Recently, the BTC derivatives market ecosystem seems to have fallen into a dilemma: 1) The expected major turning point in the market after the BTC halving has not yet arrived; 2) The wealth effect of the Runes protocol launch did not meet expectations; 3) The BTC layer2 focus project Merlin TGE has temporarily stalled. However, while they are all waiting for the "bullets to fly," I am even more bullish on @NervosNetwork. Why? Next, let me share my views:

In my opinion, there are currently two major challenges in the BTC derivatives market ecosystem:

1. The native RGB Lightning Network, EVM-Compatible, and UTXO homomorphic binding chain are vying for dominance, and there is no mainstream layer2 direction yet;
2. Asset issuance such as Ordinals, Brc20, Arc20, Runes, etc., has fallen into a dead end where the wealth effect weakens as the technical improvements progress, because the fundamental problem of poor liquidity has not been resolved;

While the builders are still vying for dominance, the marketing side has already generated high expectations and collapsed. The current BTC ecosystem must provide answers to the liquidity issues of layer1 derivative assets.

Therefore, the Bitcoin derivatives market urgently needs to produce a closed-loop layer2 solution that can quickly take shape in terms of technical architecture, market operations, and ecosystem implementation.

The native RGB protocol and Lightning Network are landing too slowly, and many EVM-Compatible protocol frameworks are still under construction. In comparison, only CKB public chain, as a paradigm of UTXO homomorphic binding chain, is gradually "accelerating" the realization of all imaginations of the market for BTC layer2: RGB++, UTXO Stack, Lightning Network, DOB assets, full-chain games, and other landing ecosystems are gradually emerging.

In the short term, the CKB public chain can quickly "train" the BTC layer2 industry, allowing everyone to see that layer1 BTC derivative assets can expand circulation in a Turing-complete environment on layer2; in the long term, CKB may be able to establish a mainstream unified market for UTXO structure in the BTC layer2 market based on its inherent technical advantages of "homomorphic binding."

The fundamental reason why CKB public chain can achieve these is that the UTXO Cell model of the CKB chain itself can encompass tokens, JavaScript code, JSON strings, smart contracts, and a complete Bitcoin UTXO state. Therefore, the CKB public chain can be regarded as a complete state machine of the BTC mainnet.

It can synchronize and store all states occurring on the BTC mainnet, acting as an extension of the BTC mainnet; and based on its Turing-complete nature to run all computations, it acts as a high-performance VM execution layer. Its UTXO homomorphic binding feature also provides BTC with secure interoperability and interactive operability.

In simple terms, if we consider that the BTC mainnet can only handle asset settlement, CKB then covers the extension of functionality such as DA layer, execution layer, and interactive operability. It is precisely because of this foundation that CKB has achieved some difficult tasks for the landing of BTC native chain ecosystems such as RGB and Lightning Network.

Taking RGB as an example, to put it simply: its complete implementation requires some clients to store a part of the "state" off-chain, and then send a commitment (a hash computed from the original state data) to the mainnet through one-time sealing technology. The commitment includes spending conditions of UTXO, cannot be tampered with, and can only be triggered to "unlock" by another matching commitment.

If Alice wants to send BTC assets to Bob through the RGB protocol, Alice initiates a commitment that can be unlocked by Bob to spend the UTXO. When the BTC full node receives the commitment, it waits for another corresponding commitment to be unlocked, and the two commitments match to achieve a UTXO spend (settlement) on the mainnet.

Therefore, for the RGB client verification system, the key lies in the fact that independent P2P individuals like Alice and Bob need to maintain a "state copy" and simultaneously prove their legitimate ownership of a certain state to the mainnet. The coordination ability of these individuals usually requires a very complete "infrastructure." The current bottleneck of the RGB protocol network's inability to land on a large scale lies in the difficulty of building this infrastructure to manage the states, requests, and communications of off-chain clients.

