The Bitcoin L2 Inflection Point is Near, and BTCFi Hasn't Even Started

A Conversation with Kevin Liu, Core Contributor to GOAT Network

From Ethereum Layer 2 to the Bitcoin Ecosystem: The Origin and Positioning of GOAT Network

Q: First, could you briefly introduce yourself and the GOAT Network project?

Kevin: I come from a product background and excel at building and scaling products from scratch. Between 2010 and 2016, I worked on a mobile internet application that allowed users to watch live TV broadcasts on their mobile devices. Thanks to the product’s simplicity and favorable market timing, it achieved 160 million downloads, with peak daily active users exceeding 1 million.

In 2019, we began exploring a new direction, and in 2021 officially launched Metis, an Ethereum Layer 2 project. Metis was among the earliest Ethereum Layer 2 projects to go live and continues to operate stably today. By 2023, we shifted our focus to the ZK (zero-knowledge proof) space. At the time, the industry consensus was that OP (Optimistic Rollups) was the present, while ZK was the future, and we wanted to get ahead by investing in the future technology track.

Through deep exploration, we realized that ZK is a highly robust foundational technology. It can generate ZKPs (zero-knowledge proofs) for consensus mechanisms or transactions at the chain’s base layer and transmit these proofs to other chains. This unlocked immense potential for enabling cross-chain liquidity.

Currently, consensus mechanisms across different chains are not unified, and there’s no secure mechanism to enable true interoperability between chains. While cross-chain bridges exist, they come with numerous security issues. Our initial motivation for pursuing ZK was to create a new foundational architecture using zero-knowledge proofs and ZKVM (zero-knowledge virtual machine) to achieve cross-chain liquidity and consensus interoperability.

However, in practice, we found that ZK is too fundamental. Directly integrating with every chain would resemble a traditional B2B business model. In reality, very few chains have the capability or willingness to adopt ZK at scale, and our strengths lie more in building consumer-facing (C-end) applications and platforms.

This led us to incubate GOAT Network in 2024. GOAT’s foundational architecture is built on ZKVM, integrated with BitVM2 technology, and combined with our self-developed decentralized Sequencer, forming a complete Bitcoin L2 infrastructure.

In simple terms, GOAT Network is a native ZK Rollup built on Bitcoin. GOAT Network was born from a mission: to address the two biggest challenges in BTCFi — security and sustainable yield. This vision defines both our origin and our current positioning.

Team Structure and Economic Design: Supporting the Operation of a Native BTCFi Project

Q: What is the current size of the GOAT Network team, and how is the team structured?

Kevin: GOAT Network is globally distributed team of approximately 30 members. Nearly 20 of them are facused on R&D across two core areas: 1. ZK infrastructure, which includes our zkVM develoment and the implementation of BitVM2; 2. chain integration, including chain integration and interactions with ecosystems like Ethereum, supported by a dedicated product team.

Beyond R&D, we’ve built a specialized economic design team to support our mission of sustainable Bitcoin-native yield. This is a truly interdisciplinary effort, combining Web3-native design with traditional financial expertise. It’s led by two core members:

● Professor Redouane, a finance professor at the University of Toronto and advisor to Canada’s largest pension fund.

● Dr. Eric, a financial engineering PhD from the University of Waterloo with experience across multiple global banks.

Rounding out the team, we have leads across strategy, marketing, and operations — all working in tight coordination to advance GOAT’s mission as a native BTCFi pioneer.

BTCFi Market Yet to Take Off, Layer 2 Still in Infrastructure Development Stage

Q: With Bitcoin’s price surpassing $110,000, there’s growing enthusiasm about building a full-stack ecosystem around Bitcoin. Yet both Bitcoin Layer 2 and BTCFi projects seem underwhelming in terms of token performance and public attention. Some even say ‘BTCFi is already dead.’ What’s your take on the current state of the BTCFi market?

