*Acknowledgments: shoutout to the amazing teams at Chakra, UTXO Stack, Nubit, and Yala for their incredible co-writing efforts and professional insights. Your expertise and support have been invaluable. Thank you for making this article possible!

In the evolution of blockchain technology, the modular path of Bitcoin appears more inevitable than that of Ethereum, due to a clever interplay of multiple factors. As a pioneer in the blockchain space, Bitcoin faces inherent scalability challenges. With the explosive growth in the user base and the continuous expansion of application scenarios (such as the rise of Ordinals), issues of network congestion and high transaction fees have become increasingly prominent, like a chasm that urgently needs to be crossed.

Bitcoin’s core design philosophy — as a simple and secure system for value storage and transfer — provides an excellent stage for modularization. This approach allows for the elegant expansion of functionality without touching the underlying protocol, serving as a perfect remedy.

The Bitcoin community’s relentless pursuit of maintaining the stability and security of the main chain, combined with the pressure from the rapid technological innovations of other blockchain platforms, undoubtedly propels the necessity for modularization. More notably, as the highest-valued cryptocurrency, the immense economic value inherent in Bitcoin acts as a strong catalyst for developers to explore modular solutions, inspiring them to continuously expand Bitcoin’s functional boundaries and application domains.

The ingenuity of the modular solution lies in its ability to maintain the high security of the Bitcoin network while skillfully opening up innovative grounds on the second layer or sidechains. This strategy not only aligns with the values of the Bitcoin community but also ushers in a new chapter of functionality enrichment and performance enhancement for Bitcoin, all while safeguarding its core value proposition.

Chakra: New BTC Settlement Layer

1.Why an Independent Settlement Layer is Necessary？

Scalability :The Bitcoin chain has limited transaction processing capacity. If all Layer 2 transactions were to be settled directly on the main chain, it would lead to network congestion. The independent settlement layer effectively solves this problem by batching a large number of transactions and submitting only the final results to the main chain, significantly enhancing overall throughput.

Innovation: The independent settlement layer also provides developers with vast space for innovation. By overcoming the limitations of Bitcoin’s scripting language, it allows developers to experiment with various novel extension solutions without directly impacting the Bitcoin chain. This flexibility enables functional expansion without hard forks, ensuring network stability and compatibility.

2. Comparison with Ethereum’s Dymension

Dymension, within the Ethereum ecosystem, serves as an excellent reference example. It offers an independent chain that supports Rollup-as-a-Service (RaaS). Rollups built on Dymension are essentially chains developed using the Cosmos SDK, but the final confirmation process is outsourced to Dymension. Additionally, Dymension modifies the IBC protocol to transform relayers into liquidity providers.

Bitcoin’s Challenges:

However, Bitcoin’s settlement layer faces unique challenges, especially with Zero-Knowledge (ZK) verification. Bitcoin itself cannot directly achieve settlement functionality, and even innovative solutions like BitVM struggle to fully address this issue. While BitVM theoretically supports ZK verification (as demonstrated by the Citrea project), it still faces significant limitations in transaction processing speed (TPS) and the implementation of other critical services, such as cross-chain bridging and unified liquidity.

ZK Settlement and Additional Services:

The core of ZK settlement lies in the requirement for rollups to submit corresponding proofs along with state updates to the chain. Chains providing RaaS services must support the ZK rollup framework. The importance of the settlement layer is also reflected in its additional services. For example, cross-chain transactions from Rollup A to Rollup B need to be routed through the settlement layer, which helps avoid common P2P network issues like inconsistencies of the same token across different chains. Moreover, a unified liquidity pool within the settlement layer allows for concentrated trading and captures all transaction fees.

Deep Collaboration and Incentives: Notably, platforms like Dymension encourage deep collaboration projects to launch rollups on their network and potentially airdrop tokens to stakers for each rollup that goes live. This strategy turns the platform’s tokens into a “golden shovel,” incentivizing users to actively participate in staking and ecosystem development.

