Dialogue with Bitlayer co-founder Charlie Hu: Bitcoin enters the "institutional era," how can BTCFi leverage trillion-dollar market opportunities?

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Guest: Charlie Hu, Co-founder of Bitlayer

Interviewed by: momo, ChainCatcher

Amid the wave of Bitcoin led by Wall Street institutions and publicly listed companies, the previously quiet Bitcoin Layer 2 space may be entering a new phase of technological breakthroughs and ecological explosions.

As a core developer of the BitVM Alliance, Bitlayer recently released its 2.0 white paper and launched the Beta version of the first cross-chain bridge mainnet based on the BitVM paradigm, attempting to redefine Bitcoin's Layer 2 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 ecosystem in the Asia-Pacific region, went "All in" on the Bitcoin Layer 2 space in 2023 alongside another co-founder, Kevin He. Currently, Bitlayer has raised $25 million from leading institutions such as Polychain Capital, Franklin Templeton, ABCDE, StarkWare, OKX Ventures, Alliance DAO, and UTXO Management, and has established strategic partnerships with three major mining pools that account for over one-third of Bitcoin's total hash rate.

In this interview, Charlie Hu systematically analyzed Bitlayer's latest technological advancements and shared key actions in Bitlayer's commercial collaborations, institutional layout, and TGE plans. He revealed that Bitlayer is about to launch the mainnet V2 version and TGE.

Additionally, Charlie Hu discussed with ChainCatcher how BTCFi can break through controversies in the "institutionalization" era of Bitcoin and tap into the real demand for trillions of dormant assets.

What are the key technological upgrades of Bitlayer?

1. ChainCatcher: Bitlayer is positioned to promote the implementation of BitVM as a Bitcoin Layer 2. Why choose the BitVM route? What advantages do you have among the many players choosing this route?

Charlie Hu: We decided to pursue Bitcoin Layer 2 mainly because the BitVM white paper was officially released in October 2023, and BitVM has been iterating from its first version to the third, continuously innovating.

In this process, we became core members and developers of the BitVM Alliance, contributing a significant amount of code and work, including liaising with auditing firms. These efforts do not directly generate profit, but we hope to promote the development of the entire Bitcoin ecosystem through them.

We believe that BitVM does not require soft forks or hard forks of the Bitcoin network; instead, it optimizes based on the existing Bitcoin script, achieving secure and efficient transactions through fraud proofs and Rollup technology, thus having significant advantages in decentralization and security.

Moreover, this technical choice does not require waiting for upgrades to the Bitcoin network (such as OPCAT), making it more feasible, as the OPCAT upgrade is unlikely to be implemented in the short term.

Therefore, we chose to fully invest in BitVM while also keeping an eye on and researching other technical options to prepare for potential future upgrades.

2. ChainCatcher: Bitlayer recently released the 2.0 white paper and launched the BitVM Bridge mainnet Beta version. Can you share more details about your key updates? Why do you say 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 Layer 2 Rollup. Both products require breakthroughs in the underlying BitVM technology.

The core goal of the BitVM Bridge is to activate Bitcoin's liquidity, allowing it to be used in DeFi scenarios.

Specifically, our BitVM Bridge mainnet Beta version introduces a new mechanism that optimizes on-chain based on Bitcoin scripts, similar to the fraud proof mechanisms of Optimism or Arbitrum.

We designed a "challenge mechanism," which differs from the traditional multi-signature mechanism used by WBTC, allowing any member of a group of operators maintaining security to initiate challenges to handle potentially problematic malicious transactions.

Compared to WBTC, our bridge has significantly improved security and decentralization. We define this as a "new generation Bitcoin cross-chain bridge solution based on BitVM technology," as it can activate more possibilities.

The 2.0 white paper explains the entire working mechanism of the bridge and all processes in detail, ensuring that users and developers can clearly understand each link.

The Rollup architecture of the Bitlayer Network is our other core product, aimed at achieving high-performance, Bitcoin security equivalent transactions. This means that transactions will ultimately be validated on the Bitcoin blockchain, ensuring security equivalent to the Bitcoin main chain.

3. ChainCatcher: There are many Rollup models on the market. What are the differences or advantages of the Bitlayer Network's Rollup?

Charlie Hu: The existing Rollups on the market cannot be considered true Bitcoin security equivalent Layer 2 solutions. They are essentially sidechains. The security of sidechains relies on sidechain nodes maintaining it, using multi-signatures to transfer liquidity to the sidechain.

We believe that a true Layer 2 should be Bitcoin security equivalent transactions. By using recursive proofs to compress data, it is ultimately written to the Bitcoin block. Once 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 the longest chain logic is not disrupted, transactions written to the Bitcoin block remain valid.

What we want to achieve is a Bitcoin security equivalent Rollup model. This is different from sidechains, where asset withdrawals may have issues; if sidechain nodes malfunction or even fork, assets may get stuck. Our Rollup model allows for safer and more convenient asset withdrawals.