Kevin: To assess BTCFi properly, we need to start with the right premise: real BTCFi adoption requires an environment that is both secure and scalable. While many Layer 2 projects claim to serve Bitcoin, most still fall short of inheriting Bitcoin’s native security guarantees.

From our observations and conversations with industry stakeholders over the past two years, it’s clear that the Bitcoin Layer 2 market hasn’t truly started. Many so-called “L2s” are simply sidechains or custodial bridges. They lack essential attributes like trustless transaction finality, permissionless exit, or mainnet-level dispute resolution — all of which are required for BTCFi to be credible.

That’s why the buzz we’ve seen in the past felt more like speculation than substance. But things are changing. Infrastructure is quietly maturing, and we’re approaching a technical inflection point — much like what happened before Ethereum’s OP Rollup standard gained traction. Back then, many scaling solutions coexisted, but once OP Rollups offered a model that balanced simplicity, security, and developer usability, the entire ecosystem shifted.

We’re seeing signs of a similar shift in Bitcoin now. For example, BitVM2 and StarkWare’s ColliderVM are introducing computational designs that constrain malicious behavior without compromising Bitcoin’s trustless foundation. BTCFi isn’t dead, and it hasn’t even truly started. Once technical consensus forms and native security is achieved, real capital — whales, institutions, and long-term BTC holders — will follow. We are approaching that moment.

How Does BTCFi Balance Security and Yield? GOAT’s Mechanism Design Philosophy

Q: Many people are wondering whether Bitcoin really needs to embrace “Fi.” Given the diverse profiles of Bitcoin holders — miners, mining pools, sovereign funds, or publicly listed companies — their needs vary significantly. How do the micro-level demands of these different types of holders inform BTCFi product design? You also mentioned that Bitcoin currently lacks native yield mechanisms. So, how can we find a convincing balance between “security” and “yield” in this context?

Kevin: Absolutely, that’s a critical point. Over the past two years, we’ve had in-depth discussions with various BTC holders, including miners, mining pools, sovereign funds, retail investors, and high-frequency traders in DeFi. The common thread is that most view Bitcoin as digital gold, aiming to hold it long-term for value preservation. However, real-world operational or financial needs often force them to sell portions of their Bitcoin.

From this perspective, nearly everyone has a demand for BTC yield generation. Across all our conversations, security consistently emerges as the top concern: “You say you can help me generate yield, but how do I know my Bitcoin is safe?”

What BTC holders want is simple but non-negotiable:

● If their assets are used, they must remain non-custodial.

● If something goes wrong, they must retain unconditional exit rights.

● And above all, the system must inherit the security guarantees of Bitcoin’s mainnet.

Most solutions in the past have failed precisely because they compromised on one or more of these principles. To build real trust and adoption, BTCFi must inherit the security of Bitcoin mainnet.

At GOAT Network, we believe this security requires five essential capabilities:

1. L1 Settlement Finality: All Layer 2 transactions must ultimately settle on the Bitcoin mainnet.

2. Onchain Arbitration: In the event of disputes, L1 miners — not centralized MPC committees — should serve as the final arbiters.

3. Unconditional Exit: Even if all nodes act maliciously, users can run a node independently to retrieve their BTC. This design follows the principles of “permissionlessness” and “credible neutrality,” fostering trust in Layer 2 among users.

4. Trust-minimized Bridging: BTC must move between L1 and L2 without relying on third-party custody or signatures.

5. Decentralized: The L2 must not depend on a single operator. GOAT Network emphasizes a decentralized Sequencer architecture. These Sequencer nodes are open, transparent, and permissionlessly accessible, with mechanisms to penalize malicious nodes and increase the cost of bad behavior, ensuring the credible neutrality of Layer 2.

Once this security foundation is in place, only then do we consider the yield model. We see many BTC yield opportunities in the market lack nativeness: they rely on centralized arbitrage strategies, deposit funds into multisig Safes, or force users to swap into highly volatile altcoins. These approaches may resemble DeFi, but they don’t respect the values or constraints of BTC holders.

