Summary
BOB belongs to a new type of L2: Hybrid L2. BOB uses the most secure L1, BTC L1, to ensure security and creates a trustless bridge with this security to connect BTC, ETH, and other L1 blockchains. Therefore, Hybrid L2 does not rely on third-party bridge tools to achieve interoperability, while solving the liquidity problem of decentralized BTC multi-chain.
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1 Introduction
BTC was created as a payment system with Decentralization, transparency, and censorship resistance. Ten years later, smart contract chains have driven the creation of Decentralized Finance applications and other innovative products, such as Non-fungible Tokens, tokenization social media and games, as well as DAOs and other Trustless governance structures. In this context, although BTC L1 remains the core of global Cryptocurrency adoption, its performance has lagged in terms of innovation and developer activity.
Despite the slow development and lack of flexibility of BTC L1, it still has a larger market capitalization, volume, and number of active users than all other cryptocurrencies combined. As of October 2024, BTC has 300 million users globally, a $10 trillion market capitalization, and unparalleled brand awareness and dominance. However, the decentralized finance activity of BTC L1 is the lowest among all cryptocurrencies: the Decentralized Finance TVL and Market Cap ratio of ETH is 30%, while BTC’s Decentralized Finance TVL ratio is only 0.1%, a difference of 300 times.
In the past few years, many people have tried to introduce Smart Contract and Decentralized Finance on BTC L1 through protocol changes and forks, but these attempts have all failed. BTC L1 opposes any protocol upgrade that could significantly change its functionality or add complexity. Therefore, BTC L1 will not have native programmability like ETH for a long time in the future, and eventually BTC L2 will become the best solution for Decentralized Finance in the BTC ecosystem.
1.1 Hybrid L2
Hybrid L2 is a BTC L2 solution designed to address the main challenges of scaling Decentralized Finance on BTC L1. This type of L2 often has three key attributes:
- BTC L1 Security: Using OP verification and error proof on BTC L1 through BitVM2.
- Trustless BTC bridge: Using an improved version of the BitVM bridge design, as long as BTC L1 is secure and there is at least one honest Node in the network that can execute on-chain disputes, users can deposit and withdraw BTC. This new security model is called “existence is trustable” (1-of-n) because it relies on minimal assumptions and is much more secure than existing BTC multi-signature bridges.
- Trustless ETH blockchain bridge: BOB combines the security of BTC L1 with the bridge design of ETH blockchain OP rollups on L1/L2, encoding L2 withdrawals from ETH blockchain as part of the L1 Smart Contract to ensure the correctness of L2 withdrawals. This design can be extended to most L1 on-chain networks with Smart Contracts.
As the first Hybrid L2, BOB provides a practical trustless Cross-Chain Interaction solution: firstly, BTC L1, as the most secure Decentralization network, can simultaneously protect L2 and all Cross-Chain Interaction bridges. On top of that, BOB further solves the problem of decentralized Cross-Chain Interaction BTC Liquidity - users can deposit assets on-chain using native BTC Liquidity and BTC L1’s secure withdrawal mechanism through the BOB network. Finally, BOB maintains the security and sustainability of BTC L1 by paying fees to BTC L1.
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2. The current situation of BTC L2: Pros and Cons
BTC L2 has the potential to bring innovation to BTC L1 while maintaining its core principles. It can unlock the potential for Decentralized Finance use cases, empowering transactions, lending, and staking without relying on centralized exchanges. This presents a huge opportunity to unlock the trillion-dollar market of BTC. Currently, dozens of chains have claimed to be “BTC L2”.
However, building BTC L2 is a difficult task, and previous attempts have failed to achieve the level of success of Ethereum. We believe that the successful launch of BTC L2 faces the following three major challenges:
- BTC security and Trustless BTC bridge: This is a key feature that distinguishes BTC L2 from all other chains. The security of BTC L1 allows users to deposit and withdraw BTC without relying on third parties. So far, almost all BTC bridges have relied on multisignature. BOB is the first team in history to implement this blueprint through BitVM2.
- Building a competitive ecosystem: L2 can only succeed if its dApp ecosystem succeeds. The key to creating successful products is to provide the best development tools and infrastructure for Decentralized Finance, such as Wallet, institutional custody, and Oracle Machine. This means that the L2 team needs to keep up with the pace of development, such as millisecond transaction speeds and abstracted gas fees. If a competitive developer environment cannot be provided, BTC L1 applications will struggle to compete with competitors on Ethereum and other networks.
