Odaily's exclusive interview with Merlin founder Jeff: Every day I want to give up, but I still look forward to riding through the cycle.

Original | Odaily Daily Report (@OdailyChina)

Author｜Golem (@web3_golem)

In recent days, Bitcoin has broken through $120,000, setting a new high. However, as the price of Bitcoin rises, the Bitcoin ecosystem, curled up in the corner, seems increasingly silent. "Either erupting in silence or perishing in silence." Although the Bitcoin ecosystem is gradually disappearing from the public eye, there are still those who remain steadfast, and BTCFi pioneer Merlin is one of them.

At a time when Bitcoin continues to reach new highs and the altcoin market is warming up, Odaily has had the honor of having a conversation with Jeff, the founder of Merlin. In the discussion, Jeff elaborated on the details of Merlin's BTCFi and AI Agent products and revealed future plans, while also announcing the launch of the RWA project in the Bitcoin ecosystem in early August.

In addition, Jeff also shared for the first time his thoughts and insights from founding Merlin to now, from being "in the spotlight" to being "in the corner of the stage." For clarity, Odaily will summarize the interview Q&A as follows, enjoy~

How Merlin "Reshapes BTC"

Odaily: Merlin is one of the earliest Bitcoin L2s to explore BTCFi, but at the beginning of 2024, BTCFi was immature in terms of technology, ecology, and community recognition. Therefore, Merlin faced a lot of controversy at that time, such as questioning the reliability of Merlin's TVL data, issues with security custody technology, and accusations of mimicking Ethereum L2s. However, it seems that these experiences provided valuable insights for later BTCFi protocols. So, at that time, why was Merlin willing to explore BTCFi ahead of the market? Please share your thoughts on the decision-making process at that time.

Jeff: I think it mainly comes down to market opportunities. When we were working on Merlin, it was also the peak time for inscriptions and runes, and overall market demand was strong. On one hand, this was reflected in the market's enthusiasm for issuing assets on the Bitcoin mainnet; on the other hand, it was also evident in investors' desire not only to hold Bitcoin but also to see it have productive attributes.

So we started exploring BTCFi based on such market demands, but at that time, Merlin had a relatively high overall volume and momentum, so the attention and controversy were certainly greater.

But looking back today, whether it is Babylon or Solv, or various BTCFi products, they share the same product design philosophy as Merlin at that time. For example, technically, everyone was hoping to achieve confirmation of rights on the Bitcoin mainnet through BitVM or op-cat, but in reality, its technical progress was not as fast as we imagined. Therefore, whether it is Babylon or Solv, the technical solutions they are using now are still the same ones we had back then, and this set of technical solutions has been validated through practice and is very pragmatic and secure.

Odaily: So BTCFi has gone through more than a year of development, what do you think the current market landscape is like?

Jeff: I think BTCFi has become quite stable in terms of product form and technology nowadays. Whether it's new or old projects, the solutions used by various companies are actually similar. But I think the biggest bottleneck BTCFi is facing now is the yield, including whether the yield can become higher and whether the overall BTC capacity can become larger, etc.

For those holders with 100 or even over 1000 BTC, given the current on-chain activity, such a large capacity cannot generate a long-term effective source of income. The yield of BTCFi's products has also decreased significantly compared to a year ago. Therefore, everyone is now exploring the sources of BTCFi's interest generation and expanding capacity.

Odaily: In the early development of BTCFi, most projects attracted users through airdrops, but now most projects have TGE. So, without airdrop incentives, do you think that increasing staking yields is the best way to retain users?

Jeff: Airdrops can only be a catalyst; they are not a healthy, long-term model. After all, no project can continuously stimulate users to stake by issuing tokens. Therefore, it is quite normal for users to leave after the airdrop ends, but I don't think this is a bad thing, because for a long-term holder of BTC, the demand for staking rewards will definitely exist in the long run, and we are more focused on serving them.

As long as we provide these users with a long-term stable source of income and the technology solutions used can make users feel at ease, they will be willing to stay and continue to invest their BTC here.

Odaily: On June 24, the native Bitcoin staking product launched by Merlin was very popular in the market, with the first phase of 50 BTC being fully subscribed within 27 minutes. So, what are the main sources of Bitcoin staking returns for Merlin?