GOAT Network’s mechanism is fundamentally different:

● Gas fees on L2 are denominated in BTC, and BTC moves between L1 and L2 using BitVM2’s trust-minimized bridge, making BTC on L2 a native extension of mainnet BTC.

● Sequencer nodes process transactions, earn BTC gas fees, capture MEV profits (also in BTC), and receive GOAT token mining rewards.

● As transaction activity on Layer 2 increases, Sequencer nodes earn more BTC, and these profits are redistributed to BTC holders participating in the ecosystem, creating sustainable on-chain native yields.

This is the business model we are building. Through GOAT Network, we aim to create a BTCFi ecosystem that is secure, decentralized, and capable of delivering true on-chain native yields for BTC holders. This is a capability that has long been absent in the BTCFi space and is a genuine market need.

Retail, Institutions, and Asset Types: Reconstructing the Future Narrative of the Bitcoin Ecosystem

Q: Let’s shift perspectives and look at asset issuance. I think the excitement around the Bitcoin ecosystem may have originated with Ordinals and BRC-20. These assets and transactions drew attention to the Bitcoin network, attracting users due to their speculative potential. However, it seems that beyond staking, projects like BRC-20 and other high-performing ones offer few participation opportunities. Without new assets, users lack the motivation to stay engaged. So, how do you view the future narrative of the Bitcoin ecosystem? Does it need a new asset form, or are there other ways to reignite retail participation?

Kevin: I believe the future narrative of the Bitcoin ecosystem cannot simply replicate Ethereum’s path. Bitcoin’s asset base is structurally different: its primary holders are institutions, sovereign funds, mining pools, and long-term whales. By contrast, Ethereum’s ecosystem has always been more retail-driven.

That said, retail participation opportunities remain important. The Ordinals craze showed that providing easy-to-understand, low-barrier, and wealth-generating participation methods can still draw retail interest. However, due to their design limitations, inscriptions struggle to sustain long-term enthusiasm.

Returning to the Bitcoin ecosystem itself, security remains the foundation. Once a “trustless” entry and exit mechanism between Layer 2 and Layer 1 is established to build trust, we can offer differentiated products tailored to various user profiles.

For institutions, mining pools, and sovereign funds, which are extremely risk-averse, stable yields are a necessity. We designed SafeBox, a product akin to fixed-term wealth management. BTC assets are time-locked and mapped via an official bridge to participate in Layer 2 activities, ensuring users retain absolute control over their assets while meeting their need for steady yield generation. For example, a user locks their assets for three months. During this period, the assets remain locked in their wallet, while a chain-mapped, time-restricted version of these assets is used for various operations on Layer 2. Once the lock period ends, the Layer 2 assets are destroyed, and users can freely access the assets locked in their wallet.

For retail investors with a high risk appetite, who aim to achieve big gains with small investments, BTCFi offers exciting new possibilities. High-volatility products like GameFi and GambleFi can spark retail enthusiasm.

And beyond DeFi, there’s massive potential in new asset classes on Bitcoin. Real-world assets (RWAs), decentralized stablecoins, and institutional-grade tokenization are gaining momentum, especially in this more regulatory-friendly climate. These innovations will add new dimensions of utility and value to Bitcoin — beyond simply holding or speculating.

So to answer your question: yes, Bitcoin does need new forms of assets, but more importantly, it needs secure infrastructure that can enable both institutional-grade utility and permissionless retail participation. That’s what will define the next chapter of Bitcoin’s ecosystem.

Technical Standards for Bitcoin Layer 2: GOAT’s Five Core Metrics

Q: How do you define “Bitcoin Layer 2”? What mandatory standards should it include? I recall Bitcoin Magazine previously proposed some definitions, such as: it must use Bitcoin as the native asset, transactions must settle on Bitcoin, and it must demonstrate dependency on the Bitcoin network — meaning if the Bitcoin network goes down, the system should not function, as that would indicate it’s not a Layer 2. So, how does GOAT define Bitcoin Layer 2?

