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Bitcoin L2s are entering a phase where survival will depend less on speed or branding and more on whether networks can responsibly manage liquidity, yield, and counterparty risk, according to Bitlayer co-founder Charlie Yechuan Hu.
Speaking with Yellow.com on the sidelines of Solana‘s Breakpoint event, Hu said the past months have shown “it’s not about being the fastest L2 anymore.”
Several partners that Bitlayer worked with “couldn’t manage their financial part in a healthy way,” leading to halted operations and unrecoverable liquidity.
Hu pointed to the October 11 liquidation event, roughly $20 billion in market-wide liquidity evaporated, as the moment many protocols were exposed.
“Some protocols went insolvent. They cannot pay the debt, cannot pay the yield,” he said.
Risk Assessment Becomes The New Benchmark For Bitcoin L2 Builders
Hu emphasized that Bitcoin DeFi’s growth has been uneven, describing the ecosystem as “a zigzag journey.”
The core challenge, he argued, is not transaction throughput but solvency: how L2s underwrite yield, evaluate counterparties, and protect wrapped BTC collateral.
“We need to make sure we’re working with the right partner on the yield side. Otherwise it becomes bad debt,” he said.
In his view, Bitcoin L2s must now adopt disciplines more common in traditional credit markets than in crypto experiments.
“It’s about being secure, sustainable, getting actual yield… and having the right system to do risk assessment,” he said.
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Fragmented Liquidity And Bridge Assumptions Will Define The Next Phase
Liquidity fragmentation across dozens of emerging Bitcoin L2s is another risk that Hu believes the industry underestimates.
Most Bitcoin remains idle in cold storage, and activating it responsibly is far more important than proliferating new networks.
“We are still in the early stage of activating Bitcoin liquidity,” he said, adding that several L2s have already shut down, signaling an early consolidation phase.
Hu also highlighted widespread misunderstandings around bridge security.
WBTC, despite its popularity, relies on a custodial multisig controlled by a small group of entities, an arrangement Hu called increasingly risky.
By contrast, Bitlayer’s verifier model allows any operator to challenge a malicious transaction.
“Bitcoin security requires fees… miners need a new revenue stream,” he said, arguing that L2s must share value with miners rather than becoming isolated alt-L1 ecosystems.
Hu said the core issue shaping the next wave of Bitcoin L2s will be networks that treat liquidity as a balance sheet responsibility rather than a marketing metric will be the ones that endure.
“Bitcoin’s DeFi journey has not been smooth,” he said. “But now it’s about sustainability.”
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