Jeff: The first source is multi-chain liquidity provision. For example, the recent collaboration between Merlin and Sui, where Merlin acts as a liquidity provider, builds LP to earn profits through the liquidity pool on Sui, including official subsidy profits and transaction fee profits generated from on-chain activities.

The second source is similar to trading arbitrage. The main idea is to use BTC as collateral to obtain different tokens, which will have certain arbitrage opportunities between the different tokens.

The third source is to provide AVS services for some new projects. Some new projects require BTC assets for their verification services, and in return, they will allocate some airdrops to us.

Additionally, as a user, if you hold MBTC, you can choose to earn returns across different chains and DeFi protocols. However, the Bitcoin staking we have launched is essentially like opening a vault, helping investors to engage in relatively stable and safe financial management. Although the yield may not be as high as the returns from arbitrage that users could achieve themselves, the advantage is peace of mind and safety.

Odaily: There are currently many publicly listed companies that have established Bitcoin reserves in the market. Do you think they might participate in BTCFi in the future?

Jeff: I personally believe that companies that hold Bitcoin as reserves will definitely participate in BTCFi in the future, because when their BTC reserves reach a certain level, they will have to consider how to generate interest. However, their method of participating in BTCFi will definitely not be to directly invest in on-chain financial products; rather, they will participate in BTCFi in their own way, such as by bringing in more custodial institutions, then minting wrapped BTC for circulation in the market to obtain a long-term stable return, etc.

But Merlin is more focused on how retail investors can participate in BTCFi, which mainly includes three aspects: hold, earn, and invest. Hold and earn are easy to understand, while invest means that Merlin uses chain abstraction technology and AI to help users invest with Bitcoin.

This product has been launched since January this year. For example, when TRUMP was issued, many investors actually used BTC on the Merlin chain to purchase TRUMP, and this was when TRUMP's market value was only a few hundred million dollars. This was mainly due to the abstract technology of the Merlin chain, which allowed the entire transaction to be completed in less than 1 second. After TRUMP increased in value, they sold it and exchanged it back for BTC, resulting in an increase in the investors' Bitcoin.

So what we are considering is providing more opportunities like this to retail investors. To seize various on-chain opportunities, retail investors may diversify their holdings of various altcoins across many wallets, such as SOL, ETH, and BNB. But this also creates two problems: first, these assets often do not outperform BTC, so retail investors' principal cannot outperform the market; second, the risk opportunities of different chains occur randomly or intermittently, which is very troublesome for retail investors, both in terms of security and operation.

So, the solution provided by Merlin is that users only need to have BTC in their wallets to participate in these speculative opportunities across various chains. For example, users can directly use BTC to purchase Meme on Sui or BSC, and after selling these assets, they can return to the user's wallet in the form of BTC. This way, retail investors do not need to hold more other tokens, and ultimately, they still earn BTC.

Odaily: Previously, Merlin officially announced a strategic partnership with wBTC DAO, but Merlin also has its own wrapped version of BTC. In what aspects do MBTC and wBTC complement each other? Will there be any specific liquidity sharing plans?

Jeff: wBTC is one of the earliest and most widely recognized wrapped versions of BTC in the market, with tens of billions of dollars in liquidity distributed across various chains. As an early asset that has just been born for a year, we also hope that MBTC can expand to more chains and protocols.

Merlin is now one of the nine members of the wBTC DAO. On the one hand, we can learn from their experience in regulation and security; on the other hand, MBTC and wBTC will coexist on more chains in the future, and the two tokens will achieve an almost 1:1 exchange, providing users with lower friction, while opening up different DeFi application scenarios, allowing users to trade, arbitrage, and earn better whether in the DeFi scenarios active with MBTC or those active with wBTC.

Bitcoin Holder's Crypto Trading Entrance: Merlin Wizard

Odaily: In addition to Bitcoin staking, another important product of Merlin is the AI assistant Merlin Wizard, which recently released version 0.3. What are its core functions and the pain points it addresses?

Jeff: Wizard currently has two main functions. The first is trading decision support. We currently have access to all on-chain data from four mainstream chains (Ethereum, Solana, Base, and BSC), as well as off-chain data from the top few hundred projects by market capitalization on CMC. With this data, AI can assist users in addressing certain concerns or completing some trading decisions.

The second function is trade execution. For new users today, learning how to effectively use wallets from four or five different chains and various DeFi protocols on each chain can have a high learning curve and cost. Wizard can assist users in directly completing some trades, such as purchasing TRUMP at a certain price and then selling it at another price, or specifying how much to spend to directly participate in new projects and IDOs on BSC, and so on.