Kevin: This’s an excellent question. In fact, we recently published an article calling for the community to discuss Layer 2 baseliness. With the evolution of technology and the emergence of new solutions, it’s worth revisiting whether early definitions still hold. Beyond Bitcoin Magazine, we’ve also seen third-party platforms like Bitcoin Layers attempting to define Layer 2 and list standards, but some “off-chain systems” have been included, making the criteria somewhat vague.

At GOAT, we categorizes Layer 2 baselines into “mandatory” and “optional.” There are five mandatory standards and three optional ones. The five mandatory standards are the hard criteria for determining whether something is a true BTC Layer 2:

First: The transaction state on Layer 2 must be anchored and ultimately settled on the Bitcoin mainnet. If all operations on Layer 2 are completed on its own chain, it’s essentially an independent chain, not a Layer 2.

Second: In cases of fraud or malicious behavior on Layer 2, users must be able to initiate a challenge directly on the Bitcoin mainnet, with Bitcoin miners arbitrating, rather than relying on Layer 2’s multisig, MPC, or federated governance to resolve disputes. In other words, dispute resolution must depend on the Bitcoin mainnet.

Third: There must be a permissionless forced exit mechanism. Even if all Layer 2 nodes act maliciously, users must be able to exit unconditionally without relying on custodians or approval processes. Users should be able to retrieve their assets by running their own node.

Fourth: The bridge between Layer 2 and Layer 1 must be non-custodial and non-multisig, avoiding reliance on federated or offline governance structures. We advocate for a one-of-N or zero-of-N assumption, where the bridge can operate as long as a single honest node exists.

Fifth: Layer 2 must uphold Bitcoin’s core ethos, such as decentralization, censorship resistance, and the ability to continue operating and self-recover even if some nodes go offline.

Next, the three optional standards are aimed at enhancing user experience and system scalability:

First: A “fast and efficient exit mechanism.” Currently, with native ZK Rollup designs, withdrawing from Layer 2 to Layer 1 takes 14 days, which significantly impacts capital efficiency. GOAT is working on mechanism improvements to shorten this period to less than 1 day.

Second: “BTC as the native Gas.” This ensures consistency and makes the business model more feasible. For example, we collect BTC as Gas Fees through the Sequencer and redistribute them to BTC stakers.

Third: “Robust Economic incentive mechanisms.” A healthy L2 must coordinate sequencers, challengers, operators, and provers through well-designed incentives. Game-theoretic stability is crucial to prevent collusion or malicious activity.

Our primary focus for improvement is the exit mechanism. By introducing the concept of universal operator, which consolidates and rotates multiple roles, we reduce game-theoretic risks. Through multi-round challenge mechanisms, we enhance challenge efficiency, aiming to compress the 14-day exit period to within 1 day.

The reason we chose BitVM2 is that, among all current approaches, it best aligns with the core standards outlined above. It combines ZK and OP mechanisms, generating ZKPs on Layer 2, submitting them to the Bitcoin mainnet, and verifying them in the BitVM2 environment without requiring changes to Bitcoin’s existing OP Codes, fully inheriting the security of the BTC mainnet.

Additionally, BitVM2’s design is simple and practical, resembling the path of OP Rollup during the early explosion of Ethereum Layer 2. It offers strong engineering feasibility and significant market potential. In our view, this is currently the most promising technical path for Bitcoin Layer 2 to become the “standard, implementable engineering solution.” Looking ahead, we’re introducing BitVM3, which further reduces the fraud proof window, enabling near-instant dispute resolution and pushing the exit latency close to zero.

Building on Sequencer and BTC Gas Model: How GOAT Achieves Native Yields

Q: It’s clear that GOAT is pursuing a dual-track development path of “technology + economic model.” You mentioned earlier when discussing team composition that you’ve brought in members with traditional finance backgrounds to help design the economic model. Could you elaborate on how GOAT’s economic model is structured and how it achieves native BTC yield?

