tl;dr
Crypto investment firm Galaxy Digital has issued a warning, stating that Bitcoin layer-2s are at risk of losing funds due to crowded blocks and increasing transaction fees. According to their research, BTC layer-2 projects, known as rollups, may have to pay millions of dollars annually to compete fo...
Galaxy Digital, a crypto investment firm, has warned that Bitcoin layer-2 projects, particularly rollups, are at risk of losing funds due to crowded blocks and rising transaction fees. The firm's research suggests that these projects may have to pay millions of dollars annually to compete for blockspace, potentially leading to bankruptcy for those unable to minimize costs.
With Bitcoin's consistently full blocks since January 2023, the competition for block inclusion is expected to intensify with the introduction of new buyers like rollups, potentially driving transaction fees to economically infeasible levels for certain projects.
Galaxy Digital's model indicates that rollups could incur monthly expenses of $2.3 million, amounting to an annual cost of approximately $27.6 million if the average fee rate rises to 50 sats/vByte. Currently, transactions over the BTC network cost about 2 sats/vByte according to on-chain BTC data tracker Mesmerdata.
The firm warns that rollup projects failing to minimize costs will likely face bankruptcy, creating an environment where only a small number of projects can survive.
Galaxy Digital's findings highlight the potential financial challenges facing Bitcoin layer-2 projects, shedding light on the increasing costs and competition for blockspace within the cryptocurrency ecosystem.