What kind of Bitcoin ecosystem do we need in the post-inscription era?

In the cryptocurrency industry, for technology-type projects, we often need to distinguish between short-term narratives and long-term value to identify what types of projects are hype-type bubble assets and what types of projects have long-term technical value. Of course, good projects can also have both popular narratives and long-term value, and hype-type bubble assets are not worthless.

This article mainly discusses the hype logic of the future Bitcoin ecosystem, but before that, let us first learn from how Ethereum, the most successful blockchain in hype, develops its narrative.

1. ICOs - Creating fair but useless assets

When Ethereum was just starting out, it needed to find an independent position from Bitcoin and its derivative currencies, that is, it could support smart contracts to run various applications. The first type of application was ICO, which emphasized fair token launch, that is, raising ETH and giving users Ethereum-formatted erc20 tokens for their projects. Due to the low market value of the new coin, the price skyrocketed in the early stage, and thus broke out Ethereum's first asset speculation craze - the ICO craze.

Although looking back today, 99% of ICO projects have no value, the hype of ICO assets has allowed Ethereum to solidify its product positioning as an application launch platform, and it was later packaged as a "world computer" that sounds even cooler.

2. DeFi and NFT

After Ethereum experienced decline in 2018 and 2019, the last bull market from 2020 to 2022 mainly experienced two rounds of mainstream hype: one is DeFi assets, whose underlying product logic is to use Ethereum's native currency ETH as a "shovel" to provide ETH liquidity in various lending, DEX, derivatives and other protocols in exchange for project tokens. Unlike ICO, ETH is no longer used as investment capital, but as collateral, giving users the experience that I can get new tokens for free, taking advantage of users' "freeloading" mentality to quickly grab users.

However, the model of selling useless assets similar to ICO has continued through the hype of NFT. NFT meets several major characteristics: "useless" - there is more room for hype, "low circulation and low market value" - early participants can get huge benefits, "fair" - except for whitelist users, everyone has the opportunity to participate. (Note: This article does not discuss the difference between NFT and ICO in cultural communication attributes, but only explores the similarities in asset speculation.)

3. Meme

Although Shib and Zoo Market opened up the meme gameplay, it was not until the emergence of the Pepe series that meme became a separate track. However, the current problem with meme is that it is difficult to accommodate multiple large-cap projects. Only 1-2 leaders can reach a market value of more than 1B. Therefore, it is not enough to drive the upward momentum of Ethereum’s own market value.

From the same perspective, we can also observe the reasons why ETH's performance this round is not as expected. It lacks low-liquidity assets like NFT that can be sold, and it does not have the function of a "shovel". Arb/OP/Stark, etc. will not give you the opportunity to deposit ETH to mine Layer2 native currency. There are only individual cases such as Manta and Blast. The upper limit of the currency mined by restaking cannot reach the market value of the public chain Layer2, so ETH is weak this round. For ETH, Celestia, which has performed well, has brought the "shovel" attribute to the extreme through modular narratives. In terms of "junk" assets, Solana has also brought out memes such as Bonk and Wif with huge gains. At the same time, many airdrops in the Sol ecosystem, such as Pyth, Jupiter, and Jito, have also given SOL some "shovel" attributes.

For the Bitcoin ecosystem, the biggest change in this round of market cycle is the first direct issuance of "junk" assets on Bitcoin, which has the attributes of low circulation, fair distribution, and low market value. The question is, how can Bitcoin be played in the post-inscription era?

Following the above logic of using Bitcoin as a "shovel", here are a few conjectures.

1. Pledge Bitcoin to earn interest

Babylon, one of the leading projects in the Bitcoin ecosystem, provides BTC Staking. It wants to implement Slashing on the Bitcoin network to stake Bitcoin permissionlessly to ensure the security of the Cosmos public chain. Using Bitcoin as the underlying interest-bearing asset and using the Bitcoin network to ensure the security of the public chain are both attractive enough. Therefore, Babylon has been highly sought after by major VCs in the primary market. However, in order for Bitcoin to play the role of a shovel, two conditions are required: first, the value of the PoS coins mined using the Babylon protocol is high enough and the quantity is large enough; second, the Bitcoin pledged through the Babylon protocol also meets a certain volume. If the TVL is too low, the narrative that the Bitcoin network guarantees security will not hold. Both conditions require top BD resources to promote, and efforts need to be made on both the Bitcoin ecosystem and the Cosmos ecosystem at the same time, which is not easy. Projects that want to emulate Babylon need to consider clearly whether they have the ability to raise more than 100 million US dollars.

2. Pledge Bitcoin Mining

Staking Bitcoin for mining is a cold start method adopted by many emerging Bitcoin Layer2s, such as BSquare, MerlinChain, etc. However, for Bitcoin holders, there are two significant problems. The first is security. Bitcoin is stored in the second-layer network through a cross-chain bridge, which requires trust in the security of the second-layer network contracts and nodes, and has a significant downgrade in security compared to the Bitcoin network. The second is inconvenient operation. Unlike Celestia, which is a Cosmos-based chain, users can get multiple project airdrops by staking TIA once, while Bitcoin second-layer mining requires users to move between different protocols, which is not user-friendly and has many more operational risks.

Another challenge is the issue of profit. The value of the chain dug out by the shovel is also worth considering. If there is no annualized return of 10% or even more than 20%, it will be difficult to attract large Bitcoin users to take the risk to mine tokens of the new chain.

Therefore, the project owners of this model need to take the initiative and seize the high-risk appetite (which is not a high percentage) among the limited number of large Bitcoin holders as early as possible, and also need to increase the value of the currency as much as possible, including listing on exchanges, attracting ecological projects, etc., which are more beneficial to projects with experience in cryptocurrency entrepreneurship or asset operation.

3. Using Bitcoin to finance the issuance of “junk” assets

The reason why "junk" assets seem "useless" but are still bought by people is because of their very innovative narrative methods. The narrative of inscriptions is about the revival of Bitcoin, and NFT is about cultural out-of-circle. At present, Runes has the most complete foreshadowing. Its founder is Casey from Ordinals, and various community gameplays similar to RSIC continue to emerge. The BRC420 blue box issued by RCSV, the project side of Merlin, can be said to be a typical example of starting from issuing new assets, focusing on asset speculation, and finally returning to a larger infrastructure story.

Other types of newly launched Bitcoin second-layer public chains and cross-ecological public chains like Babylon may need to think not only about how to make a more decentralized and secure second-layer public chain (as the narrative basis for orthodox projects), but also plan how to create new asset categories and how to distribute assets more innovatively and fairly before launching the chain, rather than just simply absorbing Bitcoin from users for airdrop.

So how to “package” a perfect Bitcoin ecological infrastructure project?

First, we hope to enable Bitcoin users to stake in our protocol without trust, without using cold wallet funds to transfer, using similar Bitcoin native underlying verification logic, similar to Bitcoin Convenant, DLC, etc.

Secondly, we hope that the interest or new assets obtained from staking can be exchanged for Bitcoin in some way, generating a fairly attractive annualized return from the perspective of Bitcoin standard;

For degens, newly issued assets provide a relatively fair way to participate, which can relatively limit the financial advantages of large players and reward early core users in a small group of communities.

Finally, participate in the construction of the open source community as much as possible, contribute Bitcoin's basic development tools and documents, reward the open source community, etc. Giving back to the community is an important non-technical means of gaining legitimacy, and may even be more important than the technical means themselves.

In the next article on Bitcoin ecology, I will explain how the Bitcoin ecology develops from the perspective of technical paths, and how to find the ecological positioning of Bitcoin projects.