Merlin Chain: The New Frontier in Bitcoin Layer 2 Solutions🟪

One such promising entrant is Merlin Chain. Launched in January 2024, Merlin Chain aims to empower Bitcoin's native assets, protocols, and products on Layer 1 through its innovative L2 network. 

This article will explore what sets Merlin Chain apart, its unique selling propositions, strengths, and weaknesses, and how it compares with other Bitcoin L2 solutions that we have covered in this “Pick Your Protocol” series.👇

What Is Merlin Chain?😅

Merlin Chain is a Layer 2 solution designed to enhance Bitcoin’s functionality, scalability, and efficiency. Merlin Chain integrates several advanced technologies to address the limitations of Bitcoin’s Layer 1 blockchain, such as network congestion, high transaction fees, and slow processing times. 

The primary objective of Merlin Chain is to empower Bitcoin’s native assets, protocols, and products on Layer 1, encapsulated in its goal to “Make Bitcoin Fun Again.”

Key Features of Merlin Chain include:

• ZK-Rollup Network: Compresses multiple transaction proofs into batches using zero-knowledge proofs (ZKPs), reducing data size while maintaining security and privacy. This minimizes the computational load on the main Bitcoin blockchain, improving transaction throughput and alleviating congestion.

• Decentralized Oracle Network: Provides external data to the blockchain in a trustless manner, ensuring the integrity of off-chain data used in transactions or smart contracts. This expands the range of applications developers can build while maintaining security.

• Data Availability: Ensures transaction data is accessible to all participants in the network, enabling efficient transaction verification and protecting against data loss or manipulation.

• On-Chain BTC Fraud Proof Modules: Safeguards against fraudulent activities within the network by allowing challengers to present fraud proofs on-chain, leveraging Bitcoin’s consensus mechanism to resolve disputes and maintain network security.

Merlin Chain emerged as an offshoot from Bitmap Technology, founded by Jeff Merlin. Unlike some other projects, Merlin Chain aims to empower Bitcoin itself rather than replace it, fostering innovation and providing a secure, cost-efficient platform for decentralized applications.

Why Is Competition Rife On Bitcoin L2s?🥊

Bitcoin's main network often grapples with several issues that makes it less competetive and limits innovation. This has spurred the development of various L2 solutions to alleviate these challenges while maintaining Bitcoin's security and decentralization. 

The competition among Bitcoin L2s is driven by the need to:

• Improve Scalability: Increasing transaction throughput to accommodate a growing user base.

• Enhance Security: Ensuring robust measures to protect against attacks and vulnerabilities.

• Reduce Transaction Fees: Lowering costs to make transactions more affordable.

• Increase Speed: Accelerating transaction processing times for a better user experience.

The push to establish Bitcoin DeFi has intensified the competition among Layer 2 solutions, as each strives to offer the best combination of scalability, security, speed, and cost-efficiency

Merlin Chain's Unique Selling Proposition (USP)🟪

Merlin Chain distinguishes itself through several unique selling propositions:

• Advanced Scalability: Utilizes ZK-Rollup technology to compress multiple transaction proofs into batches, significantly increasing transaction throughput.

• Enhanced Security: Implements on-chain BTC fraud proof modules and zero-knowledge proofs (ZKPs) to ensure transaction integrity and privacy.

• Lower Transaction Fees: Efficient transaction processing reduces the overall cost for users.

• Developer-Friendly Environment: Provides robust tools and resources for developers to build and deploy decentralized applications (dApps) efficiently.

Strengths and Weaknesses of Merlin Chain🔺🔻

Merlin Chain offers significant strengths, particularly in scalability and security. Leveraging ZK-Rollup technology, it can handle high transaction throughput, alleviating network congestion issues common on Bitcoin’s Layer 1. 

Its decentralized oracle networks and on-chain BTC fraud proof modules ensure robust transaction integrity and privacy. These features not only enhance security but also lower transaction fees, making it a cost-effective solution for users.

The platform's developer-friendly environment is another strong point, providing comprehensive tools and resources for building dApps. This encourages innovation within the Bitcoin ecosystem, positioning Merlin Chain as a catalyst for new developments and applications on Bitcoin's Layer 1.

However, Merlin Chain faces challenges as a new recently launched project. Gaining widespread adoption in a competitive market can be difficult. The complexity of integrating advanced technologies presents a steep learning curve for developers and users unfamiliar with the platform. 

Despite these challenges, Merlin Chain’s innovative approach and strong foundational features give it the potential to become a key player in the Bitcoin Layer 2 space.