In Summary: The concept of the settlement layer and its potential in addressing scalability, interoperability, and liquidity integration offers crucial insights and directions for the future development of the Bitcoin ecosystem.

3. Chakra is a high-performance BTC settlement layer based on the PoS consensus mechanism.

Chakra consists of three layers: the base consensus layer, the settlement consensus layer, and the execution layer. Its design and implementation aim to improve throughput, reduce latency, and enhance security, flexibility, and scalability.

The base consensus layer is the block consensus of Chakra Chain, serving as the foundation for upper-layer services. It adopts PoS consensus, where block generation is proposed by a verifiable random function (VRF) and finalized based on the chain with the highest voting weight.

The settlement consensus layer specifically handles settlement events between different chains, reusing the Chakra PoS consensus validator set for communication with the underlying layer. This lightweight consensus achieves extremely low latency. Validators listen to settlement request events, broadcast signature confirmations, and generate Quorum Certificates (QC) after collecting sufficient signatures. They then send the settlement message and QC to the Babylon network for finality. BTC staked on Babylon provides additional shared security for Chakra’s settlement consensus, ensuring the safety of settlement services.

The execution layer uses Chakra’s designed Substrate BlockSTM to enhance performance through various optimizations, processing frequent state transition settlement requests. With techniques like optimistic parallelization, coverage change sets, batch submission, global keys, and MVMemory, Chakra can significantly increase transaction processing speed in a multi-threaded environment, achieving over 5,000 transactions per second (TPS) and up to 100,000 TPS in high-configuration computing environments, meeting the settlement needs of current major BTC Layer 2 solutions.

Nubit: BTC’s Data Availability Layer

We won’t delve into why BTC needs DA here; instead, we will focus on why BTC needs a new DA (in other words, why DA solutions like Celestia currently cannot meet BTC’s needs).

Nubit has built a highly scalable and secure Data Availability Layer based on Bitcoin’s economic security. The team members of Nubit hail from professors and PhD students at the University of California, Santa Barbara, with outstanding academic reputations and global influence. They are not only proficient in academic research but also have rich experience in blockchain engineering implementation.

1.Native Bitcoin Integration:

Nubit is designed with compatibility and integration with the Bitcoin network in mind. This native integration allows Nubit to interact directly with Bitcoin’s UTXO model, scripting system, and consensus mechanism, providing a seamless user experience and higher security. In contrast, Celestia, as a general-purpose data availability layer, can serve multiple blockchains but cannot offer this level of Bitcoin-specific integration.

2.Native Bitcoin Staking:

Nubit introduces an innovative mechanism that allows Bitcoin holders to participate in PoS consensus directly without converting their BTC to other tokens or using complex cross-chain bridges. This means BTC holders can stake their Bitcoin directly, participate in network security maintenance, and receive corresponding rewards. This not only enhances the network’s economic security but also maintains BTC’s liquidity and value. In contrast, Celestia’s staking mechanism is based on its native token and cannot directly leverage Bitcoin’s economic value and network effects.

3.Bitcoin Anchoring:

Nubit achieves close anchoring with the Bitcoin mainnet by periodically recording its own block hashes and validator set voting information on the Bitcoin blockchain. This method provides additional security guarantees and significantly reduces the asset unbonding time (from traditional weeks to less than 4 hours). This direct Bitcoin anchoring mechanism enhances the credibility of the Nubit network and provides users with greater flexibility. Celestia, as an independent blockchain, cannot offer this direct anchoring with the Bitcoin mainnet.

4.Focus on the Bitcoin Ecosystem:

Nubit is designed and optimized specifically for the unique needs and applications within the Bitcoin ecosystem. For example, it provides optimized support for Ordinals (NFT protocol on Bitcoin) and BRC-20 (token standard on Bitcoin). The team co-authored a paper on a modular indexer with domo (creator of BRC20), incorporating DA layer design into the Bitcoin meta protocol indexer structure, participating in the establishment and formulation of industry standards.

