While Bitcoin has recently dominated headlines following the launch of spot exchange-traded funds investing in BTC, critics have lambasted the network for failing to keep pace with innovation in the broader web3 ecosystem.
However, an emerging cohort of projects are working on Bitcoin’s Layer 2 networks boasting compatibility with Ethereum Virtual Machine (EVM) smart contracts, expanding the scope of utility offered by Bitcoin beyond payments.
Layer 2 networks are built on top of an existing Layer 1 blockchain and leverage that network for transaction finality and security. Ethereum’s Layer 2 ecosystem has posted meteoric growth in recent years, offering low-cost transactions while inheriting the security of the Ethereum mainnet’s consensus layer. Ethereum L2s currently boast a total value locked (TVL) of $21.1B, according to L2beat.
Conflux unveils plans for Bitcoin L2
On Jan. 18, the team behind the Conflux Layer 1 network became the latest project to join the fray, announcing plans to launch an EVM-compatible Bitcoin Layer 2 in May following a testnet deployment in February or March.
BTC will function as the Layer 2’s native gas token, with BTC holders also able to stake the coin to participate in its Proof of Stake consensus and governance mechanisms.
Smart contracts deployed to the network can also access events occurring on the Bitcoin blockchains. Conflux said the network will enable DeFi utility for Bitcoin-based assets such as inscription tokens.
“The introduction of an EVM-compatible Bitcoin Layer 2 solution on Conflux opens up a realm of possibilities for developers and innovators in the blockchain space.,” Conflux said. “Developers can now build decentralized applications that seamlessly interact with all three spaces, unlocking new opportunities for cross-chain functionality and creating a more interconnected blockchain landscape.”
Bitfinity closes funding round
On Jan. 10, Bitfinity announced it raised $6M through a round of token sales ahead of its mainnet launch in late January or early February.
Bitfinity also plans to deliver an EVM-compatible Bitcoin Layer 2 based on the Dfinity Foundation’s Internet Computer Protocol. Bitfinity hopes to foster a Bitcoin-secured DeFi ecosystem.
The funding followed a $1M seed round in 2021 and featured participation from Polychain Capital and ParaFi Capital, raising its valuation to $130M. The latest round was closed in June, with the team postponing its announcement until the project’s mainnet launch was just a few weeks away.
Botanix celebrates testnet deployment
On Nov. 29, Botanix claimed to have launched the first “EVM-equivalent” Bitcoin Layer 2 on testnet following a year of research and development. Botanix also launched an accelerator program to support 10 projects building Botanix-based dApps.
“In a multichain world, it has become abundantly clear that EVM is the winning virtual machine – not just for use on Ethereum but on any chain,” said Willem Schroe, the founder Botanix Labs. “EVM’s tooling, support, and vibrant developer community make it the natural aggregator for programmability.”
On Jan. 19, Botanix revealed it is in the process of organizing a hackathon for developers wanting to build EVM-based applications on Bitcoin.
SatoshiVM accused of rug-pull
However, one project within the fledgling Bitcoin EVM Layer 2 ecosystem is attracting controversy.
The team behind SatoshiVM, a Layer 2 Bitcoin rollup using EVM for off-chain computation, has come under fire for allegedly offloading seven-figures worth of tokens from a developer-controlled wallet.
On Jan. 20, 1.21M SAVM tokens — equating to 11.5% of the token’s supply — were distributed to 200 addresses, several of which were associated with popular influencers. The transactions followed multiple influencers spruiked the possibility that SatoshiVM may airdrop tokens to testnet participants following its test network deployment on Jan. 13.
The project also launched an initial liquidity offering (ILO) via Bounce Finance to distribute tokens, igniting concerns that ILO participants could be used for exit liquidity. The funds were moved to a multisig account controlled by Bounce and SatoshiVM in a bid to quell suspicions.
On Jan. 19, SatoshiVM said SAVM was live on Uniswap. The price of SAVM rallied 69.5% since getting listed on CoinGecko on Jan. 19, but shed 28.5% of its value since tagging a local high of $14 yesterday.
Lookonchain, a popular on-chain analyst flagged that a SatoshiVM team wallet had offloaded more than $1M worth of tokens on Jan. 22.
“Remember when influencers with a lot of followers start shilling a project launch at the same time it is likely bc they have allocation and will dump their cheap tokens on you,” tweeted Zachxbt, a popular web3 commentator.
Other projects bringing smart contracts to Bitcoin
Despite the recent hype, the forthcoming brood of EVM-compatible Bitcoin Layer 2s won’t be the first projects to deliver smart contract functionality to Bitcoin.
The Rootstock sidechain launched in 2018, enabling smart contract deployment through its Rootstock Virtual Machine, an EVM fork. Last month, GFX Labs launched Oku, a fork of Uniswap v3, on the network. Rootstock currently boasts a total value locked of $130M, according to DeFi Llama.
Stacks also launched its “Layer 1.5” network offering smart contract execution via its Clarity Virtual Machine in January 2021. Stacks currently hosts a $51.2M TVL.
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