In summary, our Rollup architecture has two core differences from other projects on the market: first, in terms of technical security, it offers Bitcoin equivalent security, which is superior to sidechain security.

Second, in terms of the economic model. Sidechain transaction fees do not benefit Bitcoin miners, who do not earn revenue, thus providing no value to the Bitcoin mainnet. We aim to align our economic model with Bitcoin miners, allowing them to participate in Layer 2 construction and provide liquidity.

Currently, we are waiting for the code audit of the validator module, and we expect to launch soon after the audit is completed.

Upcoming V2 Mainnet and TGE

4. ChainCatcher: Since the launch of the Bitlayer mainnet, what has the data situation been like?

Charlie Hu: Our mainnet has generated nearly $15 million worth of BTC in transaction fees; at its peak, over 200 projects were deployed on the Bitlayer mainnet, with more than 3 million independent addresses participating in interactions, all of which are verifiable real interaction volumes.

5. ChainCatcher: Besides the aforementioned technological advancements, what other commercial expansions have taken place recently?

Charlie Hu: Our core business goal is to map our Bitcoin chain assets YBTC to more networks through a decentralized cross-chain bridge, exploring more yield scenarios to provide greater returns for YBTC holders.

We have established partnerships with multiple public chains. In addition to the recently announced collaborations with five major public chains—Base, Starknet, Arbitrum, Sonic, and Plume Network—we have also partnered with Cardano and are advancing cooperation with Solana. Some public chains have also invested in us and provided grant funding.

A unique highlight of our collaboration is the support from mining pools that account for over one-third of Bitcoin's hash rate, with strategic partnerships established 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 (transaction pool). To achieve this, we need to accelerate the transaction packaging process through mining pools, especially for handling non-standard transactions.

Our BitVM transactions fall into the category of non-standard transactions. To ensure these non-standard transactions can be smoothly written into the Bitcoin mainnet and prioritized for better user experience, cooperation and support from mining pools are crucial.

6. ChainCatcher: In the second half of this year, what important developments and goals does Bitlayer have?

Charlie Hu: First, we are about to launch the V2 mainnet, along with 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 progress will be disclosed afterward.

On the technical side, we will continue to implement BitVM technology, including detailed optimizations of Rollup, and promote the development of V3 high-performance Rollup infrastructure.

Although specific optimizations for V3 may not be pushed until the end of the year or early next year, we already have some ideas and are gradually moving from design to engineering and production.

Second, in terms of business expansion, we aim to collaborate with various large DeFi protocols and ecosystems to increase the volume of YBTC. We will particularly focus on promoting the adoption of YBTC by large holders.

At the same time, we will collaborate with large institutions like 21Shares and Franklin to issue ETP products, Bitcoin interest products, and even future Grayscale trust products.

We will also explore partnerships with important industry partners such as Tether, Circle, and BitGo.

In terms of the depth and breadth of ecological cooperation, we have already achieved certain results. We are collaborating 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 established partnerships with several wallets.

Moving forward, we will continue to deepen our relationships with these partners, truly applying YBTC in practical scenarios, allowing more users to use it, thereby generating gas fee income, cross-chain bridge income, and TVL liquidity business income.

Our goal is to become a truly business scenario-driven, profitable infrastructure project.

How does the "institutionalization" of Bitcoin affect the BTCFi ecosystem?

7. ChainCatcher: Do you think the Bitcoin ecological narrative that you participated in launching in 2023 aligns with industry development expectations? The community seems to generally believe that this wave of BTCFi ecology has been somewhat high at the start and low afterward?

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 mature enough, and user experience needs improvement.

Currently, the development speed of Bitcoin infrastructure is basically in line with expectations, but there is still room for improvement. Bitcoin has existed for 15 years, experiencing many ups and downs, and was once considered unsustainable. However, the Bitcoin ecosystem has been steadily developing.

The development of Bitcoin requires time to gradually improve infrastructure, ensuring security and stability. While speed can be increased, overly pursuing speed may lead to problems. The implementation of technology requires strict auditing and verification, and continuous optimization.

In the past two years, the Bitcoin ecosystem has indeed undergone many changes, including new capital inflows and asset appreciation. Overall, these advancements are satisfactory.

8. ChainCatcher: Looking at a longer time frame, since the birth of the Lightning Network, the crypto community has been experimenting with "unlocking" the liquidity of Bitcoin assets for over a decade. What substantial progress or noticeable changes do you see in the BTCFi industry?

Charlie Hu: Before 2021, the Bitcoin ecosystem was almost stagnant. The only significant "event" was the block size debate between 2016 and 2017—the hard fork of BTC vs BCH, and some of our current investors were core OGs in that fork.

What truly got Bitcoin "moving" was the Taproot upgrade in November 2021. This upgrade elevated the Bitcoin address format and scripting capabilities. Without Taproot, there would be no Ordinals protocol launched by Casey in early 2023, nor would there be later narratives like BRC-20 and Runes.

