Bitcoin on Starknet? Why investors poured $276m into the layer 2 blockchain

As investors pour hundreds of millions into Starknet, only one question remains: How long will it last?

Starknet is humming once again after months of middling traction during which Ethereum layer 2 rivals, including Arbitrum and Base, pulled farther ahead.

Data from DefiLlama shows that investor funds sloshing within Starknet have reached $276 million, more than double the amount in July but still shy of the $428 million peak achieved in May 2024.

This bump is in lockstep with a massive reward programme for investors who deposit Bitcoin liquidity into the chain.

“People are excited that this will be the place where people borrow against their Bitcoin, invest, and put more of their lives into a system where they truly own it,” Eli Ben-Sasson, CEO of Starknet’s developer StarkWare, told DL News.

Questions remain, however, whether the bump is the prelude to meaningful growth for Starknet or a flash in the pan, fuelled by incentives that could reverse when the funding dries up.

Mercenary capital

Earlier this month, the Starknet Foundation launched a yield programme for Bitcoin deposits on its blockchain. The scheme aims to distribute 100 million of its native STRK tokens, currently valued at approximately $14 million, to participants.

Starknet has added more than $76 million in investor funds since the scheme started. While that points to significant adoption, it could also signal mercenary capital hopping across blockchains in search of yield.

For Ben-Sasson, the onchain value growth is a sign of product-market fit for Starknet in its goal of retrofitting Bitcoin into the plumbing of the blockchain’s DeFi stack.

In this arrangement, Bitcoin serves as collateral and a yield-generating asset within Starknet, distinct from the cold vault adoption of Bitcoin by digital asset treasury companies.

“The goal isn’t to make BTC gold-like, it’s to avoid that trap entirely,” Eli-Sasson said. “Gold’s problem isn’t scarcity, it’s inertia; it stores value but doesn’t circulate it, so it can’t finance growth.”

Instead, Eli-Sasson says Starknet wants to maintain “Bitcoin’s monetary integrity while wiring it into a composable, liquid ecosystem.”

That way, Bitcoin can function as both a balance-sheet asset and liquid working capital for investors.

“Bitcoin stops being a vault asset and starts functioning as yield-bearing, networked collateral—a live monetary base for decentralised finance.”

Nine-hour outage

Starknet still needs the technology stack to support the growth of its onchain market.

In September, Starknet suffered a nine-hour outage shortly after upgrading to a new version called Grinta, which featured a more decentralised sequencer architecture. As a layer 2 blockchain, its sequencer is responsible for organising transactions on the chain before submitting them to the main base layer for final approval.

Grinta increased Starknet’s sequencer count from one to three.

The outage required two blockchain reorganisations, or reorgs, the term for when a chain discards a portion of its transaction history. In Starknet’s case, the reorg nullified 1.5 hours of transaction activity that had to be resubmitted to the blockchain.

Earlier this month, the Starknet team launched another critical piece of tech, the S-two prover.

The new prover boosted speed and lowered transaction costs on the blockchain. Provers generate the cryptographic proofs that help layer 2 blockchains to compress transactions, thereby making them faster and more efficient.

For Starknet supporters, Grinta and the S-two prover serve as improvements to the blockchain’s stress architecture.

Nevertheless, the recent outage casts doubt on reliability just as scale is beginning to matter for Starknet.

Eli-Sasson says it’s still early days and that those improvements are “massively powerful,” but their impact has not been fully felt yet.

Osato Avan-Nomayo is our Nigeria-based DeFi correspondent. He covers DeFi and tech. Got a tip? Please contact him at osato@dlnews.com.