This is a text playback of the Merlin Monday livestream from January 6, 2025. You can watch the original video HERE.

Key Takeaways:

• Market Trends: AI is becoming a significant trend in the crypto space, signaling a shift in how tech is leveraged in blockchain projects.

• Merlin Eco Updates:

  • Continues to develop with BTCFi

  • Solv Protocol will be listed on Binance soon.

  • Timon x DuckChain: BTC Staking Yields

• BTCFi and the Future of Bitcoin Staking

  • Staking is becoming a key player with stable yields.

  • 「Real Yield」 come from active market and decentralized use, not just tokens.

  • Ongoing market participation drives sustainable growth.

• Outlook on MERL Tokenomics

  • MERL’s success relies on steady token growth, community engagement, and adoption via exchange listings and utility.

  • Merlin Chain can follow the path of Solana and Tron, overcoming skepticism to achieve broad success.

Q: Any latest updates for us?

Jeff: The latest update is that Bitcoin has been trending down for a while, facing some significant setbacks. Expectations were high, but the market reminds us that growth should always be organic and healthy. Setbacks are part of the process, but the real question is what we’ve achieved in this cycle. Two years ago, we saw the rise of inscriptions, followed by the meme super cycle, and new DeFi initiatives for Bitcoin. We've seen a lot of new narratives emerging, with AI gaining traction in recent weeks.

So, a lot is happening, but when you take a step back and evaluate, you have to ask yourself what kind of assets or projects you’re willing to hold for the long term. That’s a question everyone should be asking themselves. Overall, that’s what’s been happening these past few days.

Regarding Merlin, we are working hard to deliver a lot of developments. Last year, we had many great builders join us when we launched the mainnet. However, very few people experimented with the Solv protocol, and they pivoted to BTCFi, which is now getting listed this Thursday on Binance and several other exchanges. For users who participated in the Solv protocol early last year and still have their Bitcoin staked, they will have accumulated some points. Those who continue to stake their Bitcoin in the Solv protocol will likely see a good APY, especially considering Bitcoin was around $40K at the time. Holding Bitcoin in the Solv protocol would have at least doubled your profits, with some expected APYs of around 20%, but we will see.

There have been many early builders involved, and we have some partnerships in the works. For example, Timon is partnering with Duck Chain on staking. By the way, Shizzy, did you get your Bitcoin staked in Duck Chain?

If you haven't participated, you missed out. But for those who joined in the past few weeks, you've already staked your Bitcoin into a new chain. This project positions itself as a consumer layer for AI and related technologies. It's also getting listed on OKX this Friday. The key takeaway here is that by participating early in these projects, growing with the community, and engaging without spending money, you can see meaningful results—something we really appreciate. Additionally, there are many other projects that launched with Merlin last year. I'm confident that more than half of them will be going to TGE in Q1. It’s clear that a lot of hard work and time has finally paid off, and I truly hope all of these projects succeed.

Q: Jeff, where do you see BTCFi on Merlin heading in the next few months, and are there any breakout sectors you think could emerge, such as staking Bitcoin for yield, NFTs, or meme-fi?

Jeff: I don’t want to take all the credit, but we definitely kicked off the BTC staking era last year. Prior to that, many didn’t believe in BTC staking or bridging Bitcoin to other chains, or even using Bitcoin on other protocols. But we took a different approach last year, allowing people to stake their Ordinals, which are NFT or BRC-20 tokens. It turned out to be a huge failure.

When I say huge failure, I mean that the market volatility for these meme and altcoins was extreme. The price fluctuations were dramatic, so even though staking these tokens offered very high APYs—around 60% to 80%—the value of the tokens often dropped by 80% or even went to zero. This happened with Ordinals, and we have to admit it. It was bad for users because, if you had the token in your wallet, you likely wouldn't have sold it. But if you staked it, you would probably blame the person who recommended it.

That’s when we realized Bitcoin was likely the only option that made sense. Bitcoin is less risky, with its price being more stable and steadily increasing. So, whether the APY is 1% or 5%, at least your Bitcoin will be worth more than it was last year.

