Bitlayer, a Franklin Templeton-backed Bitcoin decentralized finance (DeFi) infrastructure startup, has announced the launch of its mainnet smart contract bridge, BitVM.

According to Bitlayer, BitVM serves as a “trust-minimized bridging solution for Bitcoin holders,” allowing users to deposit Bitcoin (BTC) into a smart contract.

Functionality & Design Philosophy

Upon deposit, BTC is held in escrow and converted into Peg-BTC (YBTC), a tokenized representation designed for smart contract compatibility across various platforms. The company highlights Peg-BTC’s ability to facilitate programmability and cross-chain functionality.

Bitlayer has secured integrations with major networks including Sui, Base, and Arbitrum, enabling Bitcoin’s use as collateral or participation asset within their ecosystems.

A Bitlayer spokesperson stated the bridge is designed to “complement Bitcoin’s DeFi ecosystem by making native BTC liquidity accessible on networks supporting smart contracts, without requiring changes to the Bitcoin base layer.”

Security Considerations

Cross-chain bridges represent a significant security risk, notably highlighted by the 2022 Wormhole breach where a hacker stole $321 million.

Bitlayer emphasizes security by building upon previous models’ trust assumptions. While many bridges utilize a multisig trust model, BitVM employs a single-signer approach, designed to potentially mitigate certain classes of vulnerabilities.

The Rising Bitcoin DeFi Landscape

Concurrent with its bridge launch, Bitlayer discussed the accelerating development of DeFi protocols on the Bitcoin network. This growth is attributed to key upgrades like Taproot and the introduction of Ordinals (Inscriptions).

The Taproot upgrade in November 2021 enhanced Bitcoin’s scripting capabilities, enabling more complex applications. Inscriptions, popularized through the Ordinals protocol, allow embedding of arbitrary data onto the BTC network, unlocking new use cases.

As of Tuesday, Bitlayer reported $384 million in value locked (TVL) on its protocol, recording $1.7 million in on-chain fees during June.

Competition in Bitcoin DeFi

Several projects compete in the Bitcoin DeFi space, offering various services:

• BabylonChain: A proof-of-stake protocol allowing Bitcoin investors to participate.
• Stacks: A network built atop Bitcoin aiming to reward Bitcoin miners.
• BounceBit: A restaking protocol enabling delegation of wrapped BTC to node operators.

Babylon currently boasts a significantly higher TVL of $5.2 billion compared to Bitlayer’s reported $384 million.

Approximately 30 distinct DeFi projects are currently developing within the Bitcoin ecosystem.

Video: Bitlayer Bridge Overview