Prospects for L2 solutions and sidechains in the Bitcoin ecosystem
With the advent of sidechains and Layer 2 (L2) solutions, Bitcoin became part of the global DeFi ecosystem. As of July 2025, Bitcoin ranks third among leading DeFi ecosystems by total value locked (TVL), which stands at nearly $7.2 billion.
In terms of TVL, Bitcoin trails only Ethereum and Solana but surpasses BNB Smart Chain, Tron, and Base.
What's the current state of Bitcoin scaling solutions?
Let's first briefly define what sidechains and L2 networks are. L2 networks are decentralized second-layer solutions built on top of the Bitcoin base protocol. Sidechains operate parallel to the leading Bitcoin network and are connected to it via two-way blockchain bridges.
These technologies allow transactions to be processed off-chain, reducing the load on the base layer and increasing the overall throughput of Bitcoin transactions, while maintaining security and decentralization at the base layer.
Until 2024, interest in L2 blockchains and sidechains grew significantly due to major Bitcoin network upgrades, such as Taproot, and the emergence of new token standards, including Ordinals and BRC-20.
However, starting in 2024, as Bitcoin's DeFi infrastructure matured, demand for L2 networks and sidechains, such as the Lightning Network, Rootstock, and Stacks, began to decline.
Lightning Network (LN)
The Lightning Network (LN) is a second-layer protocol developed to scale the Bitcoin network. LN utilizes a network of payment channels to facilitate speedy and nearly feeless transactions.
Depending on the number of payment channels, Lightning Network's throughput can reach up to 1 million transactions per second (TPS). However, it has limited smart contract support, making it primarily suited for payments.
According to 1ML data from July 2025, LN's capacity is 3,719 BTC — about 130 BTC less than in October 2024. Even in May 2022, LN capacity was nearly 5% higher at 3,900 BTC. The network currently has over 11,600 nodes and 42,300 channels, which is significantly lower than in 2024.
Experts attribute Lightning Network's declining popularity to:
- Technical challenges in creating and managing payment channels and the lack of standardization across protocols;
- Liquidity limitations within channels;
- Rising transaction routing fees;
- Cybersecurity threats and regulatory issues.
Liquid Network
Liquid Network is Bitcoin's first sidechain, launched in 2018 by Blockstream. It was also the first protocol to support tokenized assets (like L-BTC) and full-fledged smart contracts.
As of July 2025, Liquid Network's TVL is estimated at around $3.27 billion, over seven times greater than Lightning Network's. However, it's nearly $2 billion less than the leading Bitcoin DeFi protocol, Babylon Protocol.
Despite its size and lower transaction fees compared to Bitcoin's base layer, the Liquid Network is not widely used, handling only about 27,200 daily transactions.
Stacks
Like Liquid Network, Stacks supports smart contracts and tokenized assets. Its most popular tokens include STX, Bitcoin Naming System (BNS), ALEX, and the stablecoin sUSDT.
As of July 2025, the Stacks ecosystem hosts 14 DeFi protocols with a total TVL of ~$120 million. The most liquid protocol on Stacks holds just over $75 million in TVL.
Over the past two years, TVL in Stacks has grown more than 4x. However, since peaking in April 2024, it has dropped 34% due to the rise of new DeFi protocols in
the Bitcoin ecosystem that offer more advanced infrastructure.
Rootstock (RSK)
Rootstock is a sidechain that utilizes merged mining from Bitcoin and supports Ethereum Virtual Machine (EVM)-compatible smart contracts for issuing custom tokens.
There are 10 different tokens in Rootstock, but as of July 2025, none have significant market capitalization. The largest, Rootstock Infrastructure Framework (RIF), has a market cap of only $3.5 million and is not among the top 600 cryptocurrencies on CoinMarketCap.
Despite this, Rootstock's TVL has grown: from $116 million at the start of 2024 to $286 million — a 2.5x increase. Over the past year alone, TVL rose nearly 80%.
Analytics indicate Rootstock has over 300,000 active wallets. The ecosystem includes 25 decentralized applications, with the largest — MoneyOnChain — holding over $144 million in TVL, accounting for nearly 50% of Rootstock's total locked assets.
New Bitcoin scaling solutions
Over the past two years, several new projects have emerged to improve Bitcoin's scalability. Many focus on rollups — bundled transactions processed as a single data block and submitted to the Bitcoin base layer (Layer 1) for validation.
Rollkit: a new L2 based on sovereign rollups
Rollkit is a modular framework for rollup systems, designed to scale Bitcoin. Unlike other L2s and sidechains, Rollkit combines the Bitcoin base layer with its software for transaction processing.
Estimates place Rollkit's TVL at around $50 million, but the ecosystem is still in its early stages and not yet ready for widespread institutional adoption.
Citrea
Citrea is the first ZK-rollup for Bitcoin, introduced in 2024. It uses zero-knowledge proofs and, according to developers, can process up to 10,000 TPS. It also supports smart contracts and decentralized app (DApp) development.
As of July 2025, Citrea is in the final testing phase before mainnet launch, expected later this year.
Alpen
Alpen is a new L2 based on ZK-rollups. Its mainnet launched in September 2024. Alpen focuses on modular scaling for Bitcoin, similar to SpaceChain.
No TVL data is currently available, but the team has raised over $10 million in funding. They claim Alpen can reach up to 5,000 TPS.
Fractal Bitcoin
Launched in September 2024, Fractal Bitcoin is a second-layer solution using modular block systems to scale Bitcoin's base layer. It supports tokenization, as well as Ordinals and BRC-20 standards.
As of July 2025, Fractal Bitcoin's ecosystem TVL exceeds $23 million, with about 50,000 active addresses. However, its limited scalability compared to ZK-rollup-based solutions may hinder broader adoption.