Merlin Chain: Surpassing $3 billion TVL, how to strengthen the on-chain asset security defense line?

Merlin Chain is a ZK Rollup Bitcoin Layer 2 network that supports multiple types of native Bitcoin assets and is EVM compatible. Its development team previously launched well-known projects such as BRC-420 Blue Box and Bitmap. From a market performance perspective, BRC-420 and Bitmap demonstrated excellent data performance in the early stages.

BRC-420 is a new protocol in the Bitcoin ecosystem, with the Blue Box as its asset, corresponding to the BRC-20 protocol and the ORDI inscription. The total supply of Blue Boxes is 10,000, with a floor price of 0.6 BTC and a total trading volume of nearly 480 BTC, currently giving it a market cap of approximately 400M. Bitmap corresponds to the metaverse version of the Ordinals protocol, generated with Bitcoin block production, with 144 Bitmap added daily. On a certain trading platform, the trading volume is about 600 BTC, or 40M, with a floor price of 0.0037558 BTC and a total supply of 833,200, giving it a market cap of approximately 200M.

The success of BRC-420, the Blue Box, and Bitmap has accumulated a good community consensus for Merlin Chain. In early February of this year, after the launch of Merlin's Seal, which focuses on fair distribution and community priority, the TVL quickly surpassed $3 billion in less than a month. Partners include MPC wallet service providers, staking service providers, Layer2 projects, and several data service platforms. Among this $3 billion TVL, Bitcoin accounts for over 50%, with ETH and stablecoin assets each around $100 million, while other high-quality assets in the Bitcoin ecosystem such as BRC420, Bitmap, ORDI, and SATS also have considerable staking volume.

It is worth noting that Merlin's Seal is not equivalent to Merlin Chain. Currently, the assets supporting Merlin's Seal TVL are not directly associated with Merlin Chain. According to statistics from a certain data platform, the BTC asset balance of Merlin Chain corresponds to a TVL of approximately over 500 BTC, which is about 32.5M.

Next, we will analyze the prospects of the project from the perspectives of Merlin's account structure, asset types, security, and other technical solutions and ecological development.

Account Abstraction without Chain Relation

To achieve EVM compatibility, Merlin Chain has adopted the existing Ethereum scheme in the design of public and private key addresses. This lowers the entry barrier for users accustomed to the EVM ecosystem, but it also presents the challenge of how to map and associate Bitcoin public and private key addresses.

Merlin Chain adopts the BTC Connect solution of a certain cryptocurrency wallet service. The EVM's EOA address can be calculated through the Bitcoin public key, and then the EOA is used to control the smart contract account for on-chain interactions. It is worth noting that Merlin Chain does not directly use the EOA address calculated from the Bitcoin public key as the account, but instead adds a smart account that implements the ERC-4337 protocol. This approach is forward-looking, allowing for rapid upgrades and iterations of the signature abstraction, Paymaster, Bundler, and future social login features involved in ERC-4337. However, this also means that infrastructure such as wallets and blockchain browsers need to be re-adapted, and ecosystem dApp projects need to be synchronously transformed. For users, this may bring a certain learning cost and adjustment of usage habits.

The Inflow and Outflow of Bitcoin Native Assets

Security is the core issue when Layer2, homogenous public chains, or heterogeneous public chains handle the entry and exit of native assets. In recent years, several incidents of cross-chain protocols and asset bridges being attacked have highlighted the importance of this issue.

Currently, Merlin Chain only supports BTC assets and does not support emerging assets such as BRC-20, EVM series tokens, and NFTs. Merlin Chain uses a single receiving address on the Bitcoin network, and the UTXOs bridged by users are transferred to this P2WPKH address. We speculate that it has adopted a certain MPC co-management solution.

Within the Merlin Chain, the BTCLayer2Bridge contract is responsible for handling the minting and burning of assets. The minting logic is implemented through the unlockNativeToken function, while the burning process has not yet been fully clarified. It is noteworthy that the BTCLayer2Bridge contract already includes ERC20 and ERC721 minting and burning code, suggesting that the Merlin Chain may soon support bridging of ETH and EVM series assets.

The official Merlin Chain bridge provides a clear user interface, displaying the required address and TxId information. However, the associated blockchain explorer may have issues with slow index data.

In addition to the official bridge, a certain cross-chain bridge also supports transferring BTCB from BNB Chain to Merlin Chain, with a smooth process and lower fees. However, users should note that the bridged assets can only be viewed on its official platform for the time being, and it will take some time to confirm on other platforms.

Inheriting Bitcoin's Security

Merlin Chain is a zkEVM Layer2 developed based on a certain framework. Its architecture type is Validium, combining Polygon zkEVM and DAC. The sequencer is responsible for collecting and packaging user transactions, which are then processed by the aggregator and Prover with ZKP proof after verification. A decentralized oracle packages the hashed and signed Layer 2 transaction data and sends it to the Bitcoin network.

This solution takes into account the needs of both the Bitcoin and Ethereum communities, maintaining EVM compatibility to quickly establish an ecosystem while maximizing the inheritance of Bitcoin's security. However, some technical details, such as the adaptation of the EVM account model to the Bitcoin UTXO model and the decentralization route of the sequencer, still need to be further disclosed and studied.

A clear stream-like ecosystem

The ecological development of the Merlin Chain faces unique challenges, which may stem from its need to be compatible with both Bitcoin and EVM-based abstract accounts, as well as the characteristic of Bitcoin as native Gas.

Currently, a data platform shows that the Merlin Chain ecosystem has only one mainstream dApp, MerlinSwap, which contributes almost all of the TVL, reaching 14M. No dApps such as lending, derivatives platforms, and NFT markets have been discovered yet. However, through official social media and AMAs, we find that the actual cooperative ecological projects are far more than one, covering multiple fields including wallets, infrastructure, DeFi, and more.

It is worth paying attention to some projects that have exclusive innovative mechanisms and a native community atmosphere for Bitcoin, such as a certain stablecoin protocol. This project combines the characteristics of well-known stablecoins and lending protocols, and proposes innovative solutions to be compatible with the BRC-20 protocol and overcome the limitations of Bitcoin block confirmation times. As a key ecological product for releasing Bitcoin liquidity, this project is worth looking forward to.

To strengthen ecological security, Merlin Chain recently established a security committee in collaboration with several well-known security companies, providing guarantees for the subsequent ecological development and construction.

In summary, Merlin Chain demonstrates great potential. Its unique account system, asset bridging solutions, and considerations for asset security, along with its rapidly developing ecosystem, are all worthy of our close attention. As the ecosystem continues to improve, Merlin Chain is expected to become an important player in the Bitcoin Layer2 space.