Interviewee: Jeff, Merlin Chain

Editor: Defioasis

Disclaimer: This article does not provide any financial advice. Readers are strictly required to comply with local laws and regulations. The views of the interviewees do not represent those of Wushuo and the interviewer. Readers are advised to distinguish clearly.

The following content is an excerpt. For the full article, please listen to the podcast (Xiaoyuzhou、Youtube)

As of February 23, the Bitcoin L2 network Merlin Chain's mainnet staking activity has surpassed a total TVL of 19.7 billion USD within 14 days of its launch. This is an interview with the founder of Merlin Chain, Jeff, with a duration of approximately 50 minutes. It includes Jeff's personal experiences, his macro judgment on the Bitcoin L2 ecosystem, the positioning of Merlin Chain, and his insights.

Please introduce some of your past experiences

Jeff: I got involved in blockchain quite early. When I started my business in 2012, our investor, IDG, invested in Coinbase and Ripple. At that time, the investors (IDG) were very enthusiastic about discussing blockchain matters with us young entrepreneurs. So, I started to understand the Bitcoin whitepaper and then purchased cryptocurrencies. At that time, I bought a lot of BTC, as well as XRP and LTC later on. I am a tech guy, and my belief in blockchain was established early on, including the many offline gatherings of OGs in the early days in China.

However, I have been doing Web2 entrepreneurship and did not join the Web3 wave. It wasn't until the beginning of last year (2023) when the USD market in the entire Web2 industry was not doing well that we started looking at opportunities in Web3. That was when Ordinals came out, which gave us some new ideas about the Bitcoin ecosystem. At the beginning of last year, many people in the industry had a rather pessimistic view of Ordinals, with some saying it was just a MEME or a short-term FOMO within the Bitcoin ecosystem.

However, we saw the opposite opportunities, with three points. The first is the bottom-up issuance method, community-driven assets, and a new narrative from assets to projects. This means that the asset itself is formed from the bottom up by the community. Once the community fully owns the asset, they then build on the asset in a reverse manner. Unlike traditional blockchain projects where the project team has an idea first, then they allocate tokens and develop products to attract more users. Now, in the Bitcoin ecosystem, it's the other way around. The community first discovers the asset, the community launches the asset, and people within the community build applications, ecosystems, and empowerment based on the asset. This includes many BRC-20 ecosystem projects we have seen recently, where the community itself creates launchpads, games, and even Layer2 solutions. So, I think the change in the narrative is the first opportunity we see.

The second opportunity we see is the composability of all content once it's on-chain. Because in the past, much of Ethereum's content was not on-chain, and all content in the Bitcoin ecosystem, whether it's game content, application scripts, or social assets, all of this content needs to be on-chain and open source. So, the composability of on-chain content, including what we started with BRC-420, is also influenced by this philosophy, modularizing on-chain open source content and ultimately assetizing it.

The third opportunity is a macro opportunity, which is Bitcoin itself. The financial volume of Bitcoin is very large, in the trillions. But under this trillion-dollar scale, there has not been a good ecosystem or financial yield. So, most BTC holders just keep their money in cold wallets and cannot earn through it, but this demand cannot be ignored. Now, there are many CeFi platforms doing BTC lending and wealth management, and the potential of this financial volume is significant. Even if a small ecosystem is developed, I think the financial impact it may have on this volume will be greater than that of thousands of Ethereum L2 solutions. This was our thinking when we were working on Ordinals and the Bitcoin ecosystem.

What opportunities prompted you to start Merlin, and what is the current composition of the Merlin team?

Jeff: Actually, starting Merlin was both accidental and inevitable. Last year, there weren't many people talking about doing Bitcoin L2. We started developing applications from June last year, such as recursive graffiti, recursive forums, on-chain voting, and later on, the Bitmap language and metaverse, Bitmap's game engine and editor, and then the issuance of BRC-420 asset protocol, and the increasing richness of assets on the BRC-420 protocol. In this process, we interacted with developers and users every day in the community, on Twitter, and in Twitter Spaces. It became clear that there were limitations to what could be done on L1. What does that mean? When you want to build a game on L1 to empower Bitmap, you'll find that the interaction on L1 is very limited. If you want to enable users to compete, have gaming logic, do social activities, or have lunch chats and landings, everything you want to do is limited by L1, and smart contracts cannot be implemented. So, gradually, we concluded that Bitcoin definitely needs a virtual machine environment, otherwise, no matter how many good ideas there are, they cannot be realized.

