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TVL Is Fake News
Bitcoin dapps are misleading potential users.
2 July 2024 · Block Height 850350 · Bitcoin Price $63K
There’s hundreds of millions of dollars ‘locked’ on Bitcoin L2s, but does this actually mean anything? Who is using these so-called apps?
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Rebar Labs raises $2.9m for Bitcoin MEV markets
The Bitcoin TVL and Dapps Wasteland
If you weren’t around for the 2021 DeFi cycle you may still have some green around the ears about how a user “ecosystem” is jumpstarted. You may look at a simple chart of the “total value locked” (TVL) in a particular protocol, see that it’s going up, and assume that users and builders are flocking to the project.
However, these seemingly vibrant financial ecosystems are easily gamed, and what may seem like +50 decentralized apps (dapps) on a fancy new Bitcoin “Layer 2” might actually just be a barren landscape of spoofed staking pools & useless token launches.
I can cut to the chase and just tell you that the metric you should probably care about the most is user interactivity.
That said, let’s take a look at how disorienting it is to track these things.
The BSquared Network boasts 2 million+ users & 45 million+ transactions and Merlin Chain as it’s largest “Execution Layer.” As we pointed out a couple weeks ago, BSquared’s connection to Bitcoin is tenuous at best, despite its well funded team and deep stack of dapps in it’s ecosystem. As our friends over at BitcoinLayers have found, BSquared users trust the network as much as a centralized exchange such as Coinbase (or more, due to it’s lack of public audits and murky jurisdictional oversight).
Regardless, BSquared has around 60 Dapps in it’s ecosystem. Poking around these apps you’ll find an overwhelming number of them are just the same yield bearing swap/staking DeFi tool but plugged into the EVM-on-Tendermint sidechain Rube Goldberg that is BSquared. Additionally, the meat and potatoes of this staking TVL is really just liquid Staked ETH tokens.
So we must ask: Is this even meaningful to track? Is Bitcoin actually used somewhere further down this rabbit hole? (It appears you have to go pretty deep to figure out how it’s loosely associated with Bitcoin).
The above “ecosystem” chart for “BEVM” seems as fake as supermarkets in North Korea (they know we know, right?). “Bido”’s logo is literally stolen from Bitcoin’s iconic Breez Wallet and “Bitena” takes you to a site with no metrics populated and no working links except a twitter with clearly purchased followers.
Ecosystem “expansions” for EVM-style chains are about as low-lift as it gets. While it might seem incredibly impressive that these laundry lists of staking-heavy Dapps have joined forces with a hot new Bitcoin L2, it’s questionable whether that’s a meaningful indicator of ecosystem sway. In most cases, the dapp operator simply adds another EVM contract to their software and updates the website frontend to show a higher number of users.
This isn’t a slight on all layers that advertise their TVL, dangle yield/points incentives to users who bridge their assets over earlier. Mezzo has a fairly simple approach right now: bridge your BTC or “tenured” DeFi assets like crvUSD over, points start accruing, and the future roadmap for the project is focused & coherent.
A counterpoint: if the Ethereum ecosystem doesn’t seem to retain these apps & this liquidity, perhaps Bitcoin will. Many of these protocols do represent serious amounts of capital, and perhaps it’s a game of figuring out which Bitcoin L2s can best straddle the EVM and BTC chasm. Perhaps this is actually a goldrush and we’re trying to figure out which is the best designed & marketed shovel.
To the largely Bitcoiner audience reading this, I think the main takeaway should be a point that I’ve been making for over a year now in the post-Ordinals Bitcoin landscape: Observe how other blockchains (notably Ethereum) have learned from their past sins — the same tricks can and will be tried on Bitcoin’s virgin, unspoiled blockspace. We have the playbook this time around.
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