Rootstock (RBTC): Boosting Bitcoin DeFi With Smart Contracts
The rise of the decentralized finance (DeFi) sector back in 2017 is firmly associated with the Ethereum (ETH) blockchain. It was Ethereum that introduced the concept of smart contracts, and the first prominent DeFi protocols were all born on this blockchain. For a while, it seemed like Bitcoin (BTC) stayed away from the emerging DeFi phenomenon. It’s only in the past few years that the Bitcoin DeFi ecosystem, dubbed BTCFi, seemingly started to show the first signs of life. This impression is, however, not entirely correct. As early as January 2018, the first DeFi-focused Layer 2 solution for Bitcoin — the Rootstock (RBTC) sidechain — celebrated its mainnet debut.
Rootstock remains the oldest and longest-running Layer 2 platform for the Bitcoin ecosystem. It’s smart contract-capable and highly compatible with the Ethereum virtual machine (EVM). While the platform can support all kinds of decentralized applications (DApps), it specifically focuses on the DeFi niche, with nearly all of its leading apps dedicated to crypto finance use cases. Along with smart contract functionality, Rootstock enjoys the famed security of Bitcoin, thanks to its merged mining with the world's largest chain. The sidechain also features superior scalability and lower transaction fees than Bitcoin’s Layer 1 and Ethereum.
With this combination of benefits, it’s no wonder that the Rootstock sidechain has managed to keep a leading position in the fast-developing BTCFi field all these years.
Key Takeaways:
Rootstock (RBTC) is an EVM- and smart contract–capable Layer 2 sidechain for Bitcoin designed for DeFi applications and use cases.
The oldest existing Layer 2 solution for Bitcoin, Rootstock was launched in January 2018 and features close to 180 applications and utility solutions, offering DeFi services like token swaps, stablecoin issuing, lending, borrowing and more.
The platform's primary cryptocurrency, RBTC, is pegged to Bitcoin at a 1:1 rate. RBTC is used for gas fee payments, miner reward payouts and as a utility token within Rootstock-based DApps.
What Is Rootstock?
Rootstock (RBTC) is a smart contract–capable Layer 2 sidechain designed for Bitcoin DeFi applications. Rootstock's native cryptocurrency, RBTC, is an asset pegged to BTC at a 1:1 ratio. Users can transfer their BTC funds to the sidechain, where their coins are converted to RBTC. From then on, users are free to use the RBTC crypto to make use of Rootstock's extensive ecosystem of DeFi apps and tools. Rootstock represents a major way for Bitcoin holders to enjoy smart contract–powered DeFi applications without having to move their assets and activity to Ethereum or other smart contract chains.
Since the Bitcoin network has virtually no smart contract capabilities, many DeFi-minded BTC holders have to convert their funds to Ether or other smart contract chain coins to enjoy crypto finance opportunities on those blockchains. While Ethereum, Solana (SOL), TRON (TRX), Cardano (ADA) and other prominent smart contract chains offer a diverse array of DeFi solutions, the problem with converting BTC to these coins is the loss of peg; e.g., by exchanging BTC to ETH, you’re decoupling your funds from the world's largest cryptocurrency, well regarded by many investors as the gold standard in crypto investment.
Rootstock solves this issue by offering a BTC-pegged asset, RBTC, that can be swapped back for BTC at any time and returned to the Bitcoin Layer 1 environment. The platform essentially lets you enjoy a plethora of DeFi opportunities while keeping your overall funds tightly pegged to BTC.
Rootstock features EVM compatibility through its Rootstock virtual machine (RVM). This makes porting Ethereum DApps to the sidechain a breeze. The platform also enjoys the security of Bitcoin through a merged mining procedure, whereby miners can use the hash power contributed to securing the Bitcoin network to simultaneously mine blocks on Rootstock as well.
Rootstock's block production time is just 30 seconds, twenty times as frequent as Bitcoin's 10-minute intervals. This allows for fast and efficient transaction processing. At the same time, to ensure complete security of operations, Rootstock normally requires that each transaction go through a minimum of 12 confirmations, which takes the total time for complete transaction finalization to six minutes.
Rootstock's mining difficulty is considerably lower than Bitcoin's, and its network congestion isn't anywhere near the levels of Bitcoin or Ethereum. As a result, gas fees on the chain are notably lower than on Bitcoin and Ethereum, with an average transaction fee of around five cents.
