According to CryptoPotato, Grayscale, a leading crypto asset management firm, has highlighted a 'renaissance' in Bitcoin development, with several new Layer 2s (L2s) showing promise. In a recent investor report, Grayscale analyst Michael Zhao discussed how these technologies could introduce new use cases for Bitcoin and stimulate more market demand for BTC.
Zhao first mentioned Bitcoin Virtual Machine (BitVM) as one of Bitcoin's 'most anticipated' next-generation applications. BitVM, a new computing model for verifying computations on Bitcoin, was introduced by Robin Linus in October. It opens the network to smart contract functionality, which is more familiar to Ethereum. One of the key applications of BitVM in development is optimistic Bitcoin rollups, which allow users to batch fast, cheap transactions together in off-chain environments before settling them back to Bitcoin in one piece.
Another technology spotlighted by Grayscale is Spiderchains, developed by Botanix Labs. Spiderchains are layer 2 chains secured by staked Bitcoin (BTC) within decentralized multi-signature wallets. Users' pegged Bitcoin assets are secured by a rotating subset of 100 'orchestrators' that manage the layer 2 chain, which can feature any functionality seen on other blockchains, like Bitcoin.
Babylon is also expanding the Bitcoin 'staking' world through its BTC re-staking technology. This would enable BTC holders to stake their coins and earn yield on them by using them to secure other blockchain networks, like Solana or Ethereum, if the latter networks were upgraded to allow for it.
Lastly, projects like Taproot Assets aim to bring tokenization, specifically stablecoins, to one of Bitcoin's most popular current L2s: the lightning network. Grayscale believes that Bitcoin's underdeveloped smart contract ecosystem could be a massive untapped market. For instance, while about 17% of Ethereum's total market cap ($360 billion) is currently used in applications, the value locked in Bitcoin dapps is still just 0.2% of its total market cap ($1.2 trillion). If the latest wave of development results in more adoption for these use cases, it could imply a larger addressable market and potentially a higher market value over time, Grayscale concluded.