So, this matter itself is necessary. At the end of last year, many concepts of Bitcoin L2 started to emerge. Coincidentally, we had this idea all along, so we started to plan and initiate Merlin around October last year.

We have several lines within Bitmap Tech Labs, and we are also continuously updating them. Some external teams are helping us, such as the upgrade of the BRC-420 protocol, more application scenarios, and the open source and incubation of Bitmap's entire gaming ecosystem, including many game projects around Bitmap in our current ecosystem. Within the Merlin team, I may be involved in more areas, from the chain to the wallet to the application Dapps. In general, we have these business areas.

How many people are there in the team approximately?

Jeff: Our internal development team is approximately 30 people. Externally, there are also some teams assisting us with on-chain infrastructure, on-chain DeFi infrastructure, including ZK upgrades, and market eco, so there are also about 30 people assisting our team externally.

From the perspective of the internal team, what role do you think the Bitcoin ecosystem, especially L2, will play in the new bull market?

Jeff: I think it will activate Bitcoin funds and bring in new users. This is the case in any industry, whether it's Web2 or Web3. It means that either the financial leverage of the matter itself is high enough, with a lot of money, such as looking at the US Treasury bonds or the US stock market, or China's foreign trade market.

The market itself has a lot of money, so Bitcoin first has this premise, with a very large financial volume. However, the financial utilization of Bitcoin is very low, perhaps not even one percent or one thousandth.

I think first of all, Bitcoin L2 aims to leverage this financial leverage to unlock this untapped asset. Imagine the trillion-dollar market value of BTC and the future BRC assets related to Bitcoin. If these assets are activated, they may unlock much more money than ten or twenty Ethereum L2 solutions, because Ethereum's assets mainly return to Ethereum L1, and Ethereum L1 itself is a practical ecosystem.

The second is the innovation we saw in the Bitcoin application ecosystem last year, and whether we can expand it. This bottom-up community-driven issuance, the on-chain composability of inscriptions, and the entire narrative based on the digital generation of Bitcoin block data, whether it's the metaverse or AI.

So, in simple terms, I think Bitcoin L2 may play these two roles: one is to optimize the previously underutilized financial resources, and the second is how to improve the native innovations on Bitcoin.

Now there are many protocols and applications on Bitcoin, so for ordinary retail investors, what are the high certainty opportunities they can seize?

Jeff: I think this opportunity is quite clear, and I prefer to calculate this on a large scale and mathematically. When the market value of ETH is in the range of two to three trillion USD, you will find that the total value of ERC-20 tokens is also in the range of two to three trillion USD. Today, the market value of BTC is one trillion USD, but the total market value of BRC assets related to Bitcoin is probably less than ten billion USD. From this 10 billion USD to 1 trillion USD, there is a space of 99 times. Of course, I'm not saying that this 99 times space will definitely be realized, or will be filled in the short term, but the trend and potential itself can be calculated quite well.

So, I think for retail investors, the key is the 10 billion USD worth of assets within the Bitcoin ecosystem, including Ordinals, Atomicals, and so on. It's the process of gradually catching up from a market value of 10 billion USD to 1 trillion USD, which is essentially a so-called bull market.

According to statistics, there are now over 30 Bitcoin L2 solutions, divided into sidechains, Rollups, and data availability categories. So, what are the differences between Merlin and other Bitcoin L2 solutions, especially from a technical perspective?