The Rootstock sidechain was first conceptualized in 2015 by a group of Argentinian software engineers from RSK Labs. It was officially launched in January 2018, making it the oldest existing Bitcoin Layer 2 solution. In its earlier years of operation, the platform was known as the RSK blockchain, but rebranded to Rootstock in 2022. The project's co-founders are Diego Gutiérrez Zaldívar, Adriȧn Eidelman, Gabriel Kurman and Sergio Demian Lerner.
How Does Rootstock Work?
Address System
Rootstock uses an address system compatible with and similar to Ethereum's, with 40 alphanumeric characters and an account-based model. This differs from the unspent transaction output (UTXO) model employed for Bitcoin transactions. Transactions on the sidechain directly modify account balances, similar to Ethereum, rather than adjusting unspent output amounts.
This account-based address system ensures adherence to EVM compatibility and easy accommodation of DApps ported from EVM chains.
Rootstock Virtual Machine (RVM)
The RVM, known previously as the RSK virtual machine, is a processing engine used by the sidechain. It's EVM-compatible, allowing developers to easily port and adapt Ethereum smart contracts and DApps to the Rootstock environment. Additionally, developers can use Solidity, the primary programming language used within the Ethereum ecosystem, to build Rootstock-based applications.
The project's team tries to maintain compatibility between RVM and EVM carefully. Around once a year, the Ethereum developer community performs a hard fork of the blockchain, upgrading it to a new version. The key goals of these upgrades are to introduce new functionality, address security concerns and improve existing features. If the new features introduced by Ethereum align with the ethos and goals of the Rootstock project, the team initiates a corresponding hard fork upgrade to the sidechain and RVM in order to maintain the snug compatibility between the processing engines of the two chains.
Merged Mining
Rootstock's security mechanism is well protected, thanks to merged mining with Bitcoin. Like Bitcoin's Layer 1, Rootstock uses the proof of work (PoW) block generation procedure. Miners can merge-mine RBTC using the same hash power they contribute to mining Bitcoin. This provides an excellent way for miners to earn additional crypto income without the need to contribute more computing capacity. Merged mining is also a key way for PoW blockchains to reduce their environmental impact.
Since the average block time on the Rootstock blockchain is only 30 seconds, miners can expect more frequent rewards from their block generation activity. In general, Rootstock's mining difficulty is lower than Bitcoin's, allowing less powerful mining machines to still generate income on the network.
Rootstock's mining rewards are paid out in RBTC, the BTC-pegged asset that we'll cover in more detail later in the article.
PowPeg
PowPeg is Rootstock's system to ensure a peg between BTC and RBTC and the secure transfer of assets between the sidechain and Bitcoin Layer 1. The Rootstock PowPeg allows anyone to lock BTC on the Bitcoin chain and get securely issued RBTC on the Rootstock side. PowPeg also facilitates the process of burning RBTC on Rootstock and receiving the requisite amount of BTC on Layer 1.
Rootstock PowPeg uses Bitcoin's PoW to maintain the security and integrity of the peg in conjunction with institutional nodes running specialized PowHSM devices. PowHSMs securely sign transactions involving the transfer of assets between Rootstock and Bitcoin. The group of nodes running PowHSMs, called the PowPeg Federation, is currently made up of nine reputable organizations in the blockchain sphere — BlockVenture, Luxor, Сollider, Сonstata, Mycointainer, pNetwork, Sovryn, Xapo and RootstockLabs.
What Is Rootstock Bitcoin (RBTC)?
Rootstock Smart Bitcoin (RBTC), previously known as RSK Bitcoin, is the platform's main cryptocurrency. RBTC is pegged to BTC at a ratio of 1:1 through the securely enabled PowPeg mechanism covered above. Like BTC on the Bitcoin blockchain, RBTC is used to pay transaction fees and reward miners on the Rootstock network. However, unlike BTC, RBTC can also be used within DApps for functions like collateral provision, lending, borrowing and more.
Given RBTC's peg to BTC, it’s not surprising that its tokenomics borrows some critical parameters from Bitcoin. RBTC's total supply is specified at 21 million, matching the maximum number of BTC coins that will ever exist.
What Is the RIF Token?
