Negentropy Capital: Why we invested in TaprootChain

Negentropy Capital has recently successfully completed a new round of investment in Taproot Chain. This round of financing was led by Negentropy Capital, including Digital Pacific Holding, Bitvalue Capital, Hussein Family Office, Wall Street investment banker Patrick Bominton and others. Taproot Chain is the first Bitcoin Layer2 network incubated by Taproot Labs that supports Taproot asset issuance and trading. It is built based on Op Stack technology and builds a Layer2 ecological platform for the combination of BTC native assets and smart contract Dapp applications.

In the past 2023, with the continuous creation of asset protocols such as Ordinals Protocol and BRC-20, the Bitcoin network ushered in a wave of asset issuance, and the total scale of Bitcoin ecological assets has also grown to 1.5 trillion US dollars. However, because the Bitcoin network does not support smart contracts and has poor scalability, Bitcoin assets have been limited by low liquidity and a single application scenario, resulting in its ecological influence far less than Ethereum.

In order to activate the potential of the Bitcoin ecosystem, TaprootChain has embarked on an ice-breaking journey to expand Bitcoin. As a Layer 2 network built on the OP STACK framework, TaprootChain uses OP-Rollup technology to achieve network expansion and maintain seamless compatibility with EVM. Its key component, Taproot Bridge, uses technologies such as Schnorr signatures, Tapscript programming language, and Bitcoin time locks to provide a secure and efficient cross-chain transaction solution from Bitcoin Layer 1 to Layer 2. So, compared with other Bitcoin Layer 2s, what are the technical advantages of TaprootChain?

Currently, the Bitcoin Layer 2 that can be operated in the market generally adopts the expansion plan of the side chain of the POS or POA consensus mechanism. The core mechanism is that all transactions occurring in Layer 2 are verified by the verification nodes of this layer, and then the transaction data is uploaded to Layer 1 for storage through the oracle to ensure that it can be verified retroactively when a dispute arises in the transaction. Although this method ostensibly provides a simple verification method, it actually has problems with security and operability. On the one hand, past experience has shown that node cheating is almost inevitable. On the other hand, storing data on the Bitcoin network is not only costly, but also due to the limitation of the block frequency of Layer 1, the timeliness of data storage is also relatively backward.

In order to achieve the same security as Layer 1, TaprootChain aggregates multiple transactions into a single transaction through OP-Rollup technology, and submits it to Layer1 for verification after processing it off-chain, thereby effectively avoiding the occurrence of fraud in the second-layer network.

Since the Bitcoin network does not support smart contracts and has poor cross-chain interoperability with the second-layer network, many projects rely on centralized indexers for auxiliary verification when mapping cross-chain assets, but this increases the occurrence of human error and moral risks. However, after the Taproot upgrade, Schnorr signatures improve Bitcoin's signature efficiency, reduce the amount of transaction data, and enhance privacy and security. Tapscript introduces more flexible smart contract programming capabilities, and the application of time locks adds more transaction types and strategies. By integrating these technologies, Taproot Bridge realizes that asset locking, transfer and destruction in the cross-chain process are all controlled by smart contracts, which significantly improves the efficiency and security of cross-chain.

At the ecological level, Taproot Exchange is the first application of TaprootChain, and its positioning is to support the decentralized trading platform of Bitcoin native assets. Compared with similar products Norst Assets, Taproot Exchange has the following three advantages:

1. Complete decentralization. In order to provide a usable front end for Taproot Assets transactions and improve the liquidation efficiency of Taproot Assets. Nostr Assets integrates Taproot Assets into the Nostr protocol through a centralized indexer, uses the public and private key system of the Nostr protocol to send and receive assets, and uses a unified wallet custody to simplify the settlement process of transactions. However, this design has two major drawbacks: one is the centralized money custody method, which will have disastrous consequences once it encounters an attack; the other is that the transaction data is not on the chain, and the data is easy to be tampered with.

Unlike Nostr assets, which sacrifice decentralization to improve usability and efficiency, Taprootchain, with its good composability and high TPS, provides Taproot Exchange with the ability to solve usability and liquidation efficiency problems without giving up the core principle of decentralization. In addition, user assets on Taproot Exchange are completely kept by personal Layer 2 wallets, and all transaction processes are executed through smart contracts. This design not only improves the security of transactions, but also enhances the transparency of the platform.

2. The product is more friendly to small and medium-sized retail investors. Unlike Nostr Assets, which can only be purchased in single pieces, Taproot exchange allows the fragmentation of single high-value Bitcoin NFTs or inscriptions, which greatly reduces the participation threshold for high-quality inscriptions and NFTs.

3. Richer asset categories are supported. Taproot Bridge has a complete multi-chain mapping solution. It supports cross-chain transactions of assets of mainstream public chains such as Bitcoin, Ethereum, and BSC, which greatly meets the transaction needs of users.

In terms of financing, TaprootChain successfully raised millions of dollars and attracted support from well-known investors including Waterdrip Capital, Satoshi Lab, Negentropy Capital, Digital Pacific Holding, and Bitvalue Capital. It is worth mentioning that Waterdrip Capital is not only an investor in TaprootChain, but also a major investor in Merlin Chain, which occupies up to 80% of the total locked value (TVL) in the Bitcoin Layer2 field.

In terms of development progress, TaprootChain is one of the few Bitcoin Layer2s that has completed the mainnet launch and started large-scale deployment of applications. Judging from the roadmap published on the official social media, TaprootChain's Launchpad platform and GameFi matrix will most likely be released in the next two weeks. Among them, as an ecological accelerator, Taproot Launchpad has received applications from 40 projects before it was officially launched.

On the whole, TaprootChain has obvious advantages in terms of technology, ecology, and capital strength, which makes it a leading position in this Bitcoin Layer 2 competition. Its success will not only have a positive impact on the Bitcoin Layer 2 field, but also promote the development and prosperity of the Bitcoin ecosystem.

This article comes from a contribution and does not represent the views of BlockBeats

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