These operations can be completed by an AI, but it requires user authorization. Therefore, the final signature control still remains in the hands of the user, but all the intermediate processes are solved with the help of AI, eliminating the need for users to engage in complex learning and watch hands-on tutorials.

We will directly launch Wizard 1.0 version around early August. Users will be able to directly converse with this AI Agent and use BTC to complete various transactions, providing a better experience than the current version.

Odaily: So what kind of large model is used behind Merlin Wizard? How high are the maintenance costs?

Jeff: In fact, most Agents currently use hybrid large models behind the scenes. For language-related tasks, we might use Claude, while for data-related tasks, we might use ChatGPT. The maintenance costs are manageable because there aren't many users in the Crypto space. If we maintain a daily active user count of a few thousand, the monthly costs are roughly between a few hundred to a few thousand dollars, and these costs can be covered by the revenue generated by the Merlin chain itself.

Odaily: The enthusiasm for AI Agents in the cryptocurrency space has waned a bit. Why would Merlin, as a BTC ecosystem project, continue to focus on this sector?

Jeff: In fact, one relatively near future that everyone can see is AI helping users complete various complex operations. As the crypto industry has developed to this point, chains, protocols, wallets, and assets are abundant, often giving users a sense of information overload. Therefore, for some newcomers born after 2005 or even 2010, understanding this "history" is too complex; many newcomers may not even be familiar with or use Metamask.

So I believe that if this trend continues, the future of cryptocurrency trading entrances will definitely evolve into an AI agent model. For example, when people open their browsers or phones, they will no longer need to open Metamask or OKX wallets, but rather have an AI Agent that acts as a full-time assistant to help users complete various transactions.

Regardless of who ultimately achieves this goal, I believe this industry will welcome more new users as a result.

Odaily: Are there more product plans for individuals with stronger applicability in the future for Merlin?

Jeff: We expect a new project to launch in early August that will bring RWA into the BTC ecosystem, specifically by tokenizing certain real-world assets, such as collectibles, anime, and IP, and then enabling on-chain transfers, trading, lotteries, etc.

This plan is in line with Merlin's core goal, which is to give BTC more utility. At the same time, it meets the needs of investors who want to hold BTC to outperform the market while also seeking to participate in speculation for high-risk, high-reward opportunities. Providing investors with these "speculative avenues" is also a direction of our long-term efforts.

Merlin is being pushed forward by the ecological community.

Odaily: Next, let's talk about Merlin itself. With the overall downturn of the Bitcoin ecosystem, the popularity and attention towards Merlin have significantly decreased compared to last year. Do you and your team feel a sense of disparity because of this?

Jeff: Objectively speaking, there is definitely a sense of drop, but from the perspective of cycles, this is also unavoidable. Last year, there were probably over 100 Bitcoin ecological projects at the same time as us, but now 80% of them are gone. So I think "how to navigate through cycles" is a very important topic in the Crypto industry.

A typical example is Solana, which faced a "wall falling pushes everyone" situation after the FTX incident, but ultimately Solana revived itself through its own performance and ecosystem development.

So for a project, the biggest issue is not when the spotlight is taken away. The hardest part is being able to persist in finding the right direction when market enthusiasm is not on your side.

Odaily: What difficult moments has the team experienced? What differences are there in team atmosphere and working style during the two completely different periods?

Jeff: First of all, the income has definitely reduced a lot, but the team is still relatively stable. Our team has more than 30 people, and basically no one has left.

Moreover, our team has more of a Web2 gene, so everyone is relatively accustomed to this kind of "lonely" time. On the contrary, when the market is relatively hot, people may feel a bit "overloaded."

Odaily: Previously, did Merlin's token MERL have any "offerings" when it launched on Binance Alpha, as the token airdrop would create selling pressure? What was the reason for choosing to launch on Alpha at that time?

Jeff: If the meaning of "tribute" refers to airdropping to Binance platform users, then it definitely exists. But if it refers to giving to Binance, then it certainly does not. At that time, the airdrop did create a selling pressure of about three to four million dollars in tokens, but we managed to digest it quite well. After the launch of Binance Alpha, the decline of MERL was very small.

The reason for launching on Binance Alpha is that we hope to enter more trading markets and bring the Bitcoin ecosystem to a larger circle, allowing more people to see and discuss it. This goal also includes the listing of MERL on Kraken, one of the two major compliant exchanges in the US, in early July.