The Rootstock platform also has a second token, RIF, primarily designed to support DApps that are part of the Rootstock Infrastructure Framework (RIF) protocol, a layer built on top of the Rootstock chain for apps designed for staking, lending, payments and other DeFi use cases. There are currently several RIF DApps on Rootstock that can use the RIF token.
RIF may be utilized as a utility token within these DApps. It can also be staked on Rootstock to open up the opportunity to participate in on-platform governance. By staking RIF, you’re issued stRIF tokens, which enable you to participate in governance votes via the RootstockCollective DAO. This is the platform's primary governance entity, through which community members — users and developers — can influence the future direction and improvements to the sidechain and its ecosystem.
For instance, during the early stages of the DAO's operation, community members can vote on the allocation of ecosystem grants. In the future, decision-making on other initiatives (e.g., rewarding developers contributing to the growth of Rootstock) will be implemented.
RIF is a supply-capped token, with a total and maximum supply of 1 billion. The token's overall supply allocation shares, as outlined in the project's white paper, are as follows:
Private Sale: 40%
RIF Labs team: 40%
Rootstock Labs shareholders, founders and executive team 20%
The RIF token is available on Bybit as a Perpetual contract based on USDT.
Rootstock Ecosystem
As a leading Bitcoin sidechain capable of executing smart contracts, Rootstock boasts a thriving ecosystem of DApps, primarily in the DeFi domain. As of mid-December 2024, the total number of applications, utility tools, wallets and other smart contract–enabled solutions on Rootstock stands at close to 180.
One of the leading applications on the chain is Sovryn, a decentralized Bitcoin trading and lending platform. Another popular DeFi app is SushiSwap, a cross-chain decentralized exchange (DEX) and automated money maker (AMM) built on the Ethereum blockchain. In addition to a plethora of DeFi apps, Rootstock has solutions for Bitcoin Runes, asset bridging and NFTs.
Runes on Rootstock
The Rootstock Runes Mock Bridge project allows developers to create Rune tokens on the sidechain. Introduced in April 2024, the Runes protocol has opened a way to efficiently create Bitcoin-based fungible tokens by leveraging the blockchain's native UTXO transaction model. Rootstock's Runes Mock Bridge supports the process of creating these tokens by first etching Runes on a Bitcoin, and then mirroring their representations to the sidechain. The replication of Bitcoin-based Runes tokens on Rootstock is enabled via the ERC-1155 token standard. This is a standard utilized on EVM-compatible chains to transfer blockchain assets of both fungible and non-fungible varieties efficiently.
Rootstock Token Bridge
Rootstock Token Bridge is a bridging solution designed to facilitate the transfer of ERC-20 assets between the Rootstock sidechain and Ethereum. Although Rootstock and Ethereum share the same address format and model, sending assets between these chains directly via your wallet may not work. Instead, to transfer assets, you are advised to use the Rootstock Token Bridge, which will convert the transferred tokens to a requisite format.
Rootstock NFTs
There are a couple of NFT projects active on the Rootstock chain. One of these, NFTs2Me, allows you to create NFTs with no coding skills required. The other project, coNFT, is a comprehensive multichain platform that offers users a wide variety of NFT-focused products and services — minting, bridges, swaps, a web3 name service, analytics and more. coNFT has access to data and NFT services across over 100 blockchain platforms.
Closing Thoughts
The oldest Bitcoin sidechain in existence, Rootstock continues to play a key role in the development of Bitcoin-linked DeFi — BTCFi. The platform's EVM compatibility also positions it as a major bridge between the Ethereum and Bitcoin ecosystems — the blockchain environments of the world's two leading cryptocurrencies by market capitalization.
Over the years, Rootstock has accumulated a comprehensive arsenal of DeFi solutions — DEXs, liquidity management apps, stablecoin platforms, lending and borrowing protocols, NFT utilities and more. At the same time, RBTC's peg to BTC presents a unique way for crypto users to enjoy these DeFi protocols while holding an asset tightly coupled with Bitcoin's market price.
Developers can also enjoy a familiar environment, with the Solidity programming language and an EVM-compatible account model utilized by the sidechain.
Importantly, Rootstock offers efficient transaction processing — supported by its 30-second block intervals — and lower transaction fees than either Ethereum or Bitcoin. With gas fees a major concern for users on both of these Layer 1 chains, Rootstock is a platform that deserves close attention from both DeFi users and developers.
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