Bitcoin has long been recognized as digital gold — secure, scarce, and universally trusted. Yet, despite its dominance in value and credibility, Bitcoin’s native network lacks smart contract functionality, limiting its utility beyond simple peer-to-peer transactions. This limitation has fueled demand for cross-chain solutions that allow $BTC to be used across more versatile ecosystems like Ethereum and its growing Layer-2 networks.
Enter wBTC (Wrapped Bitcoin) — a widely adopted bridge that brings Bitcoin’s value onto Ethereum. But while wBTC enabled early DeFi innovation, it introduced a critical flaw: centralization. That’s where mBTC, developed by Merlin Protocol, steps in with a bold upgrade — a truly decentralized alternative designed to preserve Bitcoin’s ethos while expanding its reach.
The Evolution of Bitcoin Cross-Chain Technology
Cross-chain technology allows assets from one blockchain to be represented and used on another. In Bitcoin’s case, this means enabling $BTC holders to participate in decentralized finance (DeFi), lending protocols, yield farming, and NFT markets built on Ethereum or other EVM-compatible chains.
The most well-known solution so far is wBTC, launched in 2019 by BitGo. Here's how it works:
- Users send their $BTC to a custodian (BitGo).
- Once confirmed, an equivalent amount of wBTC is minted on Ethereum.
- When users want their original BTC back, they burn wBTC and receive BTC after verification.
This model relies on three key roles:
- Users – those who wish to use BTC on Ethereum.
- Custodians – responsible for holding the underlying BTC (currently only BitGo).
- Merchants (or dealers) – authorized entities that issue and redeem wBTC on behalf of users.
While functional, this structure concentrates power in a single custodian and gatekeeps merchant access — creating centralized points of failure. If BitGo were compromised or restricted by regulators, the entire wBTC system would face existential risk.
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Introducing mBTC: A Trustless Alternative
Merlin Protocol’s mBTC reimagines the cross-chain model by eliminating centralized control and replacing it with economic incentives and smart contract automation.
Like wBTC, mBTC represents Bitcoin on other chains — but instead of relying on a single custodian, mBTC leverages a network of permissionless cross-chain channel providers. These providers act as both custodians and issuers, combining the roles into one decentralized layer.
Here’s how it works:
- A user locks BTC on the Bitcoin blockchain via a cross-chain channel provider.
- The provider mints an equivalent amount of mBTC on Ethereum.
- To redeem BTC, the user burns mBTC, and the provider releases the locked BTC.
Crucially, any entity can become a channel provider without needing approval — removing gatekeeping and enabling open participation.
How mBTC Achieves Decentralization and Security
One major concern with any custodial system is counterparty risk — what stops a provider from running off with users’ BTC?
mBTC tackles this through an innovative over-collateralization mechanism, inspired by leading DeFi lending platforms:
- Channel providers must deposit collateral in assets like $ETH, $USDT, or $USDC into mBTC’s smart contracts on Ethereum.
- Their mBTC issuance limit is capped at two-thirds of their collateral value.
- As BTC prices fluctuate or mBTC is issued, providers must maintain at least 105% collateralization.
- If they fall below this threshold, their collateral is automatically liquidated to protect user funds.
This creates a self-regulating system where providers are financially incentivized to behave honestly — or risk losing their stake.
To ensure accurate pricing data for both BTC and collateral assets, mBTC integrates Chainlink Oracles through its participation in the Chainlink BUILD program. This guarantees reliable, tamper-resistant price feeds critical for maintaining system integrity.
Incentives That Power the Network
Sustainability in decentralized systems comes from aligned incentives.
In the mBTC ecosystem:
- Channel providers earn a 1.5% fee every time users redeem mBTC for native BTC.
- These fees reward providers for liquidity provision and operational reliability.
- Open access ensures competition among providers, driving better service and lower costs over time.
Unlike traditional models where one company controls supply and policy, mBTC operates as a self-sustaining protocol — no central team required. Each participant acts in their own interest, which naturally supports the health of the whole network.
This shift isn’t just technical — it’s philosophical. mBTC redefines the production relationship in cross-chain infrastructure: from centralized control to community-driven operation.
Expanding Beyond Ethereum: The Future of mBTC
With the explosive growth of Ethereum Layer-2 solutions — including rollups like Arbitrum, Optimism, and zkSync — demand for cross-chain BTC is no longer limited to L1.
Recognizing this trend, Merlin Protocol plans to extend mBTC functionality directly from Bitcoin to Layer-2 networks, enabling faster, cheaper transactions while preserving security.
Imagine using native Bitcoin-backed assets in high-performance dApps, gaming platforms, or real-time trading interfaces — all without sacrificing decentralization. That’s the future mBTC is building toward.
👉 See how next-gen cross-chain protocols are unlocking new possibilities for Bitcoin holders.
FAQ: Your Questions About mBTC Answered
Q: Is mBTC the same as wBTC?
A: No. While both represent Bitcoin on other blockchains, wBTC relies on centralized custodians (like BitGo), whereas mBTC uses a decentralized network of over-collateralized providers governed by smart contracts.
Q: Can anyone become an mBTC channel provider?
A: Yes. The system is permissionless — anyone who meets the collateral requirements can join and start issuing mBTC.
Q: What happens if a channel provider defaults?
A: Their collateral is automatically liquidated by the protocol to cover user assets. Thanks to the 105%+ collateralization rule and real-time monitoring via Chainlink oracles, user funds remain protected.
Q: What blockchains does mBTC support today?
A: Currently, mBTC operates primarily on Ethereum, with plans to expand to major Layer-2 networks in the near future.
Q: How does mBTC handle price volatility?
A: By using real-time oracle data and dynamic rebalancing rules, the system continuously monitors collateral ratios and enforces liquidations when needed to maintain solvency.
Q: Why should I use mBTC instead of wBTC?
A: If you prioritize decentralization, censorship resistance, and trust-minimized architecture — core principles of Bitcoin itself — then mBTC offers a more aligned alternative to centrally controlled wrapped assets.
Final Thoughts: Can mBTC Challenge the Status Quo?
Since its launch in 2019, wBTC has captured 94% of Ethereum’s cross-chain Bitcoin market, benefiting from early adoption during DeFi’s rise. Competitors like hBTC and imBTC emerged but failed to dislodge wBTC due to similar centralized structures.
mBTC represents a fundamental leap forward — not just technologically, but philosophically. By removing trusted intermediaries and replacing them with code-enforced rules and economic incentives, it aligns with Bitcoin’s original vision of decentralization.
As users grow wary of custodial risks and regulatory vulnerabilities, demand for trustless alternatives will rise. With support for over-collateralization, open participation, oracle integration, and future Layer-2 expansion, mBTC is positioned to lead the next generation of cross-chain innovation.
👉 Explore how decentralized asset bridging could redefine Bitcoin's role in Web3.
The battle for Bitcoin’s cross-chain future is just beginning — and with solutions like mBTC, decentralization may finally win.