Project Background and Technical Architecture
Merlin Chain is a Bitcoin Layer2 solution led by the Bitcoin Frontier Fund. It aims to unlock the liquidity of native Bitcoin assets (such as BRC-20 and Ordinals NFTs) through EVM compatibility. In Q1 2024, the project completed a $28 million seed round with investors including Coinbase Ventures and HashKey Capital, reaching a valuation of $850 million.
This Token Insights article delves into how Merlin Chain activates the Bitcoin ecosystem through its technical architecture, analyzes its tokenomics and potential risks, and evaluates the competitive landscape in the Layer2 sector.
Its core technology combines ZK Rollup with Bitcoin’s Taproot upgrade, using Taproot scripts to enable batch verification of ZK proofs. The transaction cost per operation is as low as $0.001 (a 98% reduction compared to Bitcoin mainnet). Recursive proof compression allows each Bitcoin mainnet transaction to carry over 2,000 Layer2 operations. Its native cross-chain bridge supports seamless migration of BRC-20, Ordinals NFTs, and RGB assets to Layer2, safeguarded by threshold signature schemes. Cross-chain throughput reaches 3,000 TPS, with total value locked (TVL) growing from zero to $1.8 billion within three months.
Tokenomics and Market Dynamics
MERL has a total supply of 1 billion tokens, allocated as follows:
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40% for community incentives (airdrops, liquidity mining)
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20% for the team and advisors (4-year vesting)
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25% to private investors (2-year lockup)
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15% for ecosystem reserves
Token utilities include Layer2 gas fee payments (partially burned to control inflation), governance voting (to determine supported cross-chain assets), and staking rewards (APY of 12%-18%). Over 210 million MERL tokens are currently staked (52% of circulating supply). However, caution is advised regarding unlock pressure starting from Q3 2025 (daily selling pressure ~0.8% of circulating supply) and ecosystem reliance (80% of trading volume is concentrated on BRC-20 assets). Investors can track price movements and on-chain data in real-time via JuCoin’s MERL dashboard.
Market Competition and Regulatory Challenges
Merlin Chain faces several challenges:
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Technical reliance on third-party hardware clusters to generate ZK proofs may lead to latency issues;
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In terms of market share, Stacks holds 70% of Bitcoin smart contract developer adoption, while Babylon diverts funds through its staking protocol;
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From a regulatory standpoint, the U.S. SEC may scrutinize Bitcoin Layer2 networks, while the EU’s MiCA Act mandates registration for cross-chain bridge operators, raising compliance costs.
During the Binance Alpha Launch event, users needed at least 500 Alpha Points to redeem MERL airdrops at a 1:1.2 ratio, totaling 120 million tokens (12% of total supply). With Jump Trading providing market making, slippage dropped to 0.3%, though short-term speculation led to a 15% price swing on launch day. On the ecosystem side, Merlin Chain has partnered with Avalanche and Polygon to develop cross-chain liquidity pools, integrated Chainlink oracles for price security, and attracted top NFT marketplace UniSat to migrate to its Layer2—boosting processing efficiency by 30x.
Future Development and Ecosystem Roadmap
Merlin Chain plans to launch a privacy transaction module based on ZK proofs in Q3 2025, followed by a decentralized sequencer network in 2026 to mitigate single points of failure. It is also working with RedotPay to expand compliant fiat on/off ramps across Southeast Asia and the Middle East. Regulatory progress includes pre-approval from the Monetary Authority of Singapore (MAS), supporting institutional-grade custody of cross-chain Bitcoin assets. If successfully implemented, Merlin Chain may become the primary application layer gateway for Bitcoin’s ecosystem, activating over $65 billion in native asset liquidity.
Neason Oliver