To launch on Kraken, our team spent over six months preparing the relevant compliance materials, and there was no such thing as "offerings"; at most, we conducted some trading activities. In fact, there are not many projects willing to invest this time, but we believe it is necessary, and these experiences have also provided some help for future listings on Coinbase.

Odaily: However, whether it's Binance Alpha or AI Agent, these have been the hot topics in the crypto circle at a certain period. Previously, during the Meme boom at the end of 2024, Merlin also attempted to build a Meme ecosystem together with BTC.Fun. It can be seen that Merlin has a strong market response ability to hot topics, but is this just Merlin's blind "chasing the hot topic" behavior for market popularity, and can such actions truly help the BTC ecosystem achieve large-scale adoption?

Jeff: I think it's actually very difficult for anyone to seize the opportunity when a hot trend explodes, because products have a development cycle. For example, the domain registration time for BTC.Fun was actually very early, around February-March 2024, but the development time for this product was relatively long, so it happened to come out just as various chains were pumping.

Additionally, Merlin is not just an application for a specific track, but a public chain, so to be frank, as a public chain, we must seize market trends. When Pump.fun is popular, regardless of whether it's Ethereum, BSC, Base, or Tron, everyone is doing pumps, and this is the reasoning behind it.

As a public chain, Merlin's main task is to support developers. When a concept or product becomes popular, there will naturally be developers willing to do similar things, but we cannot stop developers just because it does not align with our views. Therefore, I believe that building an ecosystem and creating applications are different; public chains are often pushed forward by the community users of the entire ecosystem.

But I still believe that no one can ultimately succeed by just seizing hot trends; it has never happened. For example, during the peak of inscriptions, the teams that ultimately emerged were those that persisted for a long time during the most desolate times of the inscription ecosystem. From the end of last year until now, AI has been scoffed at by the vast majority of Web3 users, who feel that this track has already been hot, but Merlin is still holding on.

So what you grab doesn't matter, the key is whether you can persist and convey what users truly care about. The concept of BTCFi was first proposed by Merlin, but the market truly took off about a year after we introduced it.

There are moments every day when you want to give up.

Odaily: Bitcoin recently broke through the 120,000 USD mark, setting a new high. What are your thoughts on the current cycle of Bitcoin's movement? Will the bull market continue? Will it bring more attention to the Bitcoin ecosystem?

Jeff: I am still very optimistic about the upcoming market trends because we are currently in an institutional bull market. There is a general optimistic expectation for the Bitcoin ecosystem that after Bitcoin rises, the sector rotation will bring more attention to the Bitcoin ecosystem. I think this logic is reasonable. However, it is difficult to predict what the market will ultimately choose: BTCFi, inscriptions, or RWA.

Odaily: What was the most stressful period since the creation of Merlin? What has supported Merlin to persevere?

Jeff: I feel that the pressure has always been relatively constant, but the period when Merlin listed coins was definitely the time of the most pressure. After all, we provided users with a 20% airdrop at that time, so facing the selling pressure from the airdrop and the market's expectations for the price, the pressure was quite significant during that time.

The reason for persisting until now is primarily the belief in the Bitcoin ecosystem, believing that this is a long-term track. Additionally, our construction of the Bitcoin ecosystem has not been a matter of a day or two; in fact, you will find that there are no new Bitcoin ecosystem projects that can be established anymore. The difficulty of building from 0 to 1 has increased. Therefore, we believe that since Merlin has already established certain thresholds and barriers, and at the same time firmly believes that this track has long-term value, we have persisted.

But to be honest, I have moments every day where I think "maybe I should give up," but when I see the entire industry recovering and think about the projects coming back into everyone's view, and how we can do better again, we still choose to move forward like all the steadfast builders in the Bitcoin ecosystem.

Odaily: No matter what, Merlin is a BTC Layer 2 project that spans multiple cycles. Throughout the entire construction period, what insights do you most want to share?

Jeff: My personal biggest realization is that doing projects in this cycle is hellishly difficult. The challenges faced in this cycle have actually far exceeded those in previous cycles.

Most developers may now be more willing to engage in short-term investment and speculation projects. Although Bitcoin does not care about this, it is not a good thing for the entire Web3 ecosystem.

I still hope that more builders and users can join together to build Web3.