Dragonfly Managing Partner: Bitcoin L2 narrative has always been a supply-focused story

Haseeb Qureshi, a managing partner of the digital asset venture capital fund Dragonfly, said that when you deposit funds into a sidechain, you are trusting the sidechain bridge. Ultimately, you will have some counterparty risk with the participants on the sidechain bridge.

Historically, China's early crypto community was formed around the Bitcoin mining industry. Therefore, most Chinese crypto investors, especially Bitcoin miners, have favored Bitcoin for many years. As Bitcoin's market value far exceeds that of other cryptocurrencies, it is not difficult to attract a large amount of funds into these projects. Therefore, the Bitcoin L2 narrative has always been a supply-focused story rather than a demand-focused story. For example, according to data from Dune Analytics, the largest depositor on Merlin Chain has sent over 500 Bitcoin to the chain. After the initial hype earlier this year, the inflow of Bitcoin into Merlin has significantly decreased.

Qureshi added that a group of Bitcoin miners believe that simply putting Bitcoin into these Bitcoin L2s will generate profits, but this does not create users. This cannot create demand or transaction volume, which is what we really care about.