Comparison with Other Bitcoin L2 Solutions⚖️

Merlin Chain is not the only player in the Bitcoin L2 space. Here’s how it compares with some notable solutions:

1. Lightning Network (LN)

• Objective: Facilitate fast and low-cost transactions off the main Bitcoin blockchain.

• Technology: Uses payment channels to enable numerous transactions without recording each one on the blockchain.

• Strength: High transaction speed and low fees.

• Weakness: Relies on the integrity of participating nodes and the underlying smart contracts.

2. Stacks

• Objective: Extend Bitcoin's functionality with smart contracts, DeFi, and dApps.

• Technology: Operates as a layer on Bitcoin, using Microblocks and the Clarity programming language.

• Strength: Enables complex functionalities like smart contracts and NFTs.

• Weakness: Higher complexity and potential security challenges.

3. Rootstock (RSK)

• Objective: Enhance Bitcoin with smart contracts and faster, cheaper transactions.

• Technology: Uses Ethereum Virtual Machine (EVM) and merge-mining.

• Strength: Supports EVM-compatible smart contracts.

• Weakness: Adds complexity and potential security risks associated with merge-mining.

4. Dovi

• Objective: Provide a scalable and secure smart contract platform.

• Technology: Integrates with Ethereum Virtual Machine (EVM).

• Strengths: Supports diverse asset types and enhances security with decentralized multi-signature transactions.

• Weaknesses: Complexity may affect user-friendliness.

Merlin Chain Data Landscape 📊

We analyzed some data from our friends over at Footprint Analytics and came up with the following insights:

Market capitalization 

In the past 2 months, Merlin Chain’s market cap has revolved around the $100 million mark. On June 1, the market capitalization periodically crossed $200 million, but has since then retraced to the $100 million average.

Daily active addresses

Merlin Chain’s daily active addresses have significantly fluctuated in the last two months, exceeding 90,000 in April. In the past few weeks, the metric has hovered around the 10,000 mark.

Daily transactions and fees

Daily transactions have averaged 20,000, exceeding 200,000 in May and falling below 20,000 a few times in June. The highest transaction fee recorded surpassed 24 BTC, while the lowest fee fell below 2 BTC a few days in May.

Daily transactions & average transaction fees

The average transaction fee ranges from around 0.00001 BTC to about 0.00025 BTC. Transaction amount has remained below 500 for the better part of May and June.

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DeFi Opportunities: How to Earn Yields with Merlin Chain🤑

Merlin Chain offers a streamlined process for Bitcoin holders to earn yields through its DeFi ecosystem. Here's how you can maximize your returns:

1. Bridging BTC to Merlin Network

Use the Merlin Bridge to lock your BTC on Bitcoin's Layer 1. This process provides you with gas BTC, enabling you to participate in the Merlin Chain's Proof of Stake (PoS) mechanism.

2. Generating M-BTC

By staking your gas BTC in Merlin's PoS system, you generate M-BTC, a wrapped Bitcoin asset. M-BTC earns staking rewards similar to Ethereum's stETH, providing a steady yield.

3. Utilizing M-BTC

• Stake in DeFi Platforms: Earn SolvBTC by staking M-BTC in DeFi platforms like Solv Protocol.

• Supply Liquidity: Gain additional yields by supplying M-BTC to leading DeFi protocols integrated with Merlin.

• Explore DeFi Primitives: Engage in lending, borrowing, and derivatives using your M-BTC, leveraging the full spectrum of DeFi opportunities.

• Bridge to Layer 2 Networks: Move your SolvBTC to other Bitcoin Layer 2 networks like Linea for further rewards and opportunities.

Through these methods, Merlin Chain enables Bitcoin holders to seamlessly transition into the DeFi space, unlocking new ways to generate income while contributing to the broader Bitcoin ecosystem. 

Rapid Growth and Strategic Partnerships🌎

Merlin Chain has achieved significant milestones in the Bitcoin Layer 2 space, bridging over $10 billion worth of Bitcoin and distributing over $500 million to Layer 2 networks offering additional rewards. 

To ensure the security of its Proof of Stake (PoS) mechanism, Merlin Chain has partnered with leading crypto custodians and institutions, including Fireblocks, Cobo, Ceffu, and Antalpha. These partnerships enhance asset protection for users involved in staking and DeFi activities.

Merlin Chain is collaborating with over ten major institutions to expand participation and decentralize its validator set. This effort promotes a transparent and secure blockchain environment, establishing Merlin Chain as a prominent player in the Bitcoin Layer 2 ecosystem.

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