- Introduction of Blue Chip Liquidity (Cold Start Problem): In the Decentralized Finance ecosystem, it is crucial to introduce stablecoins, Fiat Currency deposit/withdrawal channels, and bridges connecting to other networks. For developers, network effects are the determining factors for the success of new products, so developing projects on isolated chains brings significant challenges.
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3. BOB’s background: bridge, light client and BitVM
BOB’s innovation is mainly reflected in three core technical concepts: cross-chain bridges, light client, and BitVM. These technologies together constitute the value proposition of BOB, so it is necessary for us to delve into these three aspects.
3.1 light client
BTC L1’s Simplified Payment Verification (SPV) light client protocol allows Nodes to perform payment verification without downloading the entire blockchain data. This method only requires the light client to verify the Consensus endpoint through the Block header, and can verify transactions based on the selected ones.
The light client of BTC L1 has verifiable security and can be verified by other blockchains with Smart Contract functionality. For example, Threshold has been running such light clients on the Ether network for many years. However, the Ether network does not have a secure light client because it needs to store and track the Public Keys of over a million validators, which adds to the complexity of the system.
3.2 cross-chain bridges
We have demonstrated the two properties of bridging or packaging assets to different blocks on-chain:
a) can make two chains operate correctly at the same time;
b) It is difficult to achieve without a trusted third party.
In practice, we can reduce dependence on third parties by allowing any network participant to take on the verification responsibility. Through so-called ‘light client bridges’, Chain A and Chain B can verify their respective Consensus protocols through each other’s Smart Contracts. When we deposit asset a into the bridge on Chain A, the Smart Contract on Chain B will verify that the transaction has reached Consensus on Chain A before minting packaged Token b(a). Conversely, when we destroy b(a) on Chain B, we must first verify that the transaction has reached Consensus on Chain A. This design is currently difficult to implement due to the complexity of light clients, and there are very few successful implementation cases.
3.3 BitVM
BitVM is a mechanism for executing arbitration programs in an OP manner on BTC L1. Its execution occurs off-chain, with disputes resolved on-chain in case of failure. Its two main use cases are OP aggregation on BTC L1 (similar to Arbitrum) and trustless bridge. In both cases, BitVM allows users to access BTC on L2, as long as there is an honest Node in the network, the deposit cannot be stolen.
The most commonly used version of BitVM currently is BitVM2. Its design summary is as follows:
- Compress the program to the SNARK validator and implement it in the BTC L1 script.
- Split the validator into subprogram blocks below 4MB for execution in BTC L1 transactions.
- During the setup, the BitVM2 operator submits the program through the Taproot tree and pre-signs the transaction.
- Users deposit funds into BitVM2 (e.g., bridge deposit).
- When trying to withdraw funds from BitVM2, anyone can challenge the operator.
- If questioned, the operator must disclose the results of all intermediate subroutines and display the final calculation result.
- If the operator cheats, the results of certain disclosed subroutines will be incorrect, and anyone can prove the operator’s cheating by executing specific subroutines.
- Cheating operators will be expelled and will no longer have access to deposits.
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Source: bitvm.org
Our latest paper will have a detailed overview of BitVM2.
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4. BOB Hybrid L2
BOB’s Hybrid L2’s innovative design is based on the trust concept of BTC L1 as a Decentralization network, as well as its simplicity in Consensus validation.
4.1 BTC L1 Security
BOB’s Hybrid L2 will utilize BTC L1 for Settlement and security. The currently recognized ideal design for BTC L2 is based on zk-rollups: all state changes are computed off-chain and subsequently verified and recorded on-chain through zk proof. However, as of now, BTC L1 does not support zk-rollups because implementing zk prover in BTC L1 script requires additional opcodes to avoid Consensus forgery. Therefore, BOB achieves security through OP verification in BitVM2. This method generates a validity proof for each state transition and publishes it to BTC L1 along with the state differences. In the case of pairing with BitVM2, any network participant can initiate challenges through a fault-proof mechanism to overturn failed operations within 7 days and ensure security.
This means that through BitVM2, we can enable any Node in the network to participate in the fault proof mechanism and challenge it when errors are detected. This design makes security almost equivalent to BTC L1 itself: as long as there is one Node online and honest in the network, it can trigger the fault proof.
4.2 Trust-Minimized BTC L1 Bridging
BitVM2 Proof-of-Failure also enables BOB to create trust-minimized BTC L1 bridges. Specifically, this is a light clientbridge, and BTC L1 supports BOB through a light client running in BitVM2. This bridge allows users to deposit BTC into the BOB network and withdraw back to the BTC L1 network if needed, with the security of the BTC network. This new design relies on an “existential honesty” security model, which requires only a 1-of-n honesty assumption to ensure proper operation, which is more stringent than existing multi-signaturebridge schemes.
