- Crypto asset management giant Grayscale has highlighted a “renaissance” in Bitcoin development, with several new Layer 2s (L2s) that investors should watch.
- Grayscale analyst Michael Zhao argues that these technologies may both bring new use cases to Bitcoin and foster more market demand for BTC.
- Among the most anticipated applications are Bitcoin Virtual Machine (BitVM), optimistic Bitcoin rollups, Spiderchains, and Babylon’s BTC re-staking technology.
Grayscale points to a “renaissance” in Bitcoin development, with new Layer 2s (L2s) bringing new use cases and fostering more market demand for Bitcoin (BTC).
Emergence of Rollups On Bitcoin
Bitcoin Virtual Machine (BitVM), named by Zhao as one of Bitcoin’s “most anticipated” next generation of applications, is a new computing model for verifying computations on Bitcoin. This opens the network to smart contract functionality more familiar to Ethereum. One of the leading applications of BitVM in development is optimistic Bitcoin rollups, which allow users to batch fast, cheap transactions together in off-chain environments before settling them back to Bitcoin in one piece.
Spiderchains and Bitcoin Staking With Babylon
Another technology highlighted by Grayscale is Spiderchains, developed by Botanix Labs. Spiderchains are layer 2 chains secured by staked Bitcoin (BTC) within decentralized multi-signature wallets. Meanwhile, Babylon is expanding the Bitcoin “staking” world through its BTC re-staking technology, allowing BTC holders to stake their coins and earn yield on them by using them to secure other blockchain networks, like Solana or Ethereum.
Tokenization on the Lightning Network
Projects like Taproot Assets are seeking to bring tokenization – specifically stablecoins – to one of Bitcoin’s most popular current L2s: the lightning network. Grayscale believes that Bitcoin’s underdeveloped smart contract ecosystem could be a massive untapped market. For instance, while roughly 17% of Ethereum’s total market cap ($360 billion) is currently used in applications, the value locked in Bitcoin dapps is still just 0.2% of its total market cap ($1.2 trillion).
Conclusion
Grayscale concludes that if the latest wave of development results in more adoption for these use cases, it would imply a larger addressable market and potentially a higher market value over time. However, with numerous projects vying for attention and liquidity simultaneously, only a select few are likely to emerge as successful projects in the coming years.
