Ark Labs is building Arkade, an application layer building on the foundation of the Ark protocol, a novel Bitcoin Layer 2. While the first half of 2024 saw an enormous amount of hype around the prospect of so-called “Layer 2s” moving to Bitcoin, almost all of this turned out to be an unhelpful distraction as the projects amounted to little more than proprietary VMs with funds “secured” with multisigs and no credible path to decentralization. In short, without unilateral exit, these are not real Layer 2s

All the while, the Ark Labs team was working in stealth on arguably the most exciting technical breakthrough in Bitcoin since the Lightning Network, and building on arguably the first real Layer 2 to emerge since. Ark is a substantially different architecture to Lightning: a client-server model rather than a peer-to-peer network, it is nonetheless as trustless as can be reasonably achieved, with users’ agency limited only by the onchain cost of unilaterally exiting their relationship with a given server. In stark contrast to the multitude of Crypto-inspired private “virtual machine”-centric scaling approaches, Ark retains the UTXO model that is core to the functionality of Bitcoin, introducing the concept of a “VTXO” or “virtual unspent transaction output”, extending the capability and lowering the cost by batching hundreds, thousands, or even tens of thousands or more of individual transactions. Arkade further introduces a “virtual mempool”: an execution environment that unlocks a swathe of primitives at the Bitcoin script level that have previously been inaccessible to developers.

This opens up numerous possibilities for applications. Taproot Assets, or, tokens issued on Bitcoin and capable of being routed over Lightning, are starting to take off, with Tether announcing recently its intention to issue stablecoins this way. The Ark Labs team has created a proof of concept for moving Taproot Assets within VTXOs, not only instead of over Lightning but also atomically across both, which excitingly increases the scalability of this nascent protocol.

Discreet Log Contracts, or “DLCs”, have been mooted in Bitcoin for a long time, but, again, Arkade appears to be by far the best way to implement them due to the greatly lowered onchain cost. DLC’s can be thought of as generalizing a “contingent payment” form of smart contract: a payment the possible range of terms of which are agreed to in advance by the counterparties but which is only executable in combination with an external input cryptographically validating some real-world condition that has since transpired and hence which determines which payment path the contract should settle on. In practice this enables a range of financial instruments from options, loan liquidations, and more.

A lot of commentary around Ark positions it in competition to Lightning, but we think a proper appreciation of the likely relationship between the two protocols provides the greatest source of optimism. While entire essays could be written and talks given on the topic, in short, we think the two are wonderfully complementary. On the one hand, Lightning will almost certainly be used to atomically facilitate Ark payments between clients using different servers. On the other, Lightning itself is arguably made much more efficient by integration with Ark: Lightning channel opens and closes can be batched as VTXOs, as well as rebalancing Lightning channels with atomic nodeless payments.

All in all, while “Layer 2s” will always be mostly noise, Arkade is poised to catalyze a revolution in Bitcoin’s programmability and, ultimately, adoption. Cofounder and CEO Marco Argentieri describes this shift as “virtualizing Bitcoin’s transaction layer without replacing its core security model,” turning Bitcoin into “truly programmable money.” We are proud to support Ark Labs in driving this development for the years and decades to come.

Ark Labs is a holding in Axiom Venture Fund II