Citrea Founders: Bitcoin Rollups, OP_RETURN Policy, and the Battle for L1 Block Space

Briefing Notes contain: (1) a summary of podcast content; (2) potential information gaps; and (3) some speculative views on wider implications for Bitcoin. Most summaries are for Bitcoin-centered YouTube episodes but I also do some on AI and technological advance that spill over to affect Bitcoin.

Summary

The July 03, 2025 episode of the Isabel Foxen Duke podcast features Citrea co-founders Orkun and Ekrem explaining how they are building a Bitcoin rollup that keeps transaction data on L1. They describe using zero-knowledge proofs, BitVM, and the Clementine bridge to achieve trust-minimized withdrawals at scale while working within Bitcoin’s mempool and policy constraints. The discussion highlights how OP_RETURN limits, private mempools, and governance frictions will shape whether economic activity and fee revenue migrate from custodial platforms back toward Bitcoin-native infrastructure.

Take-Home Messages

1. Real Rollups on Bitcoin: Citrea defines a “real rollup” as one that keeps all transaction data on Bitcoin L1, using proofs and compression for scalability rather than offchain data-availability layers.
2. Bridge Collateral and Withdrawal Scale: The Clementine bridge shows how collateral structures, zero-sat outputs, and ephemeral anchors determine whether trust-minimized withdrawals can scale to 100,000+ users without locking excessive capital.
3. Mempool Policy as a Design Constraint: OP_RETURN limits, non-standardness rules, and evolving features like ephemeral anchors directly influence whether advanced protocols can use public mempools or must rely on private relay services.
4. Governance Tensions Around OP_RETURN: The backlash to proposals relaxing OP_RETURN limits reveals deeper disagreements over how much Bitcoin should accommodate complex protocols versus preserving conservative norms.
5. Custodians vs Bitcoin-Native L2s: Bitcoin-focused rollups offering privacy-preserving payments and lending may redirect trading volume and fee revenue away from custodial exchanges and wrapped assets.

Overview

The episode opens with Citrea’s founders describing their progression from university research in Turkey to developing privacy tools on Ethereum, including a “proof of innocence” design aimed at improving exchange transparency. They explain that users were relying on exchanges as de facto mixers, highlighting the need for privacy at the protocol layer rather than through custodial services. The emergence of ordinals revealed a broader design space on Bitcoin, prompting them to experiment with a trustless inscription wallet that avoided third-party handling of user assets.

Building on this foundation, the founders present OrdinalSafe as a proof that inscription workflows could be executed without trusting intermediaries. They position Citrea as the natural extension of this ethos, defining it as a Bitcoin rollup rooted in the principle that all rollup data must be posted directly to Bitcoin L1. BitVM is cited as the breakthrough that turned their half-trusted concept into something capable of supporting fraud proofs and complex verification logic anchored to Bitcoin.

The conversation moves to the Clementine bridge, which is designed to support large-scale, trust-minimized withdrawals without immobilizing excessive collateral. Ekrem explains that BitVM disprove transactions are extremely large and require reliable broadcast paths, pushing the team toward zero-sat outputs and ephemeral anchors. They argue that Bitcoin Core v29’s policy changes, which allow certain zero-fee input-spending transactions, are essential to making these designs economically feasible.

As the discussion shifts toward mempool policy and governance, Orkun argues that OP_RETURN’s 80-byte limit pushes builders toward unspendable outputs and private relay pipelines. He notes that services like Slipstream may become necessary for structured or time-sensitive transactions, raising concerns about competition among miners and potential centralization. The episode concludes with the founders contrasting a fragmented landscape of minimally used Bitcoin L2s with their goal of a cohesive application ecosystem that routes liquidity and innovation back toward Bitcoin’s settlement layer rather than to custodial exchanges or wrapped asset systems.

Stakeholder Perspectives

1. Bitcoin Core Developers: Balancing robustness and simplicity against rising pressure to adjust OP_RETURN limits, relay policies, and standardness rules to support advanced protocol designs.
2. Bitcoin L2 and Rollup Builders: Seeking predictable L1 data availability, stable mempool behavior, and standardized verification primitives so that bridges and applications operate reliably under adversarial conditions.
3. Miners and Mining Pools: Weighing new fee opportunities from large proofs and custom relay flows against fears of centralization and reputational risks from selective inclusion practices.
4. Custodial Exchanges and Wrapped-Asset Issuers: Facing the threat that Bitcoin-native rollups could reclaim trading volume, yield strategies, and user engagement currently captured by custodial platforms.
5. Everyday Bitcoin Users and Institutional Holders: Evaluating whether richer privacy and lending options justify the technical complexity and trust assumptions involved in interacting with BitVM-based rollups.

