The BitVM Liquidity Crunch Issue

BitVM has recently come under some scrutiny after the Taproot Wizards, Tyler and Rijndael, posted their criticism of the liquidity requirements imposed on the operator of a BitVM based two-way peg. In all the recent discussions around BitVM based layer two solutions, I had taken for granted that people discussing them and interested in the design space understood the collateralization/liquidity requirements imposed by the architecture on the operator(s). The recent discussion around the “liquidity crunch” issue shows me I was incorrect about this assumption, and that many people outside of those actively involved in BitVM development were not aware of this issue.

Before I go into the…

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