Hybrid Layer 2s - Fusing Ethereum Innovation and Bitcoin Liquidity to build a home for BTC DeFi

Transcript

All right. Hey everyone, I'm Alex. I'm the co-founder of Bob. Um, we have a very chill session today. We're going to keep it light. Um, it's probably one of the smaller and harder to find rooms that we've done this in before, but um, we're here at an ETH conference talking about Bitcoin. Um, obviously, uh, if you guys were interested, you probably were at our, uh, BitVM event yesterday. We had a full house, um, talking about a lot of the stuff I'll be presenting here. Um, in short, um, what we're building is Bob, we're positioning ourselves as the gateway to Bitcoin DeFi. The idea is that every chain wants BDC nowadays, ETH, Solana, Barachchain, Sui, Aptos, you can name it. But it's very painful for a lot of the Bitcoin

products um wallets, institutional staking providers um fintex to actually integrate all of these different providers and to you know allow them like to plug in bitcoin and at the same time um they all use centralized rep bitcoin providers and ultimately that is not quite in the spirit of bitcoin. So what we've done is um we've looked at bitcoin and we've realized naturally as everybody knows um bitcoin is bigger than everything else. uh it dwarfs Ethereum and Salana and and to be fair if you zoom out from our industry if you leave you know conference for the majority of the global population crypto equals to Bitcoin right people probably some people know Ethereum anything beyond that you're really treading on thin ice if you go up and ask someone

about arbitum or optimism in in Buenosares on the street where they're not going to know it um and unfortunately or fortunately for us um Bitcoin has the least of amount of DeFi, especially considering its size. If you look at uh Ethereum's market cap to its CL ratio, we're at a astounding 30% which is quite impressive. If you look at Bitcoin on the other hand, we're only at around 0.3 less than 1%. Um and that is obviously one of the largest opportunities in the space probably of the decade. Uh which we obviously find very exciting, but we're not the only ones. And you probably have seen the hype around Bitcoin and the Bitcoin renaissance and you've seen incentive programs on essentially any chain.

you've seen 80 plus chains announce that they're Bitcoin layer 2 suddenly before they were something else. Um so why why now and why hasn't this happened before? Because Bitcoin's been around for ages, right? Um but what's h what has happened in the last 10 years is that users, builders, um capital talent essentially came into Bitcoin. They tried to do stuff there and after the block size wars when Bitcoin and Bitcoin Cash split up, it was they were shunned and told to go away. we don't want anything here. We don't want you to do anything on Bitcoin. Please leave. And that's what actually happened. A lot of my friends, us including, had to go to other ecosystems to try to build stuff and build Bitcoin DeFi. Um, so that's obviously a problem and the solutions

are Bitcoin layer 2s, right? Uh, I think we will align and even the Bitcoin maxis have come to the conclusion that yes, if you want to scale Bitcoin without introducing forks and smart contracts, the only way are layer 2s that inherit Bitcoin security and do enable this functionality. But why hasn't this happened so far, right? I mean, we've had side chains on Bitcoin for a while, but none of them have been able to get close to the traction that we've seen of Ethereum layer 2s and and the answer is is quite difficult, right? And there's multiple reasons for that, but the top three reasons realistically are one that the Bitcoin security and bridges have not really existed in a way that would qualify as a layer 2. Um, the majority or almost all or exclusively all Bitcoin bridges today are multisig bridges.

trusted you trust a custodian or multisig or a multisig of a few people and essentially that doesn't really give you the same level of security as an ETH rollup with fraud proofs or ZK proofs but we finally now with Bitfam and I'll talk about this briefly today have the path to actually solving this but at the same time it's not enough just to have a bridge right you can take a bridge that people feel comfortable with realistically the top 10 ETH2s aren't really rollups yet we've only now after L2B kind of enforced the deadline seen this massive upgrade push Previously, everybody was just running a multi sequencer. So, it's not just about the security. It's also about ecosystem and liquidity. And previously, we've had attempts toward, you know, to build Bitcoin layer 2, but they were all quite segregated from from the rest of the

ecosystem, right? If you take what you have on Ethereum and you fork the EVM onto another chain, but you don't interact, you don't come to ETC, you don't interact with with other players in the space, you're going to build an isolation. And Bitcoin maxis don't know how DeFi works. So, you're kind of catering to an audience and telling them to build stuff that they don't care about. They just want to use it. They they don't want to build it themselves necessarily. And if you don't have access to liquidity, specifically stable coins, you're again, you're just going to keep losing the race. And we've seen this over and over again, which is why Bitcoin L2s up until recently were completely out of reach in terms of trying to catch up with Ethos.