The CKB public chain itself has the ability to store DA states and has the interactive operability of homomorphic binding. If this difficult infrastructure construction is replaced by the existing CKB chain, the bottleneck problem of RGB client verification will be solved. Yes, this is the fundamental reason for the emergence of RGB++.

Following this line of thought, the payment network model of the Lightning Network, which is a state channel model, can also land on the CKB public chain. After all, the bottleneck of the Lightning Network is also the problem of managing the interaction states between decentralized Lightning Network nodes. Imagine that the originally decentralized and complex off-chain operation "black box," if it can be efficiently implemented on an existing public chain, the landing and application process will naturally be faster. For example, state channel period management, UTXO billing and settlement, on-chain state certification, simplified P2P communication, and so on.

Taking the issuance of Inscription assets as an example, after the Inscription assets issued on the BTC L1 mainnet are MINTed under the Fomo trend, the assets fall into an extremely low circulation state with high turnover costs. How can these assets achieve efficient circulation with the help of the CKB public chain?

1. First, issue and MINT the Inscription assets on the mainnet, which can also be MINTed through the CKB network, but the CKB public chain actually assumes the role of "proxy" for infrastructure, helping users send transactions to MINT Inscription assets from the CKB public chain to the mainnet;
2. All Inscription assets will exist simultaneously on both the BTC mainnet and CKB. When the mainnet Inscription assets are successfully MINTed, they can be twinned through Leap for trusted L1 and L2 interoperability, and the CKB's DA network will transform into 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 interactive method of RGB++ (one-time sealing commitment). When users Leap the assets to the CKB public chain, the shadow assets represent the original assets efficiently circulating within the DeFi, gaming, and other application ecosystems on the CKB. CKB will record every change in state and complete the state update on the mainnet when the user requests to Leap the assets back to the mainnet. (The MINT behavior occurring on the mainnet with high fees can be understood, but subsequent circulation and interaction on the CKB chain can significantly reduce fees.)

In my opinion, the CKB public chain itself is a very complete UTXO structure layer2 framework. Its Cell model can homomorphically bind UTXO on BTC, allowing assets to interoperate between BTC and CKB layer2 without the need for cross-chain bridges (not migration, abstractly understood as quantum entanglement of state synchronization). In addition, the high-performance Turing-complete smart contract execution of the CKB chain will also address the issue of managing states without a main contract in the UTXO.

How to achieve this? This is because the Cell state of CKB has the ability to globally manage states. If there are conflicts between states in different Cells, such as containing two conflicting states of commitment, CKB will reject the issuance of one of the Cell commitments to protect the security of asset state updates. Essentially, this demonstrates the strong programmability of the CKB public chain. It should be noted that even Ethereum's layer2 solution Plasma cannot achieve similar Turing-complete extensions.

Therefore, if we want to accelerate the landing of BTC layer2, I would vote for the camp representing UTXO homomorphic binding.

Although the CKB public chain is a successful UTXO paradigm for BTC layer2, how can it represent the mainstream camp alone? Therefore, CKB has introduced UTXO Stack to expand its camp size.

In this situation, it's like when Vitalik said ZK-Rollup is the endgame, everyone rushed into the ZK field to build layer2. If Satoshi Nakamoto were to come out and say that UTXO homomorphic binding is the orthodox BTC Layer2, UTXO Stack would probably become the basic framework for the rapid construction and deployment of layer2. The Stack strategy is like a strategic upgrade to OP Stack for OP-Rollup.

In conclusion, the recent quietness of the secondary market will undoubtedly bring pressure to the builders in the primary market. The previous chaos may have been considered as prosperity, but when things calm down, the lack of standards, regulations, mainstream narratives, and unresolved core issues (liquidity) of BTC layer2 will become insurmountable challenges. Therefore, in the low ebb of projects like Runes, it undoubtedly gives the CKB public chain representing the UTXO homomorphic binding camp a "favorable wind" moment.

Note: This article is purely from a technical logic perspective, to advocate for the CKB public chain representing the UTXO homomorphic binding BTC layer2, and should not be used as a reference for secondary market investment advice.

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