Implications and Future Outlook

Over the coming years, the feasibility of “real rollups” anchored to Bitcoin L1 will serve as a test of how far data compression, proof systems, and careful engineering can stretch a conservative base layer. If projects like Citrea demonstrate reliable performance, they may normalize the expectation that sophisticated execution environments can coexist with Bitcoin’s assurances. If implementation failures or governance disputes emerge, they may strengthen conservative resistance to complex L2 architectures.

Mempool policy and OP_RETURN limits are poised to become recurring points of contention as more teams attempt to broadcast large, structured transactions through the public network. The increased use of private relay systems could tilt influence toward a smaller set of miners and service operators, introducing governance questions about decentralization and network neutrality. Addressing these issues will require clearer policies and stronger shared norms around acceptable evolution of Bitcoin’s relay architecture.

The contest between custodial exchanges, wrapped assets, and Bitcoin-native L2s will determine where most Bitcoin-related economic activity resides. If Bitcoin-focused rollups deliver compelling applications for privacy-preserving payments, lending, and asset issuance, they could gradually reduce the system’s dependence on custodial infrastructure. Should L2 fragmentation or governance friction persist, centralized platforms may continue capturing the bulk of liquidity, leverage, and user flow.

Some Key Information Gaps

1. How far can compression and proof techniques extend Bitcoin L1’s capacity while keeping rollup transaction data fully on-chain without degrading fee markets? Understanding these limits helps determine whether Bitcoin-based rollups can sustainably support high-volume activity.
2. How can bridge collateral be structured so that a trust-minimized Bitcoin rollup reliably supports 100,000 or more withdrawals without locking excessive capital? Clarifying optimal collateral models is essential for secure and efficient bridge deployments.
3. Under what conditions do private mempools and services like Slipstream become de facto requirements for advanced protocols, and how does that impact miner competition? Mapping these conditions is important for anticipating centralization and designing mitigation strategies.
4. How should Bitcoin’s technical and social governance processes evaluate changes like lifting OP_RETURN size limits when they benefit complex protocols but alarm parts of the community? Developing clearer evaluation frameworks could reduce polarization and improve predictability in policy debates.
5. Which Bitcoin-native applications are most likely to move users away from custodians in the near term? Identifying these categories will help ecosystem builders target development efforts that meaningfully shift liquidity and activity back to Bitcoin.

Broader Implications for Bitcoin

Bitcoin L1 as Strategic Data Infrastructure

Treating Bitcoin’s base layer as a shared data foundation for validating complex rollup activity elevates it from a settlement tool to a multi-purpose verification system. If rollups and trust-minimized bridges become mainstream, policymakers and developers may need to consider Bitcoin’s role in anchoring identity systems, financial proofs, and institutional records. This shift would place new attention on archival responsibilities, fee structures, and cross-border dependencies tied to Bitcoin as a global data root.

Decentralization and Network Neutrality Standards

Rising reliance on private mempools and relay services highlights a growing need for norms that preserve open, nondiscriminatory transaction flow. As more protocols push against standard policy limits, access to inclusion could concentrate among well-connected miners or infrastructure operators. Establishing explicit network neutrality expectations within Bitcoin culture and software defaults will be critical to sustaining broad participation and political resilience.

Evolving Regulatory Notions of Settlement Finality

Complex rollup bridges using BitVM challenge traditional legal interpretations of settlement and dispute resolution. As challenge windows, fraud proofs, and disprove transactions become more prominent, regulators and courts will need to decide how to treat on-chain outcomes relative to off-chain obligations. This evolution may drive new categories of financial supervision, insurance products, and contractual design for Bitcoin-linked applications.

Consolidation of Bitcoin L2 Architectures

Shared primitives such as BitVM verification circuits may gradually consolidate the Bitcoin L2 ecosystem around a small number of widely recognized architectural templates. A more unified L2 landscape would simplify risk assessment, auditing processes, and cross-border regulatory understanding. Over time, standardization could accelerate mainstream adoption by reducing the heterogeneity and fragmentation that currently complicate institutional engagement.

Long-Term Influence on Custodial Market Power

If Bitcoin-native rollups provide robust alternatives to custodial exchanges and wrapped assets, they may erode the gravitational pull of centralized platforms that currently dominate liquidity. Over several years, this shift could reduce systemic risk by distributing leverage and collateralization across transparent, non-custodial protocols. Such a transition would reshape prudential regulation, investor protection frameworks, and competition dynamics across global financial markets.