Jeff: From a technical perspective, I think there is currently no truly meaningful Bitcoin L2 solution. We have always been realistic in our approach to explain this to everyone because Bitcoin L1 cannot settle. Its biggest difference from Ethereum L1 is that Ethereum itself has the capability of smart contracts. So, based on Ethereum, from the earliest Polygon Plasma to the OP Rollup solution, to today's ZK solution. Of course, this process has also taken 5 years, and even today, a large number of OP and ZK solutions have not matured. So, you will find that even though Ethereum itself has the feature of smart contracts, the entire Rollup process has taken 5 years or even more than 10 years to stabilize and mature. Bitcoin L1 itself does not have the ability of smart contracts, and it cannot settle, so I think from a practical perspective, there is currently no chain that can rollup to Bitcoin.

In terms of the current technical direction, the first question is whether ZK Proofs can be transmitted back to Bitcoin L1 in the form of inscriptions, so that all users, nodes, and validators can receive open source and unforgeable ZK Proofs to verify the security of the chain.

The second question is attempting to have Bitcoin L1 perform verification, or attempting to have a more decentralized network perform verification. Our current plan is to have a staking system on the chain, with a POS Stakers mechanism. They can verify all ZK Proofs, and they have staked a large amount of BTC to withdraw and claim in case of malicious behavior or erroneous reporting. At the same time, whether there can be a separate DA Layer below Bitcoin, like Celestia. We have also cooperated and invested in several Bitcoin DA Layers, and they can act as a 1.5 layer for Bitcoin to verify our ZK Proofs. If there are issues, the mechanism is the same, to claim for erroneous information, or front proof to prove the existence of fraud. Then, there can be further settlement in some way on L1. I think this can be gradually achieved in the so-called 12 to 24 months in the short term.

Ultimately, is it possible for the entire L2 to report and settle on L1? I think it's possible, but to be honest, I believe it's very difficult to achieve within five years.

There has been some debate recently about whether L2 should continue to use Bitcoin's UTXO model. Some believe that departing from UTXO to build sidechains is equivalent to abandoning Bitcoin's fundamental characteristics. How do you view these opinions?

Jeff: I think this is more of a purely aesthetic debate. Bitcoin L2 has not changed Bitcoin L1; it is an extension of Bitcoin L1. Simply put, when you transfer BTC from one layer to an exchange, this BTC still exists in the exchange's layer network, and the exchange has not changed it. Secondly, when this BTC is in the exchange, it can be used for contracts and options, so it's impossible to say that contracts and options also violate Bitcoin's UTXO model. So, I think L2 is the same. L2 provides more application methods and a more decentralized ecosystem on the second layer, but it has not changed Bitcoin L1. So, I think BTC whales or Bitcoin miners don't really care about L2 because it hasn't changed anything. Instead, inscriptions have affected the UTXO and transactions on Bitcoin L1, which are the points that Bitcoin miners and Bitcoin maximalists care about.

Since there has been no change, only an extension, I think discussing these matters at this time is purely an aesthetic issue. It's like whether tangyuan should have meat or sesame filling, or whether zongzi should be sweet or savory, there's nothing to discuss.

Returning to Merlin, within two weeks of its launch, Merlin TVL has exceeded 1.9 billion USD, surpassing Blast. How did Merlin achieve such rapid growth in such a short time?

Jeff: For many people who haven't paid much attention to the Bitcoin ecosystem, they may feel that this is a sudden emergence, and there may be some misunderstanding. For us, although it did exceed our expectations, our long-term development on Bitcoin L1 has accumulated a lot of community ecosystem and user traffic for us. This is something that many people didn't pay attention to before, they didn't know about Bitmap, they didn't know about BRC-420. In simple terms, in the Bitcoin ecosystem, you will find that besides BRC-20 assets like ORDI and SATS listed on Binance and OKX exchanges, the second and third largest market value protocols are Bitmap and BRC-420.

So, we have the second and third largest user communities in the Bitcoin ecosystem, including core development done by ourselves. Unlike BRC-20, which is a completely free issuance protocol, Bitmap and BRC-420 are more vertical. So, we have already accumulated a large amount of user traffic, and we understand what these users are playing, what assets they have, and their level of involvement in the community. With this foundation already established, this outcome was somewhat foreseeable. Of course, for external observers, this may seem like a quick development, but for us, there is also an element of inevitability in this occurrence.