5.Bitcoin-Level PoS Consensus Mechanism and DA Assurance:

Nubit explores an efficient consensus supported by SNARK for signature aggregation, combining PBFT with zkSNARK technology to significantly reduce the communication complexity of verifying signatures among validators. This allows for verifying transactions’ correctness without accessing the entire dataset, permitting an ultra-large consensus validator set, achieving Bitcoin-level decentralization. Nubit’s Data Availability Sampling (DAS) is achieved by performing multiple rounds of random sampling on small portions of block data. Each successful round increases the likelihood that the data is fully available. Once a predetermined confidence level is reached, the block data is deemed accessible. In contrast, Celestia uses the traditional Tendermint consensus algorithm, which can only support a scale of 100 staking validators.

Nubit Ecosystem Integration Progress:

Currently, integration with Layer2 data availability solutions like Merlin, Manta, and Rooch Network has been achieved. The modular indexer built on Nubit has been integrated as a technical standard into OKX Wallet, Tomo, Gate Wallet, and Unisat Wallet, providing secure and trustless indexing services for millions of users in the Bitcoin ecosystem. Nubit is also collaborating with Succinct to enable any ecosystem to deploy zk-light clients on-chain, allowing ecosystem applications/L2/L3 to access the data availability layer secured by Bitcoin through Nubit.

Through innovative consensus algorithms and protocol mechanisms, Nubit has constructed the first data availability layer secured by Bitcoin, providing scalable data services for applications and infrastructure in both the Bitcoin ecosystem and the multi-chain ecosystem, unlocking the data throughput bottleneck of Bitcoin itself and opening up infinite possibilities for developers.

UTXO Stack: Creating UTXO-Based Bitcoin Layer 2

UTXO Stack is extending Bitcoin’s core UTXO model into Layer 2 solutions, similar to how OP Stack and Arbitrum Orbit provide tools for Ethereum developers to create their own Layer 2 rollups, significantly lowering the development threshold. UTXO Stack offers one-click chain deployment tools, helping developers to create native, isomorphic Bitcoin Layer 2 solutions based on the UTXO model at a low cost.

A key component in this development is the Bitcoin Layer 1 asset issuance protocol RGB++. RGB++ maps Bitcoin UTXOs to a Turing-complete UTXO chain’s eUTXO (extended UTXO supporting smart contracts) via isomorphic binding, and uses script constraints on both chains to verify state computations and the validity of ownership changes. This Turing-complete UTXO chain, called the RGB++ chain, can be a chain like Nervos CKB or Cardano that meets the necessary conditions. Isomorphic binding means that Bitcoin UTXOs and eUTXOs on the RGB++ chain are mutually bound — the unlocking conditions of eUTXOs are set to the corresponding UTXOs. Therefore, once the UTXO is spent, the corresponding eUTXO also transfers. Assets issued using the RGB++ protocol are interpreted on the RGB++ chain, while ownership remains bound to Bitcoin UTXOs.

One unprecedented feature brought by RGB++ is cross-chain without bridges, known as Leap. When the unlocking condition of an eUTXO is a Bitcoin UTXO, the ownership of the interpreted RGB++ asset is on the Bitcoin chain; if we create a transaction on the RGB++ chain that changes the eUTXO’s unlocking condition to a Litecoin UTXO, the ownership of the RGB++ asset jumps to the Litecoin chain. This enables cross-chain transfer from Bitcoin to Litecoin without any bridges. The entire process is fully decentralized, with no cross-chain bridges or trust assumptions needed. Through Leap, assets issued on Bitcoin Layer 1 via RGB++ can seamlessly transition to Layer 2.

