry is no longer in the era of "technology is king" alone.
Interview Review
Odaily: After Bitlayer went live on the mainnet last April, its TVL quickly exceeded $500 million, performing very well. V2 is about to be launched, can you reveal some highlights in advance? What will the specific launch time be?
Kevin: Our roadmap is divided into three main versions: V1, V2 and V3.
● About V1: Our V1 is mainly based on the Bit sidechain. Before Bit has verification capabilities, we can only achieve preliminary functions through the sidechain. In April 2023, we launched the mainnet, which quickly drove the growth of TVL, user data and on-chain transactions. The overall business operation is relatively healthy so far.
● Highlights of V2: The core goal of V2 is to evolve the network into a true Bit Layer 2 (L2). This version will inherit the security of Bit, and the technology can support multiple virtual machines (VMs). Currently, V2 mainly supports EVM. Past Bit scaling solutions could only do payment-type products, but we hope to meet users' expectations for complex needs such as asset management through V2. In addition, V2 will also introduce the latest generation of Bit cross-chain bridges. We have already launched related products on the testnet, such as "https://finality.io", where users can experience the cross-chain capabilities of the product.
● About the V2 launch time:
○ The development of V2 involves multiple stages: the testnet is expected to be launched in Q1 2025.
○ The mainnet migration plan will be completed in Q2 2025. This upgrade will seamlessly transition from V1 to V2.
There are many engineering challenges involved, including the construction of the Rollup model, data migration, and the switching of chain nodes. Such migrations are rare in the industry, but we have developed a comprehensive solution.
● About V3: Looking to the future, V3 will focus on improving the performance of the execution environment, such as reducing transaction fees, improving speed, and shortening confirmation times. We believe that the Rollup model is very suitable for achieving performance improvements, and high performance is a very important part of Bit scaling.
Odaily: Many Bit ecosystem second-layer networks are based on the EVM implementation model with minor adjustments. How does BitVM better adapt to the characteristics of the Bit network? What kind of approach does it adopt to build it? What are the core advantages?
Kevin: The Bit Layer 2 ecosystem is currently facing a dilemma:
1. If security is emphasized, such as the Lightning Network, it is indeed very secure, but can only handle payment-type applications and cannot support more complex asset management functions.
2. If programmability is pursued, such as some sidechain solutions, although they support programming functions, they may be lacking in security.
The root cause of the above problems is that the Bit mainnet currently lacks the ability to verify the general state of the second layer. In contrast, in the process of L2 development, Ethereum ultimately adopted the Rollup model, the core of which is to verify the state transfer of L2 on the mainnet. This verification can be achieved through OP Rollup or ZK Rollup. But the Bit mainnet currently cannot directly perform this kind of verification, which is a bottleneck in the development of the ecosystem.
However, since the proposal of BitVM at the end of 2023, we have found that through the OP approach, combined with the design characteristics of Bit, state verification can be achieved on the Bit mainnet. The R&D over the past year and the upcoming products have also proven that our approach is correct. Through BitVM, the Bit mainnet can verify the state transfer of L2, thereby breaking the dilemma of security and programmability.
The BitVM architecture is divided into off-chain and on-chain parts:
1. Off-chain part: including the execution environment and the proof environment. User transactions are executed on the second layer, and corresponding zero-knowledge proofs are generated.
2. On-chain part: verifying these proofs through the Bit mainnet. The Bit mainnet currently cannot directly call contracts to verify transactions in real-time like Ethereum, so we use the "commitment-challenge" model: transactions are first submitted as commitments, and a challenge period is opened.
Core Advantages
1. Balance security and programmability: Through BitVM, we can simultaneously achieve the security accumulation of the Bit network and higher programmability, supporting more complex application scenarios.
2. High performance: The Rollup model does not involve consensus protocols, so message propagation and consensus mechanisms will not become performance bottlenecks.
3. Flexible virtual machine support: BitVM as a verification component (layer) can support the state verification of EVM and other VMs, which means that developers can use existing tools to directly develop applications.