Bitcoin staking is now being introduced to the world. Before, if you held Bitcoin, you didn't earn any yield, but now at least there is some yield. Whether these yields are sustainable or not is up for debate, but many people have made money. In the coming months, BTCFi will likely see new protocols, but the key question remains: Can platforms like Solv and Babylon provide real yields for Bitcoin? By "real yields," I mean yields generated from actual activities, not just token rewards for staking.

Right now, the yields we are discussing are mostly from tokens allocated to stakers to increase TVL, making the project look attractive to VCs and exchanges, which then lead to listings and token rewards. I’m being very transparent about this. However, true yields should come from actual transactions and trading activities, as I’ve consistently pointed out over the past six months.

If we can see that shift, then Bitcoin staking could become a healthy, long-term activity. But before we reach that point, I still view it as a short-term phenomenon, and people should not get overly hyped about it. Every new innovation comes with risk, as there are always those who challenge the rules and push boundaries. We shouldn’t be too cynical about these early efforts, as everything in Bitcoin is still new.

Q：So where are you seeing the most activity on Merlin Chain in general? Is it is it mostly still on just MerlinSwap and people trading or have users migrated to some of the more experimental products?

Jeff: I believe Bitcoin has opened up possibilities for new developments. While I'm not suggesting it will bring a wide range of innovations, Merlin has certainly introduced several new concepts, such as Bitcoin lending and Bitcoin staking. Most of these projects have either been listed or are set to launch on BTC in a short period of time.

I believe opening this window of opportunity is important because, before, you could only trade ordinals, BRC-20, or Runes on Layer 1. Now, there are multiple ways to trade these assets, and trading on Layer 2 is much easier, faster, and cheaper. Many assets also have better liquidity on Layer 2, although not all, but the majority do. This is something we've already accomplished, but I anticipate that, as we heard last week, there are three proposals from different Layer 1 projects with substantial user bases (over 20-30 million market cap). These aren't small projects but relatively large ones. They aim to educate their users on trading on our platform, and we'll offer incentives to encourage users to bring their own assets or ordinals to start trading. I think people are beginning to realize that Layer 2 is the only change that allows users to trade on their own assets.

For example, if you have a Bitcoin asset, the only places where you can currently trade it are centralized exchanges or Web3 platforms like OKX, as they offer BRC-20 liquidity. No other platform provides that liquidity. If users want to engage in activities such as staking, voting, earning NFTs, lending, or trading perpetual contracts, these actions can only occur on Layer 2 solutions. It's not just Merlin; many Layer 2 platforms offer these capabilities. Currently, lending is the primary focus, and only a few platforms are implementing it. While this opens up new possibilities, the next phase requires significant effort to build upon. We need to attract more builders to develop for these opportunities.

For instance, if you want to launch an AI platform, you certainly cannot do that on Bitcoin Layer 1. Platforms like Virtuals, Base, and others on Ethereum have already demonstrated that. When new narratives emerge, Layer 2 ecosystems are the most equipped to adapt and scale quickly. This is another advantage of Layer 2.

Q: Do you see a future where BTCFi, particularly through Merlin Chain, becomes a key player in the AI-driven yield space, where users seamlessly use AI to find the best yields without even realizing they're interacting with Merlin? How do you think developments like Jake’s work with smart wallets and AI could play a role in this?

Jeff: I believe there are two key aspects. First, the ideal experience for users is one where they don't need to worry about bridging wallets or similar technicalities. The process should feel spontaneous and seamless. Second, I always strive to be transparent.

At this moment, I don’t think BTCFi is so large that users require an agent to make decisions for them. However, what you're suggesting will definitely happen in the future. Right now, the focus should be on building the necessary infrastructure, platforms, and tools to make this a reality. While it may not happen immediately, as BTCFi grows and more users engage with these activities, it will undoubtedly come to fruition.

Q: Jeff, as the founder of a Layer 2 crypto project, how do you evaluate the new trends that continuously emerge in the crypto space? With so many narratives popping up—some major and others short-lived—what is your internal process for assessing these trends and deciding which ones to bring to Merlin?

