Recently, the BTC derivatives market ecosystem seems to be in a dilemma: 1) The expected big turnaround after BTC halving has not yet arrived; 2) The wealth creation effect after the launch of Runes protocol is not as expected; 3) The BTC layer2 focus project Merlin is temporarily silent after TGE. However, while they are all waiting to "let the bullets fly", I am more bullish @NervosNetwork. Why? Next, let me talk about my opinion:

In my opinion, there are currently two major problems in the BTC derivative ecosystem market:

1. Native RGB Lightning Network, EVM-Conpatible, and UTXO isomorphic binding chain share the market, and there is no main line layer2 direction yet;

2. The issuance of Ordinals, Brc20, Arc20, Runes and other assets has fallen into a dead end where the more the technology improves, the weaker the wealth creation effect, because the fundamental problem of poor liquidity has not been solved;

While the Builders are still competing for supremacy, the Marketing side has already backfired and collapsed due to high expectations. The current BTC ecosystem must deliver results in solving the liquidity problem of layer 1 derivative assets.

Therefore, the Bitcoin derivatives market urgently needs to develop a closed-loop layer 2 solution that can be quickly formed in terms of technical architecture, market operations, and ecological implementation.

The implementation of native RGB protocol and Lightning Network is too slow, and many EVM-Compatible protocol frameworks are still under construction. In comparison, only CKB public chain, as a paradigm of UTXO isomorphic binding chain, is gradually "accelerating" the implementation of the market's imagination of BTC layer2: RGB++, UTXO Stack, Lightning Network, DOB assets, full-chain games and other landing ecosystems are emerging one by one.

In the short term, the CKB public chain can provide a quick “training exercise” for the BTC layer2 industry, allowing everyone to see that BTC derivative assets on the first layer can be expanded and circulated in the Turing-complete environment of the second layer; in the long term, CKB may be able to rely on its inherent technical advantages of “isomorphic binding” to establish a UTXO-structured layer2 mainstream unified market for the BTC layer2 market.

The fundamental reason why CKB public chain can do this is that the UTXO Cell model of the CKB chain itself can include tokens, JavaScript codes, JSON strings, smart contracts and a complete Bitcoin UTXO state. Therefore, the CKB public chain can be regarded as a complete off-chain state machine of the BTC mainnet.

It can synchronously store all states that occur on the BTC mainnet, which is equivalent to an extended DA layer of the BTC mainnet. It runs all calculations based on its Turing completeness, which is equivalent to a high-performance VM execution layer. The isomorphic binding characteristics of its UTXO structure provide secure interoperability for BTC.

In simple terms, if we assume that the BTC mainnet can only do asset settlement, CKB has taken care of the extended functionality such as DA layer, execution layer, interoperability, etc. It is precisely because of this foundation that CKB has realized some things that are difficult to implement on the BTC original chain, such as RGB and Lightning Network.

Taking RGB as an example, its complete implementation requires some off-chain clients to store part of the "state" respectively, and then send a Commitment commitment (a Hash calculated by hashing the original state data) to the main network through a one-time sealing technology. The commitment contains the spending conditions of UTXO, cannot be tampered with, and can only be triggered by another matching commitment to "unlock".

If Alice wants to send BTC assets to Bob through the RGB protocol, Alice initiates a commitment agreement that Bob can unlock the UTXO for spending. After receiving the commitment, the BTC full node will wait for another corresponding commitment to be unlocked. When the two commitments match, a UTXO spending (settlement) of the main chain is realized.

Therefore, for the RGB client verification system, the key lies in the fact that independent P2P individuals such as Alice and Bob must each maintain a "state copy" and prove to the main network online that they legally own a certain state. The asset division is completed by matching the old commitments and updating the status of the new commitments.

The problem is that in order for these individuals to have this kind of collaboration ability, a very complete "infrastructure" is usually required. The crux of the RGB protocol network's inability to be implemented on a large scale at this stage is that it is too difficult to build this infrastructure to uniformly manage the status, requests, and communications of off-chain clients.