About the innovation of BitVM
● BitVM combines the features of Optimistic Rollup and ZK Rollup: using the OP framework to handle the verification problem.
● Generate ZK proofs after aggregating transactions, and then verify their legality on the mainnet. This combined approach is the first time the L2 verification model of Ethereum has been transplanted to the Bit network, adapting to the design characteristics of Bit.
Odaily: Finality Bridge is called the "minimized trust" Bit bridge, what are the innovative points of this technology? How does it ensure the 1:1 anchoring relationship between Bit and Yield BTC tokens, and guarantee security?
Kevin: Regarding the technical innovation of the Bit bridge, we can start from the generational changes of bridge technology.
The first generation of Bit bridges uses centralized or MPC multi-signature methods to control assets. This approach relies on the honest behavior of the majority of participants to ensure asset security. For example, WBTC and cbBTC, the fund custody relies more on the setting of multi-signatures or centralized solutions.
Here is the English translation of the text, with the specified terms translated as requested:The second-generation bridge technology, such as tBTC, has formed an off-chain POS network, where node consensus and signatures determine the validity of Bitcoin transactions. The improvement of this approach is the introduction of a consensus mechanism, but it still requires the majority of nodes to remain honest to ensure the system's operation.
In the generation of BitVM and Finality Bridge technologies, we have seen a breakthrough in "minimizing trust." The core of this is the realization of the so-called "1-of-N" trust model - as long as one of the multi-signature participants remains honest, the entire system can function normally. This is fundamentally different from the previous model that required "the majority to be honest."
In terms of specific implementation, Finality Bridge introduces three important roles:
1. Consortium multi-signature
The user's Bit assets are locked into a multi-signature address after entering the bridge. This is not a simple single-signature, but a large-scale multi-signature system, with pre-signing operations to ensure that these Bit assets can only flow to the designated operator address and cannot be diverted to other paths. Even if there are problems with some of the multi-signature members, as long as one member does not abandon the private key, the destination of the funds is still secure and controllable.
2. Operator
The operator plays a key role in the entire process. When the user deposits Bit into the bridge, the operator detects the deposit and generates an equivalent Yield BTC on the Layer 2 network to give to the user. When the user chooses to withdraw, the operator will advance the funds to return the Bit to the user and submit a reimbursement request on-chain.
3. Validator
The validator is an open and decentralized role, in which anyone can participate. Their main task is to initiate challenges when they detect violations and, if necessary, punish the violators through on-chain interactions. Validators have economic incentives to participate in this process, thereby enhancing the system's security and decentralization.
Regarding the specific process:
● When the user deposits, the Bit is locked into the multi-signature address, and the operator will create Yield BTC on the Layer 2 network and give it to the user.
● When the user withdraws, the Yield BTC is destroyed on the Layer 2, and the operator detects the destruction message and first advances the funds to return an equivalent amount of Bit to the user. Subsequently, the operator submits a reimbursement request. If the reimbursement process is correct, it is completed directly; if there are errors or fraud, the validators can initiate a challenge and punish the violators.
Odaily: Finality Bridge supports the Ethereum-compatible EVM ecosystem and plans to be compatible with new public chains like Solana in the future. In addition to asset transfer functions, what other cross-chain functions will it expand?
Kevin: Finality Bridge's plan goes far beyond just asset cross-chain transfer functions. Its goal is to connect Bit liquidity providers (including large holders, retail investors, and institutions) with asset management protocols. Asset management is a broad concept that covers multiple levels. Here are the core directions for the bridge's functional expansion:
1. Multi-chain compatibility of fund flows
In addition to the current support for the Ethereum EVM ecosystem, Finality Bridge also plans to be compatible with new public chains like Solana, and has mentioned the possibility of chains like Berachain. This multi-chain compatible strategy not only expands the use cases of Bit liquidity, but also provides more available directions for assets.