Kevin: Absolutely. GOAT’s economic model is built on four core pillars: BTC-denominated gas fees, a decentralized sequencer architecture, a proof-of-stake (PoS) mechanism, and an integrated tech-economic framework that ties everything together.

On GOAT Network, Sequencer nodes are responsible for packaging transactions, producing blocks, and submitting them to Layer 2. For each block processed, nodes earn rewards, including:

● Gas Fees paid by users, denominated in BTC

● MEV (Maximal Extractable Value) rewards

● Additional mining incentives in the form of GOAT tokens

Since Sequencers are decentralized, we use a POS mechanism to determine block production rights: nodes with higher stakes have a higher chance of producing blocks. This creates participation opportunities for BTC holders, who can stake their BTC to a specific Sequencer node, essentially “betting” on that node. When the node successfully produces a block, the rewards are distributed proportionally to the stakers.

The key innovation of this model is that the yields are driven by real on-chain activity. The more active Layer 2 is, the more blocks are produced, the higher the Sequencer’s revenue, and the greater the returns distributed to BTC holders. It creates a sustainable, demand-driven yield loop.

We’ve modeled this in detail: assuming 2 transactions per second and 2,000 BTC staked, the overall APY could reach 5%–8%. This is far higher compared to current BTC yield opportunities, which typically fall below 1%. Importantly, users can safely exit to Layer 1 at any time through the permissionless exit mechanism, eliminating concerns about asset custody risks.

In summary, GOAT’s economic model is a rare architecture in the BTCFi space that combines “native yields + risk-friendliness + sustainable scalability.” It not only attracts risk-averse institutional users but also opens new yield-generating channels for BTC holders seeking stable returns. As Layer 2 adoption grows, the positive feedback loop of the GOAT model will become increasingly pronounced.

The Functional Role of GOAT Token: A Multi-Faceted Asset for Consensus, Incentives, and Governance

Q: When you discussed the economic model earlier, it seems you didn’t mention GOAT Network’s native token. What role does the GOAT token play in the overall economic model?

Kevin: The GOAT Network token “GOATED” plays four distinct roles in our system:

First, network security and POS consensus staking.

In GOAT’s dual-staking model:

● BTC is staked for yield distribution.

● GOATED is staked to determine Sequencer influence, block production weight and network security.

This dual-layer design ensures that the network is both economically aligned (via BTC) and secured against attacks or centralization. In short, GOATED helps maintain decentralization and protects against malicious actors.

Second, yield amplification factor. Compared to staking BTC alone, users stake GOATED receive higher return. GOATED offers a “multiplier effect” on yields. This “yield multiplier” effectively encourages users to stake GOATED rather than solely locking BTC.

Third, mining incentives. GOAT Network employs a mining-based token issuance model. Sequencer nodes don’t just earn BTC Gas Fees and MEV, and they also mine GOATED when processing transactions. This aligns long-term node operation incentives with ecosystem growth.

Fourth, governance functionality. GOATED also serves as the governance token of GOAT Network. It gives holders the right to vote on protocol upgrades, economic parameters, and future roadmap decisions, ensuring that the system evolves under community-driven governance.

GOATED is a quintessential multi-role native token in our economic model: it secures the network, drives yield incentives, carries governance authority, and supports ecosystem growth through a mining model. This design enables the entire system to create sustainable, positive economic momentum.

Strategic Choices Amid Liquidity Fragmentation Challenges: GOAT’s Pragmatic Assessment and Long-Term Goals

Q: Regarding the “liquidity fragmentation” issue often faced by Bitcoin Layer 2 solutions — where assets deposited into a specific Layer 2 become isolated within that ecosystem, making it difficult to circulate freely or even exit effectively — how does GOAT address this cross-Layer 2 liquidity problem?

Kevin: This is a critical and complex challenge, and one that, in my view, won’t be resolved in the short term.