The CKB public chain itself has the ability to store DA states and has the interoperability of isomorphic binding. If this difficult infrastructure project is replaced by the existing CKB chain, wouldn’t the problem of RGB client verification be solved? That’s right, this is the fundamental reason why RGB++ came into being.

Following this line of thought, the payment network of the state channel model, such as the Lightning Network, can also be implemented on the CKB public chain. After all, the crux of the Lightning Network is also the problem of interactive state management between the decentralized Lightning Network nodes. Imagine that if the originally decentralized and complex off-chain operation "black box" can be efficiently implemented on an existing public chain, the landing and application process will naturally be faster. For example, state channel cycle management, UTXO account and settlement, on-chain state storage, P2P communication simplification, etc.

Taking the issuance of Inscription assets as an example, the inscription assets originally issued on the BTC L1 mainnet fell into an extremely high-cost turnover and low circulation state after the MINT under the Fomo trend. How can these assets be efficiently circulated with the help of the CKB public chain?

1. Issue and mint inscription assets on the mainnet first. You can also mint through the CKB network, but the CKB public chain actually serves as a "proxy" for infrastructure, helping users send transaction mint inscription assets from the CKB public chain to the mainnet;

2. All inscription assets will coexist on the BTC mainnet and CKB. When the mainnet inscription asset Mint is successful, asset twinning can be achieved through Leap's trusted L1 and L2 interoperability. CKB's DA network will become a huge "indexer" to manage shadow assets;

3. These shadow assets can be circulated at low cost on the CKB public chain based on the interaction method of RGB++ (one-time sealed commitment). When the user Leaps the main network assets to the CKB public chain, the shadow assets represent the original assets on the CKB public chain for efficient circulation in DeFi, games and other application ecosystems. CKB will fully record every state change record and complete the state update on the main network when the user requests to Leap the assets back to the main network. (It is understandable that the handling fee of Mint occurs on the main network, but the subsequent circulation interaction on the CKB chain can greatly reduce the handling fee.

In my opinion, the CKB public chain itself is a UTXO structure layer2 with a complete technical framework. Its Cell model can be isomorphically bound to the UTXO on BTC, allowing BTC and CKB layer2 to achieve asset interoperability Leap without a cross-chain bridge (not migration, but abstractly understood as quantum entanglement state synchronization). In addition, the high performance of the CKB chain itself in executing Turing-complete contracts will make up for the problem that UTXO cannot achieve state management of ownerless contracts.

How to do it? Because CKB's Cell state has global management capabilities, if there is a conflict in the state of different Cells, such as two usage commitments with conflicting states, CKB will reject the issuance of one of the Cell commitments to protect the security of asset state updates. In essence, this is a reflection of the strong programmability of the CKB public chain. It should be noted that Ethereum's layer 2 solution Plasma cannot achieve similar Turing-complete expansion.

Therefore, if I want to accelerate the implementation of BTC layer2, I will vote for the camp representing UTXO isomorphic binding.

Although the CKB public chain is a successful UTXO paradigm BTC layer2, how can it represent the mainstream camp alone? Therefore, CKB launched the UTXO Stack to expand the scale of its camp.

This situation is like when Vitalik said that ZK-Rollup is the final outcome and everyone rushed to the ZK field to build layer2. If Satoshi Nakamoto said that UTXO isomorphic binding is the orthodoxy of BTC Layer2, it is estimated that UTXO Stack will also become the basic framework for the rapid construction and deployment of layer2 in the ecosystem. The Stack strategy is very similar to the strategic upgrade of OP Stack to OP-Rollup.

that's all

In short, the recent coldness of the secondary market will bring some pressure to the builders of the primary market. Previously, the chaos was also regarded as prosperity, but when things calm down, BTC layer2's lack of standards, norms, mainstream narratives, and core problem solutions (liquidity) will become a difficult problem that must be overcome. Therefore, the downturn of Runes has undoubtedly given the UTXO isomorphic binding camp represented by the CKB public chain a "send east wind" moment.

Note: This article is purely from a technical logic perspective, and is a call for the UTXO isomorphism binding to BTC layer2 represented by the CKB public chain. It is not intended as a reference for secondary market investment advice.