Mezo: Pantera and Multicoin Invest in Building Bitcoin L2's Economic Layer

On April 9th, the Bitcoin layer-2 network Mezo completed a $21 million Series A funding round led by Pantera Capital, with participation from Multicoin, Hack VC, Draper Associates, and others.

The rapid development of “inscriptions” has promoted the prosperity of the BTC ecosystem, but it has also intensified the competition for BTC network resources. Excessively high gas fees are continuously raising the entry barrier for participants in the BTC ecosystem. The need for Layer 2 (L2) solutions is urgent, and a variety of L2 projects are now attracting the attention of both the community and investors.

Many BTC L2 projects prioritize the needs of Bitcoin miners over those of users. Mezo, on the other hand, prioritizes the economic needs of users and Bitcoin holders, thus introducing the concept of a Bitcoin Economic Layer. To realize this vision, Mezo focuses on long-term active HODLers within the BTC ecosystem.

The project team has stated, “We want to ensure that those who own Bitcoin can truly operate this chain.” To this end, Mezo provides returns to users who contribute to the security of the Bitcoin network, ensuring they continue to hold Bitcoin. This benefits both the holders and those transacting on the blockchain. The team hopes that anyone who has truly engaged with Bitcoin should be able to earn money through it, rather than it being merely an idle decoration on the shelf.

What is the Bitcoin Economic Layer?

From the projects currently running on Bitcoin’s second layer, we can roughly see that well-known Bitcoin second layer projects were established relatively early and have explored the relevant technologies for a long time. The developers include some original builders of the Bitcoin ecosystem, some from the Ethereum second layer, and others from interconnection technology sectors.

As the Bitcoin base protocol matures, foundational technologies gradually take shape, including Segregated Witness, Taproot, Schnorr signatures, MAST (Merkle Abstract Syntax Trees), Tapscript, and others. However, new entrants to Bitcoin’s second-layer development generally lack a substantial accumulation of advantages. Emerging teams need to find their late-mover advantages, such as researching the latest technologies and initially addressing lightweight, highly attractive needs to draw a significant number of applications.

Most BTC L2 projects will use BTC as gas, which is an essential part of the Layer2 narrative. Strategically, this boosts miner income and sparks interest among community developers. However, whether this can stimulate overall growth remains a question.

Therefore, what Mezo intends to build in Bitcoin L2 is not just a technical connection but more so an economic connection, that is, constructing the Bitcoin economic layer. According to Mezo, the Bitcoin economic layer focuses on user benefits, aiming to increase users’ wealth, community, and productive uses, while expanding Bitcoin’s core functionalities and changing the way users interact with Bitcoin. The goal is to combine Layer2’s core technologies and features with the economic needs of Bitcoin holders.

How does Mezo implement the Bitcoin economic layer?

Mezo aims to deepen the functionality of Bitcoin infrastructure by facilitating cheaper and faster transactions without deviating from the underlying principles of the network. To achieve this vision, Mezo focuses on long-term active holders of the BTC ecosystem, setting up three mechanisms: HODL Proof, HODL Score, and deposit custody.

Based on tBTC

Mezo uses tBTC as its foundation, which is a Bitcoin bridge created by Threshold Network. Threshold Network is a privacy-focused merged network that combines the functionality of Keep and NuCypher. Keep enables any user with BTC (and some ETH) to create tBTC by using a network of signers.

Unlike previous solutions, there is no central custodian for the locked Bitcoin. Signers are randomly selected, and a different group of signers is selected for each minted tBTC. Signers provide collateral (ETH) to ensure that they cannot easily run away with the funds. Additionally, deposits are always overcollateralized. That is, for every 1 BTC deposited, the signer must provide 1.5 BTC worth of ETH as collateral.

Another interesting aspect is that the signers create a unique address using the threshold signature protocol. This means that a single signer cannot take the funds. The cooperation of all assigned signers is required to perform the operation. If all signers wish to break the protocol and steal the locked BTC, they need to cooperate to do so. If they deviate from the protocol, anyone can provide evidence that the signer acted improperly. In return, the plaintiff will receive the signer’s collateral as a reward. Since the signer’s deposits are overcollateralized, there is more to lose than to gain from stealing BTC.

As an Ethereum token with the same value as BTC, tBTC acts as a bridge between Bitcoin and Ethereum. BTC holders can deposit BTC into smart contracts and receive tBTC.

All BTC in Mezo is held in smart contracts, and the locked contracts can be upgraded through multi-signatures run by the Mezo development team. Each minted tBTC is backed by the Bitcoin cryptocurrency in the reserve at a ratio of 1:1 and is protected by signers, nodes that manage Bitcoin deposits and redemptions.

Incentivizing BTC holders

Mezo uses HODL Proof as a consensus mechanism. At the launch of the Mezo mainnet, users can contribute to network security and earn income through HODL Proof. A portion of Gas removes Bitcoin from circulation. As network activity grows, this method can reduce supply, reward long-term holders and strengthen Bitcoin’s security and economic foundation.