The core issue lies in the fact that different Layer 2s operate under fundamentally different security assumptions, execution models, and bridge mechanisms. As a result, permissionless, trustless liquidity transfer across L2s remains extremely difficult in the current Bitcoin ecosystem. Many so-called Layer 2s are still sidechains, lacking true interoperability and native security. In this environment, fragmentation is inevitable.

At GOAT, we approach this problem with pragmatism and long-term intent.

In the near term, our strategy is to attract native BTC liquidity directly into the GOAT ecosystem by making it the most secure and usable destination for BTC holders. That’s why we’ve prioritized infrastructure features like permissionless forced exits, native BTC gas fees, and a trust-minimized bridge architecture. The goal is to reduce user friction and increase confidence in participating on Bitcoin Layer 2.

At the same time, we remain committed to our long-term vision: GOAT Network was designed from day one with ZKVM-based unified consensus in mind — a future in which different chains, even with varied architectures, can share proofs and interoperate seamlessly through zero-knowledge infrastructure. This would eventually allow for native, secure cross-chain liquidity without requiring centralized relayers or trusted bridges.

But I want to be candid: This is a multi-cycle goal. The technology, the infrastructure maturity, and the broader market coordination simply aren’t there yet. We’re working toward it but we recognize that it will require more time, more iteration, and broader ecosystem alignment.

Can Bitcoin ETFs Participate in Layer 2? The Potential Synergy Between Institutions and BTCFi

Q: Now that institutions like BlackRock have entered the Bitcoin ETF space, will they participate in Bitcoin Layer 2 in the future? Additionally, is it possible for Bitcoin ETFs to become part of BTCFi?

Kevin: I believe many of these institutions are actively exploring progress in this area. Currently, the Bitcoin held by ETFs is highly restricted due to SEC regulations, which require a “same-way-in, same-way-out” custodial model. This effectively prohibits the direct interaction with on-chain protocols or DeFi applications.

However, the demand for sustainable BTC yields among institutions is very clear. We’ve already seen the conversations in the Ethereum ecosystem around ETH EFTs participating in staking. Naturally, institutions are beginning to ask: Can Bitcoin Layer 2 unlock similar, yield-generating pathways safely and compliantly?

I believe the answer will eventually be yes, but it hinges on two critical factors: It’s not enough to technically inherit Bitcoin’s native security guarantees, and there also needs to be a strong foundation of trust, both at the community level and through structured collaboration with institutional players.

Only with both elements in place will institutions feel confident enough to deploy their BTC into Layer 2 and participate in BTCFi use cases. At the same time, I expect to see an entirely new class of financial products emerge, especially around real-world assets (RWAs) and Bitcoin-backed stablecoins, tailored to institutional needs and compliance frameworks.

Of course, all of this must take place within a compliant framework. Navigating regulatory clarity is a parallel challenge we must tackle as we continue advancing BTCFi and Bitcoin Layer 2 infrastructure.

Conclusion: The Industry Hasn’t Truly Started, Confidence in BTCFi and Bitcoin Layer 2

Q: Is there anything else you’d like to share with the community?

Kevin: What I really want to emphasize is this: don’t be misled by the noise.

There are voices out saying “BTCFi is dead” or that “Bitcoin Layer 2 has no future.” But from where we stand, this industry hasn’t even truly begun. The real inflection point hasn’t arrived. What we’ve seen so far is just the appetizer, not the main course.

We’ve spent so much time discussing infrastructure, business logic, and new models because we see what’s coming: a massive wave of technical breakthroughs, market adoption, and commercial potential. And we’re not just observing it — we’re actively building in it.

To anyone listening: This is not a saturated market. It’s a blue ocean. The fundamentals are strong. The opportunities are real. The future of BTCFi and Bitcoin Layer 2 is far broader, deeper, and more promising than most people imagine. We’re incredibly confident in this space, and we invite more builders and pioneers to join us in shaping what’s next.

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