So, the solution that we've been pursuing is is different. It's a hybrid. So instead of just saying, "Oh, we're going to build for Bitcoin maxis and everything else is bad," we accept and acknowledge that ultimately Ethereum is the heart of of DeFi today. That's where all the innovation happens, but it's not necessarily the best place to use Bitcoin in DeFi. And so what we do is as Bob, we use the EVM and we have a native bridge to Ethereum. We're a PAC super chain member, right? So super accessible for ETH users tailored to be able to work with the top diva protocols. We are implementing a rollup that is secured by ZK proof with rig zero rebound list.

Right? So really following that path that all Ethereum rollups are following. But at the same time we do a few things differently. Namely, we implement Bitcoin finality through Bitcoin staking that gives us this additional security from the Bitcoin side. We access native Bitcoin liquidity through a fraud proof bridge. The same way that you can access Ethereum and arbitrum. We allow you to do this with Bitcoin for the first time ever and we also build tools and products so that you don't even have to worry about all these technical things and you can just take your Bitcoin oneclick deploy into D5 both on Bob and on other networks and that's what I'm going to present in the rest of this presentation. So the hybrid architecture is quite new. Um we came up with this

about two years ago started kind of building and we've seen a few other chains follow recently. Starware announced, Tron announced, Ha is kind of building in this direction. And we we expect to see more and more of these designs which say, well, I don't have to pick one chain to get finality from. I'm going to pick whatever makes most sense for my use case. And I'm just going to walk you through our our journey of how we've been building this. And it's pretty straightforward to be fair. Um, so we start as an ETH rollup, very straightforward OP stack. Um and we work with all the major bridge providers WWDC, TBTC and what we just do is we make it easier for you to deploy I'll talk about the product side at the end of the presentation and focus on UX but on the technical side start was very

straightforward and then and that's currently on test and then rolling out very very soon um I don't want to leak too much alpha here head of marketing is in the audience um but what we do next is we will upgrade the stack back to zk fra proofs, right? So, how this works is we stay optimistic until something goes wrong, but if something goes wrong, there's a zk proof proving and and showing that well, okay, this is actually how Bob should look like and preventing theft and fraud. Um, we work together with Boundless and Bob will be the first to upgrade to this paving the way to actually becoming a stage two rollup very, very soon. So far so good.

Still very Ethereum focused, right? You don't really see too much. You just see like the Bitcoin logo here, but there's not too much interaction just yet apart from DeFi and like you know use cases. But where it gets really interesting is in step three which is already also on testn net. And what we do here is we add bitcoin finality. The way we do this is we work with Babylon. We're Babylon's biggest partner on this front. And um we on the sequencer level as sequencer would do we collect transactions. We build the blocks. We generate where necessary proofs. In our case, we pass on the data to the Babylon stakers.

These guys stake their Bitcoin, right? I'll explain in a second how it works, but imagine they're locking up the Bitcoin in a special Bitcoin script and then they sign off on what they believe to be the Bob main chain, right? In in our design here, right? Because we have ZK fraud proofs, we cannot steal, we cannot cheat in the sense of printing you money, double we or like you know executing inlet transactions. But what we could do is, you know, generate different forks and give different people different versions of the Bobchain and you wouldn't know what's going on. We could try to attack the bridges. And so to get extra security, we pass it on to the Bitcoin stakers and they sign off and confirm that okay, this is the main canonical chain. If they sign more than one chain for a

certain height, their private keys on Bitcoin are leaked. And this is one of the cool tricks that is being used in this technology. If you sign more than one block for the same height, you leak your private key, your Bitcoin's gone, right? And you get slashed properly. So naturally, this means that if we have billions of dollars of Bitcoin staked here, people will not be incentivized to steal. And that's actually what's happening. So we pass on to Babylon, in this case, the stakers sign off. We bundle this and we include this in our uh data and commitments that we pass to Ethereum. So now the Ethereum smart contract is modified to not only verify that you know there's a commitment from Bob and there's maybe a challenge period but also to check that hey the Bitcoin

stakers have signed off on this and what this gives you is fast finality because naturally speaking these guys have very little incentive to sign off on an invalid transaction because there's a high chance that if it's an invalid um set of set of blocks that somebody else actually produced a fork and they will get slashed and so in Ethereum you can get very good confidence that hey this is secure And then of course you can still wait for normal challenge periods to gain full confidence. So why do we do this, right? So Bitcoin stakers enforce finality. We get more security this way and we're linked to Bitcoin. This is all great. It gives us more security, Bitcoin alignment and whatnot, but why care, right? Security is nice, but we know that people don't care about it as much.