Jeff: When it comes to crypto, I believe a few key factors matter the most. First and foremost is liquidity. The success of projects like Pump.fun can be attributed to their ability to offer a new way to launch tokens with much better liquidity and safer procedures than before. In the past, when you saw a pool on platforms like UniSwap, there was always the risk of a rug pull. With Pump.fun, however, this concern is alleviated, and it provides substantial liquidity—something we didn't see even during the DeFi Summer, not even on Solana. So, liquidity is always the most important factor. If your protocol or product can bring more liquidity and provide an easier entry point for users, that is a significant and unique advantage, and that's what is driving innovation in Bitcoin. The challenge with most protocols today is the lack of liquidity. If you look at the data across various platforms, it's evident.

When you analyze data across platforms, the second crucial factor is always introducing something new. I believe that, compared to Web2, the current AI agents are still at a kindergarten level. This isn't a negative point; rather, it's just the beginning. Similarly, the metaverse games we've seen go through their lifecycle were also at a very basic stage. However, the narrative of "new" — new innovations, new experiences — resonates with users as the future of the tech industry. This narrative will undoubtedly attract attention, which is why AI has been gaining so much momentum in recent weeks.

The third critical aspect is the technology itself. For example, I’m a huge fan of BitVM. I believe it effectively addresses certain issues, unlike OP_Cat, which I’m not as enthusiastic about, though I know many people may disagree with me. As a tech enthusiast, I find BitVM to be a valuable solution. It resolves problems that were difficult to tackle before, such as bridging and Layer 0 issues, as well as integrating zk-rollups. While zk-rollups might be down at the moment, I believe they will eventually rise; it’s just a matter of time, efficiency, and cost.

In summary, there are three key factors to assess the success of a crypto project: liquidity, attention, and technological innovation or upgrades.

Q: Do you think people will actually bridge their BRC-20 tokens and runes to play in this new environment, especially considering the difficulty of getting people to move away from Layer 1, despite the bridge Merlin offers?

Jeff: It's difficult. As I've mentioned before, it's not necessarily because of any specific reason—if everyone were to bring their assets to Merlin Chain, the liquidity might improve, but that wouldn't necessarily drive up prices. The only things that could realistically double the price right now are listings on major exchanges like Coinbase or Binance. So, motivating users, especially current ones, is challenging. However, the intention behind this is to introduce a new narrative, encouraging people to try something different and see what comes next. This is a positive step, as innovation in the space is needed. But personally, I believe it will be hard to motivate users at this stage.

Q: Given the current liquidity-driven attention and how users are willing to go through great lengths for potential profits, do you think we're still early in the current cycle, or have we moved into a new paradigm with the emergence of BTCFi, ETF, and the detachment of communities? What's your outlook for the crypto industry over the next year?

Jeff: I believe we're in the middle of the cycle. Over the past few months, we haven’t seen many people making substantial profits, which is a sign that we're not in the peak of a bull market. Typically, during a bull market, everyone around you seems to be making money—buying new cars, houses, and even stories of teenagers becoming billionaires. These kinds of stories symbolize a market bubble. But right now, only Bitcoin is rising; Ethereum hasn't even reached its previous cycle high of $4,200, currently standing at around $2,900. So, while the bull market has started, it hasn’t fully materialized yet. We're currently in a resting phase where people are pausing and reassessing. I think this is the last window of opportunity. If Bitcoin remains weak for the next month or two, this period will be crucial. Whether you're trading or building, it’s important to use this time efficiently, working relentlessly to capitalize on the boom when it arrives.

Q: Jeff, I'm curious about the perspective from the East. Here in the West, we're in a bit of a bubble, but with the potential for crypto regulation in the US and possibly other regions, how significant is this to people in the East? Does the situation with the US administration, including the potential impact of the Trump administration, resonate with them at all?

