ETF issuer Franklin Templeton leads Bitlayer’s $11 million Series A to scale Bitcoin network

A layer 2 refers to a network that sits atop a base layer like Bitcoin or Ethereum and offers a faster and cheaper way to process transactions by compiling them in batches and recording them periodically on the primary blockchain.

The latest round brings Bitlayer’s total funding to $16 million. Other investors include Stake Capital Group, WAGMI Ventures, Flow Traders, GSR Ventures, and FalconX, among others. 

Bitlayer is the first Bitcoin infrastructure project to receive investment from an ETF-licensed institution. The partnership with Franklin Templeton highlights the “growing interest and momentum” from institutions to tackle the technical challenges that Bitcoin faces when it comes to scaling, the company said in a statement. 

As for Franklin Templeton’s decision to invest in Bitcoin, Bitlayer Labs co-founder Charlie Hu told Fortune it is because the financial giant wants to fund solutions that could lead to yield-generating opportunities for holders of the currency—including themselves. “Without the infrastructure of a layer 2, there’s no yield bearing opportunity for Bitcoin sitting in your cold wallet,” he said. For example, Macaron, a decentralized exchange built on Bitlayer touts the promise of “comprehensive yield-making schemes.”

‘History in the Bitcoin world’?

Bitcoin, the original blockchain, was built to be a decentralized digital currency and a long-term hedge against inflation. By contrast, Ethereum was designed to be a platform that enables smart contracts and decentralized applications. Evidence of this can be seen in the comparative network activity. Bitlayer is the top-ranked Bitcoin layer 2 by total value locked, with $404 million stored on the chain, according to DeFiLlama data. But, by contrast, the Ethereum equivalent, Arbitrum One, boasts almost $18 billion.

The short answer for why is that Ethereum’s higher throughput and Turing completeness—a term in computability theory that describes a system that can solve any computational problem—means that complex applications can be built more easily.

But Bitlayer wants to change this. Its core objective is to address Bitcoin’s trade-off between security and completeness through cryptographic innovations and blockchain protocol engineering.

Bitlayer is the first layer-2 solution on the Bitcoin virtual machine, or BitVM. The BitVM expands Bitcoin’s functionalities without changing the underlying network. Think of it like a computing paradigm that expresses Bitcoin’s smart contracts, while requiring “no changes to the network’s consensus rules.” It enables a “free market” of layer 2s to build atop of Bitcoin.

Bitlayer wants to scale Bitcoin while “inheriting its security, providing users with a high-throughput, low-cost transaction experience,” the company said in a statement. Hu wants to make “history in the Bitcoin world,” he said in a statement.

The funds announced today will be deployed to support the number of protocols built within the ecosystem. The company’s development team continues work on building its Mainnet-V2, a Bitcoin-native rollup.

“We believe that Bitlayer’s unique approach and technology has the potential to unlock new use cases and opportunities for Bitcoin, and we look forward to exploring collaboration opportunities with our Bitcoin-focused financial products,” Kevin Farrelly, managing principal of Franklin Templeton Digital Assets, said in a statement. 

The Bitcoin ETF launched by Franklin Templeton—a historic firm dating back to 1947—currently oversees $312 million in assets under management.