How to maximize the security of user funds

Jeff: Users may feel pressure, but for us, the pressure is definitely greater. Simply put, the assets on Bitcoin L1 are stored in an address. The storage of these assets only involves the concept of multi-signature. It's different from Ethereum, which can do smart contracts and impose many restrictions. In Bitcoin, the address is quite simple, it's just about who signs. If you sign, the money is yours; if I sign, the money is mine.

So, the solution we have implemented is a comprehensive Bitcoin L2 solution that we developed with Cobo and other security companies two to three months ago. This solution ensures that users' assets on the first layer are controlled by multiple signers, and the interests of these signers do not conflict. This neutrality ensures that users' assets will not be rug pulled by any single party. Secondly, all assets are transferred on L1, then the information is monitored on L2, and the assets are minted through contracts on L2; and conversely, the assets are destroyed on L2, and then the transfer is initiated on L1. Relayer data is used to monitor, record, and verify the information between the different nodes on L1 and L2. We believe this is the safest solution in the industry. When it comes to Bitcoin's ecosystem, it's a bit like how Newtonian physics cannot become quantum physics; it has very limited capabilities.

With a large number of participants now, staking competition has become a game for big players, and there are voices in the community saying it's too intense. Does Merlin have any participation methods that are more friendly to retail investors in the future?

Jeff: I think it's a two-sided issue. First, I think Merlin is already the most suitable L2 for retail investors to stake in. We released 20% of the tokens, unlike other chains that released 5%. The benefit of releasing 20% of the tokens is that the higher your TVL, the more tokens a user can receive, which is four times more than other chains. Secondly, as TVL continues to increase, the amount of money left on the chain also increases, so the overall activity and prosperity of the ecosystem, including the long-term total market value of the chain, will definitely be higher. Many of our own tools for calculating expected income show that regardless of the quantity or value of the tokens, the returns are higher compared to chains that release 5%.

Apart from staking, for example, Merlin swap is a trading tool that is more friendly to retail investors, and on-chain applications will also release tokens. We have mentioned before that, in addition to Merlin Seals, the majority of the tokens will be released to holders, users, builders, and validators. Our token release is a long-term commitment and is distributed to those who truly participate in our chain.

So, whether it's participating in other applications for staking, lending, or trading within Merlin, including the recent MEME on Merlin, I think these users, whether they profit from trading or from token releases through trading activities, this has always been the way we promise to reward our users.

In the upcoming multiple rounds of airdrop weight activities, how will they be conducted?

Jeff: It's mainly based on the ecosystem. This includes new applications going live, grants for developers, incentives for early participants, and the need for more nodes on the chain for verification and cross-chain anti-fraud proof. Essentially, it's about rewarding those who participate in the ecosystem, whether they are developers, users, or validators, and almost all of our tokens will be released to these individuals.

Public chain airdrops can easily attract a lot of opportunistic individuals or studios. How do you view this type of group?

Jeff: I think the culture in the Bitcoin space is not about complexity. Yesterday, there was a discussion about this, and someone asked if we have done IP address statistics to analyze different people for anti-cheating measures. But if you look at Merlin, you will find that Merlin's activities do not involve complex rules. Any other so-called Ethereum L2, you will find that their Ethereum entrepreneurs will create tasks, complete a task to earn a certain number of points, complete another task to earn a certain number of points, and then there's a first-level distribution of a certain percentage, and a second-level distribution of another percentage. The entire system is designed to be very complex. Once the system is designed to be complex, you will find that this is where opportunistic individuals and studios come in. In our collaborations with some Ethereum projects, without exception, we found that everyone likes to make the system complex.

But looking back at the Bitcoin ecosystem, for example, with inscriptions, it's particularly fair. For example, there are only so many inscriptions, and if you're very wealthy, you can buy them all. But then what? If one person buys them all, no one will come to build the ecosystem with you, no one will come to build the community, and you essentially just bought a worthless token.