2. Open and universal verification functionality
The core of Finality Bridge is the verification mechanism based on Bit. In the future, this technology will be open-sourced and packaged into API services. This means that other protocols can inherit Bit's security without having to rebuild the entire verification system, significantly reducing the technical development cost. For example, there are already institutions in the Bit ecosystem that provide security ratings for projects, and Finality Bridge's verification technology can further enhance the two-way binding relationship between Bit and other ecosystems.
3. Servitization and industry collaboration
Finality Bridge hopes to attract industry peers to use its verification system through open-source technology and API services. The industry's focus is on business expansion, not the repeated construction of technical infrastructure. By providing easy-to-integrate services, Finality Bridge aims to achieve the goal of "serving the entire industry with one set of technology," allowing more protocols to directly benefit from Bit's security.
Odaily: Does the launch of Yield BTC mean that Bitlayer is further expanding its BTCFi layout? What unique advantages does it have in scenarios such as liquidity mining, staking, and lending, and what different earning opportunities are there?
Kevin: We launched Yield BTC primarily to meet user demand. Because in the current ecosystem, if we don't provide business scenarios or returns for users, it's difficult to convince them to put their funds in. This is a practical problem, so we hope to provide a solution that can respond to user needs through Yield BTC.
1. Core attributes of Yield BTC
We believe that Yield BTC is a new generation of BTC asset, different from previous WBTC, tBTC, or other forms of BTC assets. Yield BTC integrates three core advantages:
● Security: Ensuring user asset security and meeting the high security standards of the Bit ecosystem.
● Programmability: Can be flexibly adapted to various application scenarios, providing developers and protocols with higher scalability.
● Yield attribute: Through built-in mechanisms and design, users can obtain actual returns in scenarios such as liquidity mining, staking, and lending.
2. Openness and ecosystem collaboration
Yield BTC is not only an asset, but also an open protocol. We hope to establish cooperation with all L1 and L2 ecosystems, including various protocols, through this protocol. We are currently in active negotiations with multiple well-known L1 and L2, and expect to have specific collaborations, including signing and listing, by next February. This openness allows Yield BTC to be integrated into more ecosystems and expand its application scenarios.
3. Meeting a wider range of business needs
Yield BTC is a fully programmable secure asset, and in theory, it can appear in any scenario that requires Bit assets, such as liquidity mining, staking, lending, and even more complex asset management needs. Compared to single-function Bit assets (such as only for payment or cross-chain tools), Yield BTC can provide more comprehensive earning options and better meet users' needs for asset appreciation. In simple terms, our goal is not just to provide a Bit asset, but to make Yield BTC the core asset that supports the further development of the BTCFi ecosystem. This asset can cover a wider range of scenarios and help users and protocols create more value.
Odaily: Bit has led the market in the current cycle, but incremental capital has not significantly flowed into other blockchain ecosystems or DeFi. How do you think BTCFi can solve the problem of "market demand-product" mismatch?
Kevin: I will answer from three perspectives:
1. Classification of Bit asset management needs
As Bit holders, whether individuals or institutions, they usually have the following four types of needs:
● Yield generation and value preservation: This is the most basic need, how to generate returns on Bit assets while ensuring security.
● Risk management: Bit spot is naturally a bullish asset, but users also need to hedge potential risks through options or contracts.
● Liquidity acquisition: Many miners or large holders don't want to sell Bit, but need short-term liquidity, such as paying electricity bills or other expenses.
● Asset diversification allocation: Using Bit to purchase other assets to enhance the diversity of the overall investment portfolio.
These needs have been partially met in off-chain or centralized scenarios, such as the lending market and options trading. But we believe the real potential lies in migrating these needs to the on-chain.
2. Current bottlenecks
The main bottleneck of current on-chain BTCFi is the lack of a comprehensive product that can simultaneously meet the needs of security, yield, and programmability. Existing products may perform well in certain aspects, but cannot fully cover user demands. This is the problem we hope to solve through the BTCFi protocol.
In the past year, we have conducted extensive exploration and verified some viable business scenarios:
● On-chain options protocol: For example, our partner Jasper Vault, which is a typical representative of on-chain options, has the advantages of public transparency and no need for trust compared to centralized options exchanges.
