Learn about the present and future of BTCFi in one article

How we got here, what to do with Bitcoin now, and what the future holds.

They claim that NFTs on Bitcoin are impossible.

They say DeFi on Bitcoin is impossible.

As it turned out, they were wrong.

BTCFi is a zero-to-one innovation that I am very excited about (and invested in).

In this post, I want to take my time, explain how we got here, introduce the protocol you can use today, share some tips for getting started, and discuss what’s next.

Why we are optimistic about BTCFi

Until recently, Ordinals and BRC20 have not met all three of my criteria for a thriving ecosystem. This is the framework I use to evaluate ecosystems and tokens.

How do you choose which coins to invest in? How do you do your research? Do you just look for alpha on X? With so many coins and narratives to consider, how do you evaluate which coins have the potential to outperform Bitcoin?

Ordinals and BRC20 interest me because it is 1) innovative and 2) strong in storytelling.

However, BRC20 tokens are expanding too fast without any flywheel effect to curb inflation. BRC20s are freely minted in a “fair launch” but without any diversification or use case support. Like Meme coins. This could dilute user attention and funds entering the ecosystem. This is how the 2017-18 ICO ERC20 craze ended.

But things have changed since then.

Firstly, the ORDI token has cemented itself as the first meme coin on Bitcoin to be listed on a major exchange.

Second, truly native dApps launched on Bitcoin (not L2) that are usable to some degree and have a native token.

Third, CEXs like OKX and Binance are investing heavily in inscription by launching their own inscription services, markets, and listing BTCFi assets.

Fourth, airdrops have arrived in Bitcoin, rewarding users for holding specific assets.

Finally, a new alternative token standard will be launched on the Bitcoin halving block to challenge the dominance of BRC20.

Now, BTCFi is a rapidly growing crypto category with a core community that seems to be dominated by non-Western users!

The total market cap of all BRC20s reached $2.8 billion, which is high enough to attract attention but low enough to allow for a 100x upside early on.

Furthermore, Ordinals inscriptions are the lifeline of Bitcoin security as $306 million in Bitcoin fees have been paid to miners.

Note the huge increase in inscription tx in March, and how they appear again towards the end of 2023.

The top Ordinals NFT series also saw high sales. The "Genesis Cat" by Taproot Wizards sold at Sotheby's for $254,000. The current reserve price is $13,000. Of the top 20 NFTs by reserve price, 3 are Bitcoin NFTs. More will join the ranks soon.

But why would anyone pay so much? Let’s take a quick look back at where it all began.

Here’s an important short story.

It started with the Ordinals protocol introduced by Casey Rodarmor in December 2022, which enables each satoshi of Bitcoin (the smallest unit of BTC) to carry unique data, including NFTs.

1 Bitcoin = 100 million Satoshis.

Ordinals NFT is not your Ethereum NFT with a link to off-chain storage. Ordinal JPEG is forever engraved in satoshi. I think Ordinals NFT can be the ultimate choice for exclusive collection and PFP.

Think about it: a satoshi with a JPEG engraved on it could be worth more than its market price. That alone makes the entire Bitcoin chain worth more than the total market cap of Bitcoin. (Same goes for other chains, but let me sound smart).

However, the innovation remained undiscovered until March 8, 2023, when an anonymous developer “domo” launched the BRC-20 token.

BRC-20 tokens use JSON data (a text-based data format) inscribed in satoshis. They are not perfect and are more like tradable NFTs than fungible tokens. For example, you need to "inscribe" (through an on-chain transaction on BTC) before you can sell or transfer these tokens.

Regardless, the launch of BRC-20 has attracted attention and speculation, though Casey has criticized the protocol for straying from his original vision and cluttering the Ordinals space.

At about the same time, another anonymous developer, Beny, started multiple projects that introduced a complex governance model into the Ordinals ecosystem. This was my first attempt at creating a unified ecosystem with the flywheel effect that I was looking for.

These include the TRAC token, the Tap protocol, and the Pipe protocol, each of which is interconnected and expands upon the initial concepts of Ordinals and BRC-20.

TRAC Token: A governance token for the ecosystem, including the TAP and PIPE protocols.