So, I really like the culture in the Bitcoin space, which uses simple, fair, and open rules, and lets the market regulate itself freely, without imposing restrictions. Logically, the more rules and restrictions there are, the more it actually limits real users, not opportunistic individuals or studios. So, I have never participated in airdrops or tasks, and our Merlin activities are always very simple and fair, allowing everyone to participate.

Merlin recently announced that it has received investments from over 20 institutions, including OKX Ventures and ABCDE. It is said that the terms of the investors were not friendly to retail investors. How did you ultimately convince the investors, and what are the key considerations in selecting investors?

Jeff: This is something that our community is quite concerned about. Why do people feel uncomfortable on Ethereum? It's because they feel like they are being exploited by institutions. This is a discomfort that retail investors often experience, so when people come to play in the Bitcoin space, they naturally have a certain aversion to institutions. You will find that last year, many projects in the Bitcoin ecosystem did not raise funds or did not announce fundraising. The ecosystem's users are also easily paranoid about how much of the tokens institutions take. As far as I can remember, there was a project that gave 5% to the team and institutions, and it was attacked across the internet. I think this culture is a bit too extreme.

I think if investment institutions invest in Merlin, their focus must be on the long term, because we are building a Bitcoin L2. From an architectural perspective, we are more like a Bitcoin public chain, because Bitcoin itself does not have smart contracts. Therefore, to build a Bitcoin public chain, develop the ecosystem and Dapps in the long term, it will definitely take 5 to 10 years. So, for investment institutions, a relatively long lock-up period is reasonable. If investors do not accept this long lock-up period, it means they actually lack confidence in the ecosystem. But for users, what we hope for is a market that allows for free circulation, where early believers can participate and early non-believers can quickly profit and exit. So, there are people in our ecosystem saying that the Merlin project is "cutting VCs' leeks," where retail investors can freely trade their chips, while VCs have to wait for the lock-up period. However, I don't think it's like that; the investment logic of institutions is different from that of retail investors.

Does Merlin have any experience to share in building a community?

Jeff: I think transparency is key. We answer any questions on Twitter Space, and we often do podcasts and live streams on YouTube. Every time we tell the hosts to collect the most piercing questions. Many projects like to answer some scripted questions in Space, but we answer very sharp and piercing questions, such as where the money went, whether it's safe, why we support one thing over another, and the situation of the team. We like to answer these sharp and piercing questions. For example, someone asked if Merlin is an L2, and our first reaction was to say no, we are a sidechain, but all sidechains will market themselves as L2, so we have to do the same. But many founding teams may not want to say this, and I think this transparency makes users feel that we are very real.

Yesterday, something happened. Merlin swap had an airdrop, giving all early participants a free airdrop of a token, and everyone had to claim it. Due to the pressure on the chain from AA and the fact that Polygon zkevm had not been upgraded, many users were unable to claim it, and there were also issues with the user registration for the snapshot. So, the official statement was that they would bear all the gas costs for the airdrop, and if the final amount exceeded the snapshot, they would buy back and airdrop it. So, every time we encounter a problem, we always try to resolve it with the fastest and most honest approach, admitting mistakes.

On the day BRC-420 was released, the website was slow, causing many people to waste gas. According to the history of the Bitcoin network, all projects would not refund this gas, as it is paid to miners. But because our website was slow, we immediately tweeted that we would refund all the money and gas wasted within the first ten minutes. We refunded hundreds of thousands on the first day.

So, this kind of honesty, respect for the market and users, and most importantly, the attitude we have maintained since June last year, holding 4-5 Spaces and podcasts every day, makes the community feel that we are a very genuine team.

Are there any interesting projects on Merlin that you can share with us?

Jeff: I think early DeFi can be actively and safely participated in, especially in an ecosystem with a lot of hot money. Of course, the premise for any DeFi is that their applications have been audited and verified to ensure safety.

Secondly, for many Bitcoin and Ethereum users, I think they should experience some native Bitcoin innovative applications. For example, we have invested in several companies, such as one that allows you to mint real inscriptions on L1 using various tokens on L2, and it can instantly help you cross-chain to L2, allowing for earlier interaction or liquidity.