With this technological foundation, UTXO Stack enables the one-click creation of Bitcoin Layer 2 based on the UTXO model and PoS mechanism, called Branch Chain. Branch Chain offers the following advantages:

- High TPS and Low Transaction Fees: Leveraging the unique parallel processing capabilities of the UTXO model and the PoS mechanism.

- Asset Protocol Utilizing RGB++: RGB++ assets can transition freely between any UTXO chains (including but not limited to Bitcoin, CKB, Litecoin, and various Branch Chains) without needing a cross-chain bridge.

- Reuse of CKB’s Smart Contract Stack: Achieving Turing completeness on Bitcoin Layer 2.

- Reuse of BTC Wallets: Compatible with wallets such as JoyID, UniSat, OKX Wallet, and Gate Wallet.

- Security: Ensured by BTC/CKB staking, DA layer, and forced exit mechanisms.

UTXO Stack facilitates the creation of high-performance, programmable Bitcoin Layer 2 solutions, emphasizing Bitcoin nativeness and isomorphism with the UTXO model, offering a new paradigm for Bitcoin scaling.

Yala: Redefining the Future of BTC DeFi with Modular Architecture

Bitcoin’s DeFi solutions face numerous challenges, primarily due to the inherent limitations and design philosophy of the Bitcoin network. Existing Layer 2 technologies like rollups and sidechains, while making complex applications possible, are still constrained by Bitcoin’s technical limitations, making it difficult to fully leverage its consensus and security mechanisms. Additionally, these solutions often fall short in terms of asset security, cross-chain interoperability, and native functionality support. Despite the large number of Bitcoin holders, many whales remain hesitant to engage with new Bitcoin applications due to security concerns. Yala, through its unique design, fundamentally addresses Bitcoin’s security issues and provides liquidity solutions for Bitcoin holders.

Yala is a native BTC DeFi solution that employs a modular architecture, integrating a decentralized indexer network and oracle. By leveraging the asset issuance capability within the Bitcoin ecosystem, Yala issues the stablecoin $YU. This stablecoin can freely participate in DeFi activities on any chain, thus unlocking the programmability of BTC assets and releasing Bitcoin’s vast liquidity.

Yala’s architecture embodies the essence of modular design. It includes the application layer, consensus and data availability layer, execution layer, and settlement layer. This modular design enables BTC assets to engage in native DeFi transactions while maintaining the security and consensus of the Bitcoin network.

1.Application Layer: The application layer of Yala defines the logic for state changes, which can include smart contracts in EVM or other BTC Layer 2 solutions.

2.Consensus and DA Layer: Yala employs an Indexer to maintain the system’s off-chain state and data availability. This reflects the concept of an independent DA layer explored in BTC modularization, both aiming to enhance data processing efficiency and availability.

3.Execution Layer: Yala’s Vaults Module serves as the execution environment for state changes, akin to the independent execution layer discussed in BTC modularization, with the goal of improving transaction processing efficiency.

4.Settlement Layer: Yala ultimately settles transactions onto the BTC mainnet.

Yala’s architectural design demonstrates how DeFi functionality can be modularly implemented within the Bitcoin ecosystem. It skillfully leverages Bitcoin’s security and decentralization features while overcoming Bitcoin’s limitations in smart contracts and scalability through modular design.

The example of Yala also highlights the advantages of modularization in enhancing development efficiency and system flexibility. By providing SDKs and customizable modules, Yala enables developers to more easily build applications within the Bitcoin ecosystem, aligning with the goals pursued by BTC modularization.

About ABCDE

ABCDE is a VC focused on leading investment in top Crypto Builders. It was co-founded by Huobi Cofounder Du Jun and former Internet and Crypto entrepreneur BMAN，who both have been in the Crypto industry for more than 10 years. The co-founders of ABCDE have built multi-billion dollar companies in the Crypto industry from the ground up, including listed companies(1611.HK), exchanges(Huobi), SAAS companies(ChainUP.com), media(CoinTime.com), and developers platforms(BeWater.xyz).