The rapid growth of Bitcoin Layer 2 has led to the emergence of many projects of varying quality in the market. Many of these projects are merely marketing themselves under the name of Bitcoin Layer 2 without bringing any real innovation or improvement. In response to this, Mononaut, the founder of Mempool, has criticized Bitcoin Layer 2 and used the Mezo project, led by Pantera, as an example.
Bitcoin Layer 2 projects are popping up like mushrooms after rain, with as many as 73 projects in the X Account BitVM Chinese community alone. However, many projects are launching under the narrative of Bitcoin Layer 2 without actually making any substantial progress, resulting in a mixed bag of project quality.
In response to this, Mononaut, the founder of the Bitcoin browser Mempool, criticized the Mezo project, which raised $21 million in funding led by Pantera, and pointed out that Bitcoin Layer 2 projects should not have the following seven characteristics. This comment was later retweeted by Casey Rodarmor, the founder of Ordinals, who commented that “this is a fact.”
Mononaut’s seven criticisms of Bitcoin Layer 2 projects are as follows:
1. Lack of unilateral exit function: If Bitcoin Layer 2 does not support users to unilaterally exit, then it is essentially a multi-signature wallet rather than a true Layer 2 solution. (Note: Unilateral exit means allowing users to directly withdraw their assets from the Layer 2 back to the Bitcoin main chain (L1) without the consent or intervention of any third party.)
2. Involvement of venture capital and token issuance: Bitcoin Layer 2 projects with backgrounds in venture capital and self-issued tokens are essentially pump-and-dump scams.
3. “Mutual benefit rewards” based on friends’ deposits: Bitcoin Layer 2 projects that offer mutual benefit rewards based on friends’ deposit amounts are actually pyramid schemes.
4. Reliance on Ethereum contracts controlled by a single entity: If Bitcoin Layer 2 is backed by Ethereum contracts controlled by a single entity, there is a risk of being scammed (Rug).
5. Long-term lock-up reward mechanism: Bitcoin Layer 2 projects that encourage long-term lock-up of assets for rewards are essentially a variation of Hex (a well-known crypto Ponzi scheme).
6. Claiming to be native to Bitcoin but actually Ethereum multi-signature wallets: Projects that claim to be native to Bitcoin Layer 2 but are actually Ethereum multi-signature wallets are affinity scams.
7. Lack of technical details and emphasis on investment returns: Bitcoin Layer 2 projects without technical whitepapers that only focus on how to deposit BTC and calculate returns are no different from Bitconnect (another well-known Ponzi scheme in the crypto world).
These criticisms by Mononaut align with the three key standards set by Bitcoin Magazine for Bitcoin Layer 2 solutions. Only Layer 2 protocols that meet these standards will be included in their coverage:
1. Use Bitcoin as the native asset: L2 must be fundamentally designed to use Bitcoin as its primary token or accounting unit, and there must be a mechanism to pay transaction fees in Bitcoin for the L2 system. If there are tokens, they must be backed by Bitcoin.
2. Use Bitcoin as the settlement mechanism for executing transactions: L2 users should have control and be able to return assets to L1 through a mechanism (trusted or trustless).
3. Dependence on Bitcoin’s functionality: If the Bitcoin network completely fails but the related system can still operate, then it is not Bitcoin L2.
This aligns with Mononaut’s criticism of projects that claim to be native to Bitcoin but do not directly rely on Bitcoin technology, emphasizing that true Bitcoin Layer 2 should be closely connected to the operation of the Bitcoin network.