Users can lock BTC on Mezo to establish a HODL Score, which is calculated based on the user’s Bitcoin deposits on Mezo and the results of inviting new users to participate in HODL. The longer the deposit is locked, the higher the score. At the same time, in addition to locking BTC, users can also lock MEZO tokens and verify transactions through CometBFT consensus to protect the network.

Currently supports deposits using BTC, tBTC and wBTC.

In addition, when a user HODLs on Mezo, he or she will receive 5 one-time use invitations that can be shared with friends, and the user’s inviter can also receive 5 one-time use invitations. Users can get HODL Score based on the deposits of themselves, their inviters, and the inviters’ inviters. Users can choose to lock their deposits for 2, 6, or 9 months. It is worth noting that locked deposits cannot be withdrawn before the end of the lock-up period, and unlocked deposits can be used.

HODL points are accumulated based on the amount of BTC deposited and the lock-up period, and all versions of BTC deposits can earn the same points. Locking 1 Bitcoin per day can earn 1,000 points, and longer lock-up periods can bring HODL score bonuses. Locking for 2 months can earn 3 times the score bonus; locking for 6 months can earn 10 times the score bonus; locking for 9 months can earn 16 times the score bonus.

How to get HODL points?

The project currently supports Metamask, Taho and Unisat wallets for connection. For native BTC deposits, Mezo currently accepts “traditional” or “native Segwit” wallet address types, that is, addresses starting with “1” or “bc1q”. The project is working on adding nested segregated witness support (addresses starting with “3”).

First, go to the project website and enter the invitation code. If you don’t have an invitation code, you can join the project Discord to get it. After entering the channel, contact the administrator in the waiting room to enter the invitation code channel.

After entering the invitation code, click the arrow to access the deposit page.

The currency for depositing on Mezo is native BTC. If users want to deposit tBTC and wBTC, they can click the link at the bottom of the website after entering the invitation code.

After clicking “Connect Bitcoin Wallet”, the system will prompt you to enter the “Log in with Bitcoin” page. Please note that once you proceed to log in and sign the transaction, the user’s wallet will be bound to the invitation code. One invitation code corresponds to one wallet address, and the user will only be able to deposit more BTC using the same address.

After clicking “Log in with Bitcoin”, click “connect” and “sign” in turn to complete the UniSat connection and sign the transaction.

After completing the above steps, the user has bound the invitation code and can make deposits.

BTC Deposit

Various lock times can increase a user’s HODL Score by 3 to 16 times. In the upper right corner, users can view daily HODL Score based on different locking times and deposit amounts.

Enter the deposit amount, click “Deposit BTC”, and after signing the transaction, the user’s deposit will be processed and you can see your score ranking on the leaderboard.

tBTC Minting and Deposit

When a user mints tBTC, the BTC needs to be deposited into a wallet generated by the Threshold Network using a BTC wallet address type supported by the project, and the wallet is generated and signed by 51 of the 100 wallet signers. After the depositor sends the funds, the depositor’s Ethereum receiving address is left behind. The tBTC bridge checks the Bitcoin network to ensure funds are consistent, and if all is well, tBTC is deposited to the user’s Ethereum receiving address.

After completing the above steps, the user already has tBTC in their Ethereum wallet and can be deposited directly into the Mezo portal. After entering the invitation code, click Deposit tBTC or wBTC at the bottom of the page to go to the ERC-20 deposit page.

Users can choose whether to deposit tBTC or wBTC on the deposit page, select the type of BTC to deposit and enter the amount, then click the “Deposit tBTC” button to complete the deposit. The page will display the user’s HODL Score based on the deposit.

Financing and Development Roadmap

On April 9, the Bitcoin Layer 2 network Mezo completed a $21 million Series A funding round led by Pantera Capital, with participation from Multicoin, Hack VC, Draper Associates, and others.

Launched by the startup studio Thesis, founded in 2014, Mezo employs HODL Proof as its consensus mechanism. Users protect the network by locking BTC and MEZO tokens and verifying transactions through the CometBFT consensus. On Mezo, users can lock their BTC; the longer the deposit is locked, the higher the HODL score, which could potentially influence the allocation of future airdrops. When Mezo’s mainnet launches, users can contribute to network security through HODL Proof and earn rewards in return. Mezo is designed to facilitate cheaper, faster transactions without deviating from the network’s fundamental principles, thereby enhancing the functionality of Bitcoin infrastructure.

According to the project documentation, Mezo is divided into three stages, and it is currently in the first phase.

The first stage involves only early project partners and initiates wBTC and tBTC deposits on the Mezo portal with a set deposit limit.

The second stage will open community testing in Mezo, start the HODL scoring, and initiate collaborations with project partners. It will increase the Total Value Locked (TVL) limit from the first phase and support more BTC address types for deposits.

The third stage will launch Mezo’s mainnet, expected in the second half of 2024. At this time, MEZOTOKER will launch alongside the main network, unlock TVL, finalize the HODL Score totals, and bridge the TVL to the mainnet.

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