Additionally, Bitmap's metaverse has recently had two products in external testing on the testnet, so I think early attention to these applications is worthwhile.

Easter Egg Section

"Big Brother behind the scenes"? I only entered Web3 entrepreneurship last year, I don't even know them.

Jeff: Today (February 23) marks exactly 14 days since the launch, and Merlin Seals TVL has reached $1.97 billion, surpassing Blast, which is indeed an impressive achievement as everyone has said. However, the amount of FUD that has emerged in these 14 days actually exceeds my personal awareness. For example, some people ask if this person is the "big brother behind the scenes." But to be honest, I don't know any of these people being talked about. Because I have been in Web2 entrepreneurship before, and I have done a lot of popularization for this, and even contacted these "big brothers" to ask about the situation and dispel rumors.

But later I realized that in the eyes of the larger market, Merlin is a project that was just released a month ago and suddenly swept the entire market after just a few days of going live, and everyone is talking about it. So, I think it's this suddenness that makes everyone feel that this situation is unreasonable. Because most people, including myself, need to find a rationale for many things, to explain why it suddenly surged, and there must be a reason for the ecosystem to be so hot. If I don't know why it suddenly became popular, then there must be a mysterious force behind it.

But what I want to say is that our team has been in the inscription ecosystem and the Bitcoin ecosystem since the earliest and coldest times. To be honest, going back to June last year, there were probably no more than 10 teams globally building with regular developers in this ecosystem. So, we persisted in building in the coldest times, without making money or receiving money, developed seven or eight products, and now we are here. So, when we launched Merlin Chain, I think the entire ecosystem was ready for it, and the overseas community on Twitter, as well as the Asian community, have a natural enthusiasm and trust in our FOMO. But for the outside world, they may feel that this is a project that suddenly became popular as soon as they heard about it.

This is an interesting interlude, and I think it's getting better now, as everyone has shifted from FUD to research.

The role played by BRC-420 and the duality of Graphene

Jeff: I think BRC-420 plays a role in the entire Bitcoin network, which is asset diversity. After different content and modularization, it can be used as a target for speculation and for applications to utilize. For example, now, if you want to create a game, you can use BRC-420 to package it onto the chain as a full-chain game asset, combining content and assets, which was not possible on Ethereum in the past. I think this asset on Bitcoin L1 is quite impressive. It will definitely have stronger trading and interaction on L2, and Merlin Chain is able to handle this traffic. BRC-420 is not an L2 asset, but I believe these assets can circulate better for gaming and applications on L2.

I'm not modest about it. The term "duality of Graphene" was first proposed by me. There are records on Twitter that can be checked. I think the duality of Graphene on Ethereum is based on our design. But then again, I think it's different. It achieves this in finance, and this can snowball, the so-called "rolling up by stepping on the left foot with the right foot." It doesn't matter if it's good or bad. But when BRC-420 proposed this, we were more focused on its applicability. For example, if you look at Bitmap, in Bitmap's metaverse game, the Graphene itself is a piece of land, and a lot of things need this land to be done. For example, with computing power, you can trade for a space, and within this space, you can operate a private node, or a private game, or a private social space, and so on. So, the Graphene itself is practical. When it is wrapped into a token, this token, as a circulating currency in the self-made world within the entire system, is used for trading, DeFi, or spending. Based on the bilateral practicality, then building a set of financial gameplay around it, I think that's a complete story. But if it lacks practicality and goes directly to build financial gameplay, it will be very ponzi and FOMO. But I think this is not a game that can last in the long run.

Of course, personally, I think ponzi is a neutral term, and it's even a neutral and positive term. So, I think the best product is a long-term ponzi, with the practicality of the application and the asset itself, then adding a layer of financial gameplay, it might be a longer time ponzi, like Bitcoin, like the US stock market, like real estate, all of which are longer ponzi. But if only financial attributes are added, it is more likely to become a short-term ponzi.

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