Bitcoin Rollups Without Native Execution

The Bitcoin L1 is a $1.3T+ store of value with ~7 TPS and no native smart contracts. This creates a massive opportunity cost where capital cannot be deployed in DeFi, NFTs, or other yield-generating activities without custodial bridges to other chains.

• Zero native yield on the largest crypto asset.
• Custodial risk is the primary on-ramp to DeFi (e.g., Wrapped BTC).
• Market demand for Bitcoin DeFi is evidenced by $10B+ in BTC bridged to Ethereum.

Projects like BitVM and Rollkit enable a rollup to use Bitcoin solely for data availability and dispute resolution, executing transactions off-chain. This mirrors the Ethereum rollup playbook (Arbitrum, Optimism) but for Bitcoin.

• Security inherits from Bitcoin via fraud proofs or validity proofs.
• Native Bitcoin as gas avoids introducing a new token for security.
• Sovereign execution allows for EVM, WASM, or any VM, enabling a Bitcoin DeFi ecosystem.

ETFs have legitimized Bitcoin as an institutional asset. The next logical step is generating yield on that asset natively, without counterparty risk. This drives demand for trust-minimized, Bitcoin-secured execution layers.

• ETF issuers (BlackRock, Fidelity) will seek yield products.
• Real World Asset (RWA) tokenization demands Bitcoin's finality.
• Modular design aligns with institutional infrastructure preferences, separating settlement from execution.

Bitcoin's VM is intentionally limited. Smart contract logic is non-Turing complete, and block space is scarce and expensive. This makes DeFi, NFTs, and complex dApps impossible on the base layer.

• No Native Smart Contracts: Script is for verification, not computation.
• ~7 TPS Limit: Congestion and high fees during peak demand.
• Siloed Liquidity: $1T+ in BTC is dormant, unable to participate in DeFi.

Run a separate execution chain (using Cosmos SDK, Polygon CDK) that uses Bitcoin purely for data availability and consensus. Settlement and fraud proofs are handled off-chain.

• Data to Bitcoin: Batch transaction data to Bitcoin via Ordinals-style inscriptions or taproot trees.
• Sovereign Enforcement: The rollup's own validator set defines canonical chain, not Bitcoin miners.
• EVM/SVM Compatibility: Enables porting of existing dApps from Ethereum, Solana, and Cosmos.

Push all execution and state validation to the user's client. Bitcoin secures the ownership and state commitments, while complex logic happens off-chain.

• Single-Use Seals: Bitcoin UTXOs act as unique identifiers for off-chain state.
• Massive Privacy: Only transacting parties see the full contract state.
• Scalability: Throughput is limited only by client hardware and peer-to-peer network capacity.

Independent blockchains with their own security (PoS or federated) that use a two-way peg to Bitcoin. They bring execution to BTC without modifying its core protocol.

• sBTC (Stacks): A decentralized, programmable 1:1 Bitcoin peg for DeFi.
• Merge Mining (Rootstock): Leverages Bitcoin's hashrate for sidechain security.
• Native EVM (Rootstock): Full compatibility with Ethereum tooling and Uniswap, Aave forks.

All approaches make a fundamental trade-off. More dependence on Bitcoin's L1 security (e.g., for consensus) reduces the rollup's sovereignty and upgrade flexibility.

• High Security/Low Sovereignty: Validium/zk-Rollup with DA on Bitcoin (hard to enforce).
• Low Security/High Sovereignty: Sovereign rollup (relies on its own social consensus).
• Hybrid: Sidechains with Bitcoin miners as stakers (e.g., Babylon).

Botanix Labs and others are pioneering BitVM, a model to express Turing-complete contracts on Bitcoin via optimistic rollups and fraud proofs. It's complex but maximizes L1 security.

• Challenge-Response on L1: Fraud proofs are executed as a series of Bitcoin transactions.
• No Soft Fork Required: Uses existing Bitcoin opcodes in novel ways.
• Early Stage: Current designs involve heavy operational complexity and limited concurrency.

Without native smart contracts, Bitcoin L1 cannot natively verify rollup state transitions or data. This forces reliance on external Data Availability (DA) layers like Celestia, Avail, or Ethereum, creating a security dependency.\n- Introduces a new trust vector outside Bitcoin's security model.\n- Adds cost and latency for data posting, undermining the low-fee promise.\n- Fragments security; a DA failure breaks the rollup, even if Bitcoin is fine.

Most Bitcoin rollups are sovereign rollups, meaning they settle on Bitcoin but have their own fork choice rule for execution. This grants independence but at a high cost.\n- No forced inclusion: Bitcoin L1 cannot force correct state updates, enabling potential censorship.\n- Weak anti-fraud proofs: Dispute resolution is social/multisig-based, not cryptographic.\n- Replicates the bridge security problem, making them vulnerable to sequencer takeover.

Bitcoin's simple mempool and lack of execution make MEV extraction crude (e.g., transaction frontrunning). Rollups introduce complex DeFi states, creating a rich new MEV landscape.\n- No native PBS: No Proposer-Builder Separation exists, so sequencers become centralized MEV cartels.\n- Cross-domain MEV: Arbitrage between Bitcoin L1 and rollup L2s will be opaque and exploitable.\n- Erodes user value and can lead to centralization pressures similar to early Ethereum.

Moving BTC into a rollup requires a trusted bridge, the perennial weak link in multi-chain ecosystems. Each rollup creates its own isolated liquidity pool.\n- ~$2B+ in bridge hacks since 2021 highlights the systemic risk.\n- Capital inefficiency: Locked BTC in a rollup cannot be used elsewhere (e.g., Lightning, other L2s).\n- Fragments developer mindshare and user experience across incompatible environments.

Ethereum's rollup stack (OP Stack, Arbitrum Orbit, zkSync Hyperchains) benefits from a rich EVM toolchain and network effects. Bitcoin rollups start from scratch.\n- No dominant VM standard: Rust, Solidity, and new VMs compete, slowing dApp porting.\n- Missing infrastructure: Lack of robust oracles (Chainlink), indexers (The Graph), and wallets.\n- Developer exodus risk: Teams may revert to Ethereum L2s where users and tools already exist.

Rollups need to pay for Bitcoin L1 settlement, external DA, and sequencer/validator ops, all while competing with near-zero fee alternatives.\n- Fee market misalignment: High Bitcoin congestion fees could make rollup settlement prohibitively expensive.\n- Token model uncertainty: Needing a separate gas token adds friction; using wrapped BTC is complex.\n- Unproven demand: Will users pay for Bitcoin smart contracts when Ethereum L2s already work?