In the existing BTC bridge, most rely on the Multi-signature scheme and require most signatories to be honest. However, in the design of BitVM2, even if all bridge operators are dishonest, as long as there is one online participant in the network, the funds cannot be stolen. This design solves the security risks in the Multi-signature scheme and constitutes the most secure BTC bridging solution in history.
4.3 Trust-minimized ETH bridge
BOB’s Hybrid design also supports the secure access and storage of ETH and ERC20, similar to the design of Optimism. When users want to withdraw assets from L2 to Ethereum, they must wait for a 7-day challenge period to ensure that there is no evidence of any faults. This mechanism ensures the security of asset bridging between Ethereum and the BTC L1 network, thereby addressing the inherent risks of cross-chain bridges.
In BOB’s Hybrid L2 design, the ETH bridge Smart Contract will wait for BOB to complete the final confirmation on the BTC L1 network to ensure that all proofs are correct. This functionality is part of the bridge Smart Contract, which can verify the BTC L1 blockchain and achieve it through the BTC L1 light client. Therefore, any user who deposits ETH and ERC20 Tokens into BOB, as long as the BTC L1 network is secure and there is an online Node that can trigger incorrect proofs, can withdraw these assets back to Ethereum.
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Source：BoB
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5. Outlook: BOB as the center of Decentralized Finance
The uniqueness of Hybrid L2 is pushing BOB towards the largest Decentralized Finance ecosystem in the industry. Currently, BOB is leveraging the network effects of BTC L1 and ETH, and will expand to other chains in the future.
5.1 Self-reliance through Ethereum
For dApps built on BOB, they can benefit from the best infrastructure and development tools of Ethereum, while introducing the core user base of Decentralized Finance and connecting with all exchanges and institutional players. It is worth noting that almost all Ethereum users have BTC, and most BTC users also use Ethereum Decentralized Finance.
5.2 rise driven by BTC L1
As time goes on, through the trust-minimized BitVM2 bridge, the additional security and access to BTC provided by BTC L1 will unlock more untapped BTC liquidity pools, allowing dApps on BOB to not only catch up with their ETH counterparts but also surpass them. This effect will be further enhanced due to the global adoption of BTC L1 and a diverse user base: in contrast, while ETH L2 competes for the same user base, BOB’s dApps can leverage BTC’s user base of over 300 million and thousands of real-world enterprises.
5.3 BTC L1 as a multi-chain Decentralized Finance center
BTC L1, ETH, and stablecoins account for 90% of the market. However, just like existing banks, we believe that there will be hundreds of chains in the future that focus on different application scenarios or geographic locations. All of these chains need secure access to BTC L1, and there also needs to be a way to exchange assets between them.
Centralized exchanges have played this role today: they connect all chains, allow users to access assets, and exchange assets to the corresponding L1. However, centralized exchanges have also caused significant problems in the past and will continue to do so until we fully transition to Decentralized Finance.
On the contrary, BOB’s mission is to use BTC L1 as the cornerstone of a secure and transparent Decentralized Finance ecosystem. As a Hybrid L2, BOB will securely bridge assets to any Smart Contract on-chain that can verify the BTC L1 blockchain. This means that modern 90% of L1 and L2 chains, including Solana, Tron, SUI, Aptos, Monad, Avalanche, Cosmos, Polkadot, etc., can securely deposit and withdraw assets through BOB. All of this is done through trust-minimized operations on BTC L1, without relying on third-party bridges.
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Source：BoB
Using BTC L1 as a trust anchor to create an interoperable Decentralized Finance ecosystem is the core advantage of the Hybrid L2 design. Instead of dispersing the Liquidity of BTC L1 to dozens of chains, BOB will concentrate Liquidity around BTC, providing a truly viable alternative to centralized exchanges and placing BTC at the center of Decentralized Finance.
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6. Conclusion
BOB Hybrid L2 addresses some of the most pressing challenges in building a Decentralized Finance system on top of BTC L1. It does so by creating a BTC bridge that inherits the security of BTC L1 while maintaining minimal trust, providing the necessary infrastructure for a wide range of users to join BTC L1 without relying on centralized service providers. At the same time, BOB prevents the fragmentation of BTCLiquidity and provides a practical, BTC L1 security-based solution to the long-standing issue of Cross-Chain Interaction interoperability by establishing a trust-minimized bridge to Ethereum and other Smart Contract L1 chains, making BTC the core of Decentralized Finance.
