During the recent Token2049 summit in Dubai, the place of venture capital (VC) in the development of the Bitcoin ecosystem set off a passionate and sometimes polarizing debate among investors, developers, and influencers.
The focus of the debate was the destiny of layer-2 protocols, which are broadly regarded as critical to multiplying Bitcoin’s potential beyond mere value transfer.
As the crypto space gets more complicated and competitive, the community is divided: should Bitcoin become a bastion of ideological purity, or should it welcome VC-backed innovation to address increasing needs for scalability, usability, and infrastructure?
The Layer-2 Imperative
If Bitcoin is to become a real-world financial system, it needs to overcome its built-in shortcomings: high transaction fees, extended confirmation times, and limited programmability. Layer-2 solutions, designed to run on top of the Bitcoin mainchain, seek to address these issues by facilitating fast, inexpensive, and sophisticated transactions without jeopardizing security on the underlying layer.
Such technological advancement, though, needs financing, a fact which has positioned venture capitalists in the center of Bitcoin development.
Charlie Yechuan Hu: “We Need Real Capital”
One of the most outspoken proponents of VC involvement is Charlie Yechuan Hu, CEO of Bitlayer, a Bitcoin-based layer-2 protocol. At Token2049, Hu argued that VCs are essential not just for financial support, but also for the strategic insight and institutional credibility needed to scale meaningful projects.
“You need developers. You need to open the entire ecosystem foundation. It doesn’t work with just a mint and a well-stocked treasury. You need real capital.”
Hu’s point underscores a broader truth in Web3: early-stage infrastructure needs more than ideology, iit needs resources. Operating costs such as servers, AWS services, RPC endpoints, developer tools, and security audits can quickly become overwhelming for small teams without outside funding.
Through the lens of Hu’s argument, venture capital is not merely speculative but rather catalytic. VCs enable the creation of essential components such as wallets, decentralized exchanges, lending and staking protocols, all of which form the foundational architecture of a scalable Bitcoin ecosystem.
VC Skepticism: The Lightning-Only Philosophy
Not everyone shares Hu’s optimism. Mike Jarmuz, managing partner at Lightning Ventures, offered a more purist take during the same conference. According to Jarmuz, the Lightning Network remains the only “real” layer-2 for Bitcoin, precisely because it does not introduce new tokens, speculative returns, or unnecessary complexity.
“Any project that has a token for staking and promises an absurd APY on your Bitcoin should be avoided.”
For Jarmuz, many of the newer layer-2 and sidechain projects either deviate too far from Bitcoin’s foundational principles or simply lack real utility. While he acknowledged interesting developments such as Liquid Network, e-cash, federations, and Ark, he maintains that none have achieved the level of adoption or integrity that Lightning has.
According to Bitcoin Visuals, the Lightning Network now boasts a total capacity of approximately $452 million, delivering instant, low-fee, and scalable transactions, all while maintaining Bitcoin’s ethos of decentralization and minimalism.
Where VC Adds Value: Real-World Examples
Despite philosophical disagreements, the evidence of venture capital’s positive impact is hard to ignore. Take Kaleidoswap, a decentralized exchange built atop the Lightning Network. Initially an open-source project, Kaleidoswap received pre-seed funding from Fulgur Ventures and Bitfinex Ventures to support its protocol development.
According to Walter Maffione, Kaleidoswap’s lead engineer, the VC investment was used to pay developers and accelerate roadmap milestones without introducing governance tokens or centralized control mechanisms.
This demonstrates a middle path: venture funding can support non-speculative, infrastructure-focused projects that adhere to Bitcoin’s core values.
Similarly, projects like Solaxy are starting to emerge as infrastructure-focused players that operate with a long-term vision. Solaxy, while still in its early stages, is exploring scalable Bitcoin-based solutions with a focus on developer tooling, compliance layers, and secure off-chain integrations.
Unlike the trend-chasing ethos of many DeFi projects, Solaxy has positioned itself as a builder of enduring rails for institutional and user-grade adoption.
Its hybrid model, combining open-source principles with professional VC-backed execution, mirrors the strategic direction that many see as necessary for Bitcoin’s evolution.
Stillmark’s Investment Philosophy: Principles First
Vikash Singh, director at Stillmark, one of the leading VC firms in the Bitcoin space, echoed a values-driven approach to investment. According to Singh, choosing which layer-2 protocols to fund involves strict filters, security, decentralization, resilience, and real-world use cases top the list.
Stillmark continues to favor proof-of-work as the most battle-tested consensus mechanism but acknowledges that alternative models like proof-of-stake or Byzantine Fault Tolerance (BFT) might be appropriate for Bitcoin sidechains or rollups, particularly in enterprise settings.
This nuanced approach reflects a willingness to innovate without compromising the core tenets of Bitcoin, and it highlights a growing maturity in how venture firms are engaging with the ecosystem.
Ideology vs Innovation: Can They Coexist?
The debate over venture capital’s place in Bitcoin is not just about money—it’s about philosophy. On one side are the ideological maximalists, who fear that external capital could distort Bitcoin’s core principles of decentralization and resistance to censorship.
On the other side are the builders and pragmatists, who argue that scalable, global adoption cannot happen without investment, structure, and strategy.
The truth likely lies somewhere in between. The entry of venture capital into the space brings with it a double-edged sword: it can inject much-needed resources and legitimacy, but it also risks turning Bitcoin’s ethos into a corporate playground, if not handled responsibly.
That’s why it’s crucial that VCs invest not in hype, but in resilient infrastructure. As seen with Bitlayer, Kaleidoswap, and Solaxy, when the focus is on long-term utility, venture capital can be a powerful enabler of growth, innovation, and network effects.
Building the Future, One Layer at a Time
The development of layer-2 protocols on Bitcoin is no longer optional, it’s essential. As user demand grows, and applications become more complex, Bitcoin must evolve. But evolution requires more than idealism; it requires resources, leadership, and vision.
Venture capital, attuned to the principles of Bitcoin, can have a role to play in this revolution. Initiatives such as Solaxy provide an inspiring template for how VCs can finance infrastructure without compromising values. The future of Bitcoin will be determined by the ablest navigators of the fine balance between innovation and integrity.
In a world where cryptocurrencies are transiting from niche to backbone, the collaborations formed today between developers and ethical investors will decide whether Bitcoin continues to be a groundbreaking concept or becomes the base layer of an actually decentralized financial future.