And the main reason why we do this is this. We want native Bitcoin on Bob. And the only way to do this with BitVM using fraud proofs is actually to have Bitcoin finality, right? I'm sure you've seen announcements of arbitrum, Ethereum and others like you know building BitVM bridges and so on. That's not really going to work because as we all know Ethereum is not really like client friendly. The way the bridges work here is that we need to verify in Bitcoin what is actually going on here and that it actually has been finalized on Ethereum. If we were a normal rollup like arbitum doesn't work. So instead what we do is we say okay we will verify that the Bitcoin stakers have signed off because these guys

actually post commitments to Bitcoin and by verifying Bitcoin you can verify that everything is fine with Bob and that's basically the trick. Bitcoin is super secure. Everybody trusts BDC and it's easy to verify in any smart contract language. And so what happens if we go through the whole process our sequencer produces blocks passes them to the stakers. They sign verify and sign off. We post commitments to Ethereum and ultimately Ethereum verifies that the stakers have confirmed that this is indeed the Bob main chain and you get finality. Now what we do next is we look at Bitcoin and say well we want to build a fraud proofbased bridge on Bitcoin as well using BitVM and since we cannot verify Ethereum we're just going to

verify that the stakers have actually confirmed that the Bob city is valid. So Bitcoin and the BitVM bridge they really do not care that Ethereum exists in this game. They really ignore Ethereum. What this cares about is hey there is a confirmation that that Bitcoin secrets have confirmed that Bob is valid and actually we also generate a Ziki proof over Bob to ensure that this can be verified and what this gives us is native BTC on Bob for the first time ever just like Ethan arbitum is Ethereum we don't call it ARB ETH or OPET or base ETH it's just ETH and with this design Bitcoin on Bob will be BDC for the first time in the history of Bitcoin and Bitcoin side chains which is great because now we can finally say that we have native Bitcoin DeFi without having to deal with native

Bitcoin scripting and native applications from Ethereum can access Bitcoin in a way that is secure without having to deal with UTXO models and whatnot. So, BitVM, I've mentioned this a dozen times in the few first few minutes. What is it? Now, what BitVM gives us and why you should care about it is it gives us trustless Bitcoin bridges for the first time ever. And we spent and if you we've been giving this presentation for the last five ETHCC instances or four I don't remember always coming up with different ways of how we could bridge bridg securely into Ethereum and other networks. This is it like this actually works and gives us the same level of security or almost as rollup systems on Ethereum. And from there we can then expand to full Bitcoin roll-ups once

you're big enough because that is still quite expensive. um but actually allows us to build real Bitcoin layer 2. But we'll focus on the bridge side first because this is not yet practical due to costs. So what is BitVM? One thing that people don't know or don't realize is that Bitcoin does have smart contracts. These are just very very primitive and a very good example and this is oversimplified, right? It's not exactly how it works, but think of it this way. If you want to multiply two numbers in Solidity, you just use a multiplication function. That's one instruction. You're done. In Bitcoin, you don't have multiplication in the script. So you have to build it yourself using in this example addition.

It's actually much more complex. So you have to use like basically logical gates and logical operations to construct multiplications. And as a result, you can do three multiplications per Bitcoin block. That's it. Then you're out of space. So the problem of Bitcoin smart contract scripting is not that it doesn't do things. You can build any program in Bitcoin script. They just become so huge that there's just no way to include them in a block. So that's a problem. Our problem is not adding more operations to Bitcoin because it doesn't you know allow us to build things. It's too big if we actually implement it. So in BitVM what we do is we take a program right and it could build a multiplication again right and let's use that as an example at first and then obviously this applies to bridges and in

practice these are um this step you do to compress. So you have a program that has a bridging program you generate a zk proof over it to compress. So you actually get a much more efficient like this is 1 gigabyte actually now still way too big um for the Bitcoin blockchain. Now ideally we just want to verify the snark just like we can do on Ethereum. Bitcoin can't do that because this thing is way too big. This program is a gigabyte in size. Bitcoin blocks are four megs. We cannot fit that into a block. So what do we do? We chop it up into subprograms each four megabytes in size at most. And then they're split up sequentially. So if you run all of these things in a row, you get the same result. My example of multiplication, let's say this is 2 * 10. You split it

up in 2 plus 2 plus 2 plus 2 plus 2 plus2. And then if you run them all one after the other, you get the same result. That's kind of the the gist of it. Now this slide, this talks about bridging, but think about it this way. If you are, what do you care about in bridging? You bridge in, you use it, you bridge out, you want to get the Bitcoin out. That is the biggest question of becom bridging is the custody and how do you make sure that you get it back. Now in our case the operator that is running this they have to commit that they you know behave correctly. We use some special scripting and pre-signed transactions to make sure that Bitcoin are locked up in a special smart contract on Bitcoin. And that smart contract says, "Hey, an operator and there's let's say 10 or 20 or 100. One