TAP Protocol: supports swap, liquidity pool, airdrop and Bitcoin staking.

PIPE Protocol: A UTXO-based protocol for tokens and NFTs on Bitcoin, inspired by the RUNES protocol (under development).

To address the limitations of Ordinals, another anonymous developer launched Atomicals and the ARC20 token. Atomicals uses Bitcoin’s UTXO model to mint tokens, where 1 token = 1 sat.

Simply put, 1000 ORDI BRC20 tokens can be carved into 1 sat. That's why you need to "split" your BRC20 tokens into more sats before you can sell them. But one Atomicals ARC-20 is always equal to 1 sat.

Casey, who doesn’t seem to like the addition of protocols like BRC-20, has proposed Runes, a new token protocol based on Bitcoin’s UTXO technology (the same as Atomicals) that aims to integrate a more “orthodox” approach to Bitcoin’s token issuance.

The Runes protocol aims to bring more transaction fee revenue, developers, and users to Bitcoin while maintaining the integrity of the blockchain.

But Rune’s protocol has not yet been developed, and the community is already speculating on what will happen during the first Bitcoin halving block in April.

As you can see, the Bitcoin ecosystem is vast and growing with multiple Bitcoin asset standards. Not all of the DeFi applications mentioned above are truly native Bitcoin dApps.

Building on Bitcoin requires specific knowledge that only a few protocols are capable of. In this tweet from Wazz, all the protocols mentioned are ERC20 tokens. As a large number of fake Bitcoin or BTC L2 continue to be launched, they will also claim to be on Bitcoin even if they are not.

Let's start exploring the world of Bitcoin.

Rare

Rare Satoshis attract collectors' interest due to their unique characteristics and historical significance and are classified according to their degree of rarity.

The fascination is a growing niche market where enthusiasts (or degens) are keen to acquire sats with a unique story or value, not just monetary value.

Rare or exotic sat:

Myth: The first sat of the genesis block.

Epic: The first sat of each halving epoch.

Pizza: Since 2010, sat has been involved in the famous pizza deal.

Hitman: Sat was involved in a deal for Ross Ulbricht to hire a hitman.

Silk Road: On June 27, 2014, the U.S. Marshals seized and auctioned these SATs from Silk Road.

For example, a black rare sat sold for $165,000 (3.9 BTC), becoming the highest price ever paid for a rare sat.

As you read this, did you feel a strange sense of Meme Coin potential?

DEX: Ordiswap as an example

It’s like Uniswap, but for BRC20 tokens. You can swap, add liquidity and bridge BRC20

As you can see, liquidity is very low ($94,000) and trading volumes are currently low.

BitSmiley - MakerDAO for Bitcoin

bitSmiley allows the minting of an overcollateralized stablecoin: bitUSD (based on its bitRC-20 standard) and is invested by OKX Ventures.

But that’s not all. They will also be launching:

1. bitLending: Bitcoin’s native peer-to-peer lending protocol.

2. Credit Default Swap (CDS) This requires bundling similar loans and assessing credit default based on the default rate.

Liquidium - Ordinal Lending Site

Liquidium is also easy to understand. If you hold expensive Ordinals, you can borrow Bitcoin. Or borrow "expensive" NFTs to short them.

Bitmap and Bitmap Technology - Metaverse and L2

You must have seen the following Ordinals on Magic Eden or even on Bitcoin Explorer.

Bitmap converts Bitcoin's blockchain data into spatial land. So, it turns them into a virtual land, just like what Sandbox does on Ethereum.

Runes Protocol — The Next Big Thing in Bitcoin

In this interview (recommended watch), Casey (creator of The Ordinals) said: “Runes is an attempt to bring speculation, gambling, and fun to Bitcoin.” So, fun times are about to begin.

The protocol will go live sometime in April, on the first Bitcoin halving block. But the speculation has already begun.

In the end, the complexity of OrdFi/BTCFi offers many opportunities for those willing to learn!

BTCFI started late and the narrative is dominated by Chinese, but I’ll be honest, the Bitcoin DeFi ecosystem is in its early stages, full of loopholes, and not easy to use, and that’s where the opportunity lies.