● Bitcoin Lending Protocol: The Avalon protocol we are collaborating on is a project focused on BTC lending, which allows BTC holders to obtain more efficient liquidity.
● Stablecoin Minting and Trading: Minting stablecoins based on over-collateralized BTC is another very promising direction, providing users with more flexible asset allocation options.
3. Changes in Market Environment
● Changes in Market Environment: Compared to the past, there have been significant changes, with an increase in the proportion of institutional holdings, and more BTC being held by institutions, which are more inclined to use on-chain tools to achieve yield or risk management.
● Improvement of Infrastructure: The innovation of on-chain protocols, such as stablecoins, lending markets, and options trading, has made on-chain management of BTC assets more feasible.
● Diversification of Holder Demand: Compared to the past, when holders only kept BTC in cold wallets or centralized exchanges, holders now tend to seek yield opportunities and diversified investment channels.
The key to the development of BTCFi lies in providing an on-chain solution that meets the comprehensive needs of holders. From yield generation to risk management, to liquidity acquisition and asset allocation, we hope to realize these needs through cooperation with more protocols. For example, through close cooperation with institutions like Franklin, we can not only provide investment support, but perhaps in the future also provide holders with more choices through financial products like ETFs.
Overall, the potential of BTCFi lies in migrating mature off-chain demand to the on-chain space, while leveraging the advantages of the on-chain environment to develop more innovative products. As the infrastructure and market environment continue to mature, BTCFi will become a core growth point for BTC asset management in the future.
Odaily: The Bitcoin ecosystem has been in a prolonged downturn, and many projects have become less vocal. How does Bitlayer position itself in the Bitcoin L2 ecosystem? Compared to other Bitcoin L2 projects, what are Bitlayer's core competencies and differentiated approaches?
Kevin: First of all, the short-term downturn in the Bitcoin ecosystem is normal in my view. As someone with both an investor and an entrepreneur identity, I believe the key is to go back to user demand, to see if these demands are real, and whether we can meet these demands, ultimately solving real problems through our products.
The reason we chose to start Bitlayer from the beginning was not to follow market hype, but largely because we saw the potential for technological breakthroughs. This is a rare opportunity, and we hope to solve some core technical problems and industry pain points in the Bitcoin ecosystem. Innovating and breaking through in the Bitcoin-related field itself has great significance.
If I just wanted to chase the trend, I could have chosen to do investment or other quick-profit activities instead of spending time building a project from scratch. We embarked on this path because we firmly believe this field has immense potential. Especially as the scale of Bitcoin assets expands and the market changes, the on-chain demand for Bitcoin is real. Our goal is clear - to bring these demands on-chain, to build a healthy on-chain environment, and to enable more businesses and products to run on the foundation of Bitcoin.
In a nutshell: We hope to drive the development of on-chain BTCFi business, and truly realize the on-chain commercial environment.
We have invested more than half of our resources in technical R&D. From the initial establishment of the project to the present, R&D has always been our core. After more than a year of technical accumulation, we are gradually starting to implement our R&D achievements, such as:
1. Next-generation cross-chain bridge: Currently in testnet.
2. Seamless transition from V1 to V2: We are working to perfect the relevant functions.
3. High-frequency trading support: Expected to be launched on the testnet this year.
These are our clear goals and plans. We are not just a technology-driven team, but also focus on user needs, ensuring that our products truly solve real problems.
In my view, the industry is no longer in the era of "technology is king". User demands are more diversified, and many people enter this field not necessarily for the pursuit of decentralized technical ideals, but for the convenience of using on-chain businesses or products. So we need to develop with a pragmatic attitude, and in addition to technology, focus on business expansion and market adaptability.
Bitlayer's ultimate goal is to build a commercial closed loop that realizes value creation and value release, thereby becoming a profitable business. In this process, we must clearly define the profit model. Currently, our main revenue comes from transaction fees, so we attach great importance to daily operations and revenue status. We firmly believe that only by providing products that meet user needs and create value for the industry and users can the project achieve sustainable value capture.