of these operators can withdraw these BTC if they previously gave some of their own bitcoin to the user who is withdrawing, right? So you have to front the capital and then only then you can claim the bitcoin back plus some fees. Now if I'm the operator and I did this correctly, we're done, right? Just like in optimistic roll-ups. If everything's fine, no one's going to challenge. Now, if I didn't send it to the user, but send it to myself, to another wallet that I control, and I'm trying to cheat and now steal the Bitcoin out of the deposits. So, I send, let's say, one BTC instead of the user to myself, and I'm trying to recover from this lock script on Bitcoin, this one BTC that I was supposed to give to the user, the user will challenge me. And the way this is implemented in Bitcoin and this is all

in script. Now I have forced I'm challenged and I'm forced to post the intermediary results of these programs so that everybody can publicly see on Bitcoin the blockchain like hey these are their intermediate results that you got and they'll see let's say again multiplication example I claim that 2 * 10 is 19 and in the last step I add one instead of two. Everybody will see this and at this point when I'm challenged everybody already knows that I've cheated. Now it's just about proving it to Bitcoin the nodes on chain using script and the idea is that look you will see that this last program is invalid I changed it and what you do as a challenger as a user you just take this last piece here that is 4 megabytes or less that you can actually run in a

bitcom block and you execute it showing that wait a second the result here doesn't match and that's it and you've proven that I have cheated you kick me out you you invalidate my transaction and you prevent me from stealing funds this is lit this very similar to how arbitrary frapp proofs work but hacked into bitcoin script and that's the beauty of it it's it's a hack naturally we'd much rather fork bitcoin and get ziki proof sim but we can't um so why bo why are we doing this and what does this mean from a product standpoint because I talked about tech but why should you care if you're Ethereum user well the cool thing is that any chain that has smart contracts can verify bitcoin and this means that every chain can

verify Bob finality So with Bob, we have this native version of Bitcoin. We have Bitcoin Finale. We have the most secure way of accessing BDC. Now this is great on Bob, but on Ethereum, we can't really do that, right? We cannot build BitVM on Ethereum or Arbitum or Baso Solana. That's what we just discussed. So how why do they care? How do we access this secure Bitcoin version on these chains? Well, the cool thing is so yes, we could just, you know, wrap it again through layer zero, CCIP, wormhole, whatever. But then you have to trust these other bridge providers in between that would cover this last mile. But since all of these players can verify Bitcoin, they can verify that Bob is secure by verifying Bitcoin, which gives you a native Bitcoin secure bridge between Arbitum, Base, BSC, Salana,

Scroll, all of them, and Bob. So now instead of trusting other players, we use Bitcoin as a security anchor. And all of whether you're Salana Maxi, an ETH Maxi, a Bitcoin maxi, there's one thing probably we can all agree on is that Bitcoin is secure and that it's okay to trust it. And that's the idea, right? It's a very pragmatic approach to solving interperability for Bitcoin specifically because we say, look, you can deposit assets from all of these chains into Bob and get them out as long as Bitcoin is secure or Bob has Bitcoin finality. And we can also access this very secure native BDC on Bob on your chain by just trusting Bitcoin for the bridge. And that essentially solves the fragmentation and interoperability of

Bitcoin and DeFi. And as a from the users perspective, naturally users will not do this whole bridging themselves. We've seen this with intent solutions on Ethereum. We just want to use the asset in DeFi. You don't want to bridge around and so on. So on the product side, what we've built is something we call gateway and we allow you using Bitcoin intense to go from BDC into a ton of applications on Bob including Unisub order and also AV is launching in the next two weeks and we also will allow you to do this crosschain. Right? So this is the next step that we're working on once even before the Bitcoin secure bridge is alive because we're pragmatic.

People want to use RAPDC on all these chains even if it's centralized. We will allow you to go from Bitcoin to any chain any D5 position with one Bitcoin transaction and back rooted through Bob and you don't have to deal with any of the bridging or figuring out how you get into any of these assets. And once Bittheam is live on mainet and once we start rolling out the Bitcoin secure bridges this will be fully secured by BDC giving you even more security. But then we'll be doing this based on demand where we see the traffic flowing um because there's so many chains will never catch up if we tried to build secure bridges to all of them. And that's it. Basically this is how we solve Bitcoin DeFi and um yeah we've been doing this about since last May the mainet has been live. We've had

200 million onchain deposits, 500,000 users, and over 100 projects building on Bob today. We're a super chain member. I think we're three or third or fourth. Um I think unis swap overtook us recently. Um and yeah, that's Bob. And yeah, if you want to work on Bitcoin, um we're the Bitcoin partner for a for unis swap, for Fireblocks, for Reown, and many other players in the space and are supporting them on their way to access Bitcoin and DeFi. That's it. Thank you so much. [Applause] I'll answer questions off the stage because I think we're tight on time.