Bitcoin Layer 2 Bitlayer Overtakes Merlin as Scaling Battle Heats Up

Bitcoin Layer 2 Bitlayer has claimed the top spot in the Bitcoin scaling networks rank, in terms of total value locked (TVL).

Bitlayer, a Layer 2 solution that taps into the BitVM paradigm which allows for Turing-completeness similar to Ethereum, now accounts for 31% of all of the sector’s TVL with $391 million, overtaking Merlin, the previous leader.

Assets held in the Bitlayer network have increased by more than tenfold in the past two months, while Merlin’s have dropped by 50% to $196 million, or 16% of the Bitcoin Layer 2 sector.

Rootstock and CORE, the third and fourth-largest scaling networks, have 14% and 13% respectively, both with around $170 million in TVL.

According to Bitlayer’s co-founder, Charlie Hu, growth is driven mostly by the launch of multiple dapps on the network, including pStake, a liquid staking protocol, and Bedrock, a restaking protocol.

Bitlayer’s $11 million Series A round led by Franklin Templeton announced last week also drove attention to the project.

In addition, the Layer 2 has an ongoing rewards campaign called the Racer Center, which distributes tokens, NFTs and badges.

“Bitlayer has had killer execution,” said Bob Bodily, CEO of Bioniq, an Ordinals marketplace. “Charlie is a machine,” he told The Defiant, and also referenced the project’s burgeoning partnerships, with “tons of builders and protocols coming on their chain and doing things.”

Bodily also said that Bitlayer’s ecosystem work is “so fantastic.”

Bitcoin DeFi Slumps

But as Bitlayer’s TVL grows, the overall Decentralized Finance ecosystem in Bitcoin is slumping. Bitcoin TVL surged in April to an all-time high of $1.1 billion in June, but assets have since plunged to $680 million. The 40% drop is despite the excitement around Bitcoin Season 2.

Bodily said that a lot of BTC holders who are putting their assets to work are going to Ethereum.

“I say Ethereum is the most successful Bitcoin side chain of all time,” he said, pointing to WBTC’s TVL which sits at a whopping $9.9 billion.

Still, developers are increasingly flocking to Bitcoin thanks to the appearance of Ordinals, a protocol launched in early 2023 that allows for non-financial data to be inscribed on Bitcoin, much like NFTs on Ethereum.

And thanks to nascent paradigms like BitVM, upgrades like Taproot, and the potential of scripts like OP_CAT to be reintroduced, the growth of the Bitcoin ecosystem should continue to drive interest.