The wave of inscriptions in the spring of 2023 also made everyone realize that Bitcoin could also play in the ecosystem. Miners who originally did not support it began to embrace it because they made money.

Since we officially launched our project at the end of November 2023, we have fully experienced the "explosion—congestion—shuffle" of Bitcoin Layer 2 over the past 20 months. I believe the entire Bitcoin and even crypto ecosystem has undergone tremendous changes, no longer in the era of retail traders calling shots and KOLs leading the rhythm. Geeks like Casey and Domo have faded from the public eye.

The real steering wheel has been handed over to major hedge funds and publicly listed companies like MicroStrategy, BlackRock, and Franklin, who buy Bitcoin like they used to hoard gold or government bonds, locking it directly in cold wallets or ETF custody accounts, and rarely moving these assets.

On-chain data is unmistakable: transactions over $100,000 account for 89% of the entire network, compared to only 66% three years ago, and the amount of coins on exchanges is decreasing. This means that price, sentiment, and even macro narratives primarily depend on the whims of these whales.

9. ChainCatcher: BTCFi still faces skepticism about "pseudo-demand." What do you believe is the clear demand for BTCFi in the market? Can you share actual use cases or scenarios?

Charlie Hu: From three aspects. Institutions in Europe and the US hold a large amount of Bitcoin; for example, some liquidity funds wish to earn annual returns while holding their principal to cover operating costs and generate profits.

As Bitcoin-based liquidity management increases, they are shifting from relying on traditional financial models to increasingly turning to DeFi models, seeking various yield scenarios on-chain, such as lending and liquidity mining in DeFi protocols.

Miners are also in a similar situation; they have their asset management teams and previously lent Bitcoin to custodial platforms for returns. However, with the instability of traditional financial models, such as the collapses of Three Arrows Capital and BlockFi, miners are now more inclined to seek on-chain yield products.

For retail investors, the situation is more complex. Some are more professional investors looking for specific yield scenarios; others are speculators chasing "meme coins" or "bottom-fishing" in the market, focusing more on short-term gains; and some are trend followers, primarily aiming for airdrops.

10. ChainCatcher: How do Wall Street institutions and publicly listed companies starting to dominate Bitcoin affect the BTCFi industry? Will it create new demands?

Charlie Hu: This is mainly reflected in several aspects:

First, the demand for compliance and security. Institutional investors currently mainly hold Bitcoin through compliant channels like ETFs, but these assets have not yet been legally and compliantly used in DeFi scenarios.

Once 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 increasing proportion of institutional holdings is gradually stabilizing Bitcoin market volatility and enhancing market resilience. This will provide a more stable market environment for infrastructures like BTCFi, attracting more institutions to participate.

Layer 2 solutions and liquid staking protocols like RGB, BitVM, and Babylon are injecting DeFi and RWA functionalities into Bitcoin, enhancing capital efficiency. Institutional participation will further promote the development of these ecosystems, providing richer application scenarios for tools like BTCFi.

It is expected that within the next year and a half, relevant compliance legislation may be passed, providing a legal basis for institutions to deeply engage in the financialization of Bitcoin. Infrastructures like BTCFi will benefit from this trend, becoming important tools for institutions to generate returns.

11. ChainCatcher: In this new phase dominated by large institutions, what strategic layouts or goals does Bitlayer have? What do you think will be the decisive factors in the competition among various Bitcoin Layer 2 solutions?

Charlie Hu: Based on the current industry situation, our goal is to create an infrastructure that can truly "break out," allowing both institutions and large retail investors to participate.

In the long run, our success depends on two core factors:

First, whether we can activate those "dormant" Bitcoin assets through a new generation of Bitcoin cross-chain bridge technology, allowing them to provide liquidity and earn returns in various DeFi scenarios.

This is our most core KPI. If this volume is large enough, even surpassing WBTC to become the industry leader, our value will be immense. Second, whether we can achieve high-performance, Bitcoin security equivalent transactions.

Around these two core points, we are conducting a series of activities.

On one hand, we are actively seeking to leverage the "big mining pools + big institutions" strategy: F2Pool, Antpool, and SpiderPool not only ensure node security but have also directly invested in our Bridge; our shareholder list includes traditional asset management giants like Franklin Templeton, along with some new large institutions that we have yet to announce.

On the other hand, we are also engaging in a series of ecological cooperation activities, such as the Booster event in collaboration with Binance and 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 letting assets sit idle in wallets;

• Bring more transaction fee income to miners, activating transaction volume on the network, with some transactions from our platform contributing to mining pools.

In summary, there is only one ultimate goal—activate the Bitcoin that is dormant in cold wallets without custody and feed it into DeFi for yield. Whoever can first achieve this liquidity at an industry-leading level will gain the next round of pricing power.