Why Bitcoin Layer 2s Look Centralized

Multisig Federations Are Inevitable. Bitcoin's limited scripting language prevents trust-minimized bridging. Projects like Stacks, Liquid, and Merlin rely on a federation of signers to secure billions in TVL, creating a centralization bottleneck that contradicts Bitcoin's ethos.

The Security/Utility Trade-Off. A truly decentralized bridge requires locking capital in a 1:1 reserve, which destroys capital efficiency. Protocols choose federated peg-ins because the market demands yield and leverage, not just ideological purity.

Client-Side Validation Is Not a Panacea. While architectures like RGB and BitVM promise trust-minimization, they introduce massive data availability and state synchronization problems, pushing validation complexity onto users and centralized watchtowers.

Evidence: The Liquid Network, a leading Bitcoin sidechain, is secured by a 15-member federation. This model secures over $200M in assets but requires trusting Blockstream and its partners, a single point of failure.

Bridged assets are IOUs. When you bridge to a Bitcoin L2 like Stacks or Merlin Chain, you do not move a native UTXO. You lock BTC with a federated custodian and mint a wrapped representation on the L2. This creates a counterparty risk identical to wBTC or a centralized exchange.

The bridge is the L2. The security and liveness of the entire scaling solution depends on the bridge's multisig signers. Unlike Ethereum's rollups which inherit security via cryptoeconomic proofs, most Bitcoin L2 bridges are trusted federations of 5-10 entities, creating a central point of failure.

Compare to Ethereum's model. Protocols like Arbitrum and Optimism post fraud proofs or validity proofs to Ethereum L1, making the bridge a verifiable state transition. Bitcoin L2s, lacking a smart contract VM for verification, default to social consensus and trusted operators, mirroring early sidechains like Liquid.

Evidence: The largest Bitcoin L2, Stacks, uses a federated peg with 15 signers. The rapid growth of Merlin Chain is predicated on a multi-party computation (MPC) bridge, which reduces but does not eliminate trust assumptions compared to a non-custodial ZK proof.

The 'temporary federation' argument is the primary defense. Proponents claim centralized multisigs or federations are a bootstrap phase, like early Ethereum rollups. This ignores the fundamental lack of a settlement layer for fraud proofs or validity proofs on Bitcoin, making decentralization a feature to be bolted on, not a natural evolution.

Proof systems are not trustless without Bitcoin-native verification. Projects like Stacks and Rootstock rely on external committees or merged mining pools to secure their sidechains. This creates a permissioned security model where trust is placed in a rotating set of entities, not in Bitcoin's proof-of-work.

Bridge security is the bottleneck. Moving assets to an L2 requires a custodial bridge like those used by Liquid Network or Botanix. The security of billions in TVL depends on a 15-of-20 multisig, creating a single point of failure that no amount of future 'decentralization' can retroactively fix.

Evidence: The Bitcoin L2 leaderboard by @therollupco shows over 90% of projects use federated bridges or proof-of-authority consensus. This isn't a phase; it's the dominant architectural pattern enabled by Bitcoin's limited scripting.

Multisig Federations are the bottleneck. Most Bitcoin L2s, like Stacks and the Liquid Network, use a federation of signers to secure assets. This creates a trusted committee, not a trustless system, directly contradicting Bitcoin's core value proposition.

The Bridge Determines Security. The L2's security is only as strong as its bridge back to Bitcoin. Centralized watchtowers or a small validator set, as seen in early RSK and Rootstock designs, create a single point of failure that the base layer cannot audit or punish.

Proof-of-Stake introduces new trust. L2s using PoS consensus, such as those leveraging Babylon for staking, shift security from Bitcoin's physical work to a new, untested cryptoeconomic system. This is a security fork, not an extension.

Evidence: The Liquid Federation has 60 members, but withdrawals require 11-of-15 signer approval for a specific function. This is a centralized upgrade path and a fixed trust assumption baked into the protocol.