Jeff: Yes, of course, it's a big deal. People always look to the Nasdaq first, then to Bitcoin, and then beyond. So it's definitely significant. I'm very bullish on the US market because, without ETFs and clear regulations, it's been difficult. Recently, many of my friends in Silicon Valley have observed that there are more builders and developers than ever, and they are incredibly bullish. In the past few years, doing anything in crypto was challenging, as everything was regulated and people were worried about legal issues. But now, somehow, they can pursue both crypto and AI, which is exciting. A lot of developers there may not be making significant money, but they've realized that AI and crypto can be integrated in very interesting and innovative ways.

In contrast to developers in Asia, who often focus on launching tokens to make profits when the market is good, many developers in Silicon Valley don't care as much about the market. They simply view the current environment as an opportunity to build, whether it's in three days, three months, or three years. I believe this is a healthy trend for new builders in the US, and it's something we've been missing over the past few years.

Q:Over the weekend that the AI currently in crypto is about two years behind what’s happening in Silicon Valley, and that we're just starting to see the initial push of it. When you talk to people in Silicon Valley, do you see this as well? Are we just scratching the surface with the AI that's coming?

Jeff: Compared to Web2, the AI agents currently in crypto are still at an early stage, but I don't see this as a negative. In fact, I believe Web3 users are much more engaged with AI than Web2 users. In Web2, people use tools like ChatGPT or AI for entertainment or companionship, without delving deep into the technology itself. However, in Web3, I've observed that users are more actively exploring and analyzing different AI tools, discerning which ones are better than others. This is a positive sign for builders entering Web3, as the user base is more engaged and knowledgeable.

The Web3 ecosystem is quite different from Web2; here, AI agents for DeFi, trading, and data are more popular than those for companionship. For example, building a virtual AI girlfriend on Twitter wouldn’t generate much interest because users are primarily focused on making money. The ecosystems are distinct, and I'm excited to see more AI products emerge in Web3. While many of the new AI-driven metaverse and AI-related projects haven't been impressive, I hope to see more convincing ones in the coming months.

Q: Jeff, as someone who has launched an L2 and seen significant success, how have your thoughts on the future of the MERL token evolved? Initially, governance tokens were popular, but now they seem to be deprioritized in favor of other models. How have your perspectives on the MERL token changed from its launch to today, and what does its future look like?

Jeff: I think most autonomous tokenomics are not genuine. For example, Bitcoin doesn't have any tokenomics, and neither do Arbitrum or Ethereum. Can anyone explain the utility of their token? Not really. While there are some stablecoins and DeFi projects with clear utility, I believe 99% of tokenomics in the market today are not meaningful. However, I think this will change in the future.

There are only two ways to make a token popular or establish it within a broader community: either you have attention, like with Dogecoin and meme tokens, where people are drawn to the community and its value, or you have a token that people actually use. That’s what happened with Solana, Virtua, and others. People wanted to launch meme tokens or AI agents to get rich, and in order to trade those tokens, they had to use platforms like Solana, Virtual, BNB, or Tron, which in turn brought more users to those ecosystems.

For Merlin Chain to thrive in the ecosystem, attract more users, and grow sustainably, the key is ensuring that the token price appreciates over time. Aside from that, increasing exchange listings, growing the community, and improving marketing efforts will certainly help, but long-term success depends on achieving broader adoption and utility.

The expectation is what drives the token price to higher levels. For Merlin Chain to remain in the ecosystem for the long term, to grow healthily, and to attract more users and builders, increasing the token's value is the most important goal we need to achieve. Beyond that, listing on more exchanges, expanding the community, and improving marketing will certainly help, but the key is that users who hold the tokens must be able to do something meaningful with them.

Building an ecosystem, whether it's on Layer 2 or Layer 1, is a challenging task and cannot be accomplished in a short time. Take Tron, for example—when it launched in 2017, no one cared. People dismissed it as just another Ethereum fork, and the community laughed at the project. However, a few years later, it became the largest chain for stablecoins, and even now, it is the biggest chain for USDT, surpassing Ethereum. Solana also launched in 2020, and within four years, it has become a major player, though initially, there was little activity on the chain. People weren't using it for DeFi, GameFi, or SocialFi; there was simply no use case. But over time, Solana developed those areas and grew.

