Bitcoin’s ecosystem gained popularity and market favor in 2023, but what will happen to the market after the hype? This article, sourced from xingpt’s column article “Post-Scripture Era, What Kind of Bitcoin Ecosystem Do We Need?”, is compiled, written, and edited by Deep Tide.
(Previous Summary:
Sun Yuchen announced TRON’s entry into Bitcoin Layer2, and the community lamented: Sun is here…run away quickly.)
(Background Supplement:
Bitcoin Layer2 surged across the board! STX soared 27% in a single day, CKB surged 300% in a month.)
Table of Contents:
ICO – Creating Fair but Useless Assets
Meme
Staking Bitcoin for Interest
Bitcoin Mining through Staking
Issuing “Trash” Assets through Bitcoin Financing
So how do we “package” a perfect Bitcoin ecosystem infrastructure project?
In the cryptocurrency industry, when it comes to technical projects, we often need to distinguish between short-term narratives and long-term value to identify which type of project is speculative bubble assets and which type of project has long-term value. Of course, good projects can also have both popular narratives and long-term value, and speculative bubble assets are not completely worthless.
When Ethereum first emerged, it needed to find an independent positioning separate from Bitcoin and derivative currencies, namely to support smart contracts to enable various applications. The first type of application was ICO, emphasizing fair token launches by raising ETH and giving users Ethereum-format erc20 tokens for their projects. The low market value of new coins caused early price surges, leading to the first asset speculation frenzy of Ethereum – the ICO craze.
Although in retrospect, 99% of ICO projects have no value, the speculation of ICO assets solidified Ethereum’s positioning as an application launch platform. Later, it was also packaged as a more glamorous “World Computer.”
DeFi and NFT After Ethereum’s decline in 2018 and 2019, the previous bull market from 2020 to 2022 mainly experienced two rounds of mainstream speculation: one was DeFi assets, whose underlying product logic used Ethereum’s native currency ETH as a “shovel” to provide ETH liquidity in various protocols such as lending, DEX, derivatives, in exchange for project tokens. Unlike ICOs, ETH is no longer used as investment capital but as collateral, and the user experience is: I can get new tokens for free, using users’ “freeloading” psychology to quickly capture users.
However, the pattern of selling useless assets, similar to ICOs, continued through NFT speculation. NFTs have several characteristics: “useless” – allowing for greater speculation space, “low circulation and low market value” – early participants can gain huge profits, “fair” – everyone has the opportunity to participate except for whitelisted users. (Note: Here, we will not discuss the cultural communication attributes of NFTs and ICOs, only explore the similarities in asset speculation.)
Although Shib and Zoo markets opened up new possibilities for meme play, it wasn’t until the emergence of the Pepe series that memes became a separate track. But the current problem with memes is that it is difficult to accommodate multiple high market value projects. Only 1-2 leaders can reach a market value of over 1 billion. Therefore, the driving force to boost Ethereum’s market value is still insufficient.
From the same perspective, we can also observe the reasons why Ethereum’s performance in this round is not as expected. It lacks low liquidity assets that can be sold, and it does not serve as a “shovel.” Arb/OP/Stark, etc., do not provide opportunities to stake ETH and mine Layer2 native tokens. Only exceptional cases like Manta and Blast can reach the market value of Layer2. Therefore, ETH is weakening this round. For ETH, projects like Celestia that perform well utilize the “shovel” attribute through modular narratives. In terms of “trash” assets, Solana has also brought about huge meme gains with assets like Bonk and Wif. Additionally, Sol’s ecosystem has many airdrops similar to Pyth, Jupiter, Jito, which also give SOL a “shovel” attribute.
For the Bitcoin ecosystem, the biggest change in this market cycle is the emergence of “trash” assets directly issued on Bitcoin for the first time, which also possess the attributes of low circulation, fair distribution, and low market value. The question is, what else can Bitcoin do in the post-Scripture era?
Following the logic of using Bitcoin as a “shovel,” several speculations are proposed here.
Babylon, one of the leading projects in the Bitcoin ecosystem, offers BTC Staking and aims to ensure the security of the cosmos blockchain by implementing slashing on the Bitcoin network. Both narratives of using Bitcoin as a underlying interest-bearing asset and ensuring the security of the blockchain through the Bitcoin network are attractive. Therefore, Babylon has received strong support from major VCs in the primary market. However, to make Bitcoin play the role of a shovel, two conditions are needed: first, the value and quantity of PoS coins mined through the Babylon protocol must be high enough, and second, the Bitcoin staked through the Babylon protocol must meet a certain volume. If the TVL is too low, the narrative of securing the Bitcoin network’s security will not hold. Both conditions require top-notch BD resources to drive, and it is necessary to simultaneously focus on both the Bitcoin ecosystem and the Cosmos ecosystem, which is not an easy task. Projects that want to emulate Babylon need to carefully consider whether they have the ability to raise hundreds of millions of dollars in funding.
Staking Bitcoin for mining is the cold start method adopted by many emerging Bitcoin Layer2 solutions, such as BSquare and MerlinChain. However, for Bitcoin holders, there are two notable problems. First is security. When Bitcoin is deposited into the Layer2 network through cross-chain bridges, it requires trust in the security of the Layer2 network’s contracts and nodes, which significantly reduces the security compared to the Bitcoin network. Second is the inconvenience of operations. Unlike Celestia, which is based on Cosmos, where users can stake TIA once and receive multiple project airdrops, mining on Bitcoin Layer2 requires users to switch between different protocols, which is not user-friendly and increases operational risks.
Another challenge is the issue of returns. The geometric value of the chain mined as a shovel is also worth considering. Without an annualized return of 10% or even 20%, it is difficult to attract Bitcoin whales to mine tokens of new chains at the risk involved.
Therefore, projects following this model need to take the initiative to attract high-risk preference holders among the limited number of Bitcoin whales (which is not a high percentage). They also need to enhance the value of their native tokens, including listings, ecