Botanix’s decision to wind down operations has thrown a harsh spotlight on the Bitcoin layer-2 sector. In its shutdown message, the project made no attempt to soften the blow, saying “it did not work,” at least not in the current market and not on the expected timeline. Botanix had been part of a broader group of teams promoting Bitcoin as a base for DeFi, staking, zero-knowledge rollups, and smart-contract use cases. Its conclusion was blunt: real users are not yet gathering around the idea of making Bitcoin more programmable and more active inside financial applications.
Market data leaves little room for easy optimism. DefiLlama shows Ethereum at roughly $39 billion in total value locked, while Bitcoin’s onchain DeFi activity remains below $5 billion. That gap stands out even more because Bitcoin’s total market value is several times larger than Ethereum’s. Among individual projects, Rootstock, one of the oldest Bitcoin smart-contract platforms, holds about $101 million in TVL. Citrea, a newer Bitcoin zero-knowledge rollup, has around $23 million in stablecoin market capitalization.
Builders are moving away from the “Bitcoin’s own Ethereum” pitch
Teams still building in the segment argue that Botanix’s collapse does not prove Bitcoin utility is finished. Their view is narrower and more practical. The market, they say, is abandoning the earlier assumption that Bitcoin needs a parallel version of Ethereum or Solana. Babylon co-founder David Tse said many Bitcoin layer-2 projects ran into trouble because they were trying to bootstrap an entirely new economy.
Babylon’s strategy is to take bitcoin into markets that already have liquidity rather than create a new app ecosystem from scratch on Bitcoin. Tse said the project’s first use case is bringing bitcoin to Ethereum, pointing to Aave as the largest DeFi protocol there. That distinction is central to his argument. Wrapped bitcoin products such as WBTC, Coinbase’s cbBTC, and Circle’s newly announced synthetic bitcoin product already let BTC circulate in DeFi. Still, Tse said many holders do not want to surrender custody or legal claim to their bitcoin in exchange for synthetic representations.
Bitcoin layer-2 projects are being pushed toward narrower use cases
Chainway Labs co-founder and CEO Orkun Mahir Kılıç, whose company is developing Citrea, offered a sharper criticism of the sector’s earlier ambitions. In his view, it makes little sense for a Bitcoin layer-2 to launch and immediately try to do what Solana already does. Trading, lending, consumer apps, and perpetual futures are fields where established ecosystems already exist. Repeating that model as a general-purpose blockchain is a difficult sell.
Kılıç said Bitcoin layer-2s should focus on products made possible specifically by Bitcoin’s security and settlement properties. He acknowledged there are still unresolved opportunities in the layer-2 market, but competing head-on with Ethereum-style applications from day one is hard to execute. Rootstock Labs CEO and co-founder Diego Gutierrez Zaldivar added another lesson from Botanix’s shutdown: solving the technical problem is only part of the job. Building a functioning blockchain ecosystem is much harder.