So, if you're building a smaller product, like a marketplace, you can gain users and product-market fit relatively quickly. But if you're trying to build an ecosystem on Layer 2 or Layer 1, without dumping tokens on Day 1 and then abandoning the project, it's a long and difficult journey. For me personally, my biggest goal is to still be talking about Merlin Chain four years from now. If we achieve that, it will mean we've succeeded in creating something lasting.

Q: Do you think it's becoming common for people to look for Bitcoin Layer 2 chains to build on, especially as Ethereum Layer 2s become more saturated and projects like Virtuals are already established on networks like Base?

Jeff: Yes, I believe that's the ultimate goal for every project. Every project needs to find its Product-Market Fit. As I mentioned before, the two most successful chains, Tron and Solana, took about 3 to 4 years to reach that point. It's not something that can be achieved in a short period of time. The key is continuous building and iteration. I don't think Justin Sun or the Tron team initially set out to create a stablecoin-focused blockchain. Similarly, the team behind Solana wasn't focused solely on the current narrative. It's something that evolves organically.

I see many chains trying to build specifically for BTCFi, but sometimes it's necessary to pivot. For example, the virtual team has pivoted many times, and that's been crucial. What truly matters is being patient and persistent in building, which is something that many crypto builders struggle with. Most don't have the mindset to hold out for the long term.

Q: Do you think building BTC Layer 2 on EVM was the right decision, given the criticism you faced at the time? Looking back over the past eight months, did you ever doubt the choice to build on EVM instead of something more native to Bitcoin?

Jeff: To be honest, I never doubted using EVM for Bitcoin. I think the mindset difference between Asia and the West plays a role here. In Asia, we prioritize efficiency and easier entry for builders and users. I don’t see the EVM versus Bitcoin debate as a war. To me, crypto is about building on top of each other and creating a more permissionless environment for users to do anything. Bitcoin isn’t a religion, and decentralization isn’t something we blindly follow without question.

EVM has been tested billions of times and is much easier and safer to use. If we can implement rollups using BitVM on Bitcoin Layer 1, that would complete everything. It doesn't matter if it’s EVM, Bitcoin, or something else, as long as it can roll up to Bitcoin 1 and share the same security level.

Looking at the evolving ecosystem, we can see projects like UniSwap and emerging swaps benefiting from EVM chains because they can build on them. If you're not using EVM, I don't think you will see many great builders achieving success. There are no real examples of that happening. Also, since we're building for Bitcoin, we have the right audience. Many people bridge their assets across chains, and if a chain doesn’t allow builders and users to bridge assets, how can it be considered native? Without builders and Bitcoin-level assets, how can a chain claim to be native?

Many people argue that certain solutions are more native, but I think that's a Web 2 mentality. In the end, actual numbers and utility matter more than religious beliefs, ideology, or politics.

Q: My last question is about BitVM. We’ve discussed it a bit and had Nubit on the show. Do you think something like a zk-rollup or a similar solution is possible using BitVM?

Jeff: I believe that most things haven't changed over the past month or two. We’re still looking at the data, and we've had some demos where we tried different ways to verify things on Bitcoin. One approach definitely works, but the main focus now is on efficiency and cost. Builders will eventually solve those issues; it’s just a matter of time. Since BitVM doesn’t change Bitcoin's core functionality, it can integrate with technologies like Polygon’s SDK, and other rollup solutions as well. We’ve tested various SDKs, and they all work with BitVM without altering Bitcoin itself. I’m confident that this is promising for the future, but as I mentioned, I don’t expect rollups to happen in 2025. However, we may see it in the next year or two.

Q: Any last words?

Jeff: I think the first few weeks of 2025 haven’t been great for most of us. I don't think anyone's portfolio has seen any significant gains. It’s a tough time, but as I mentioned earlier, this is actually the best time for anyone to step back and think about what to focus on in 2025. With Chinese New Year coming up in two weeks, the Asian community and builders will likely slow down a bit. However, this pause is a great opportunity to clear your mind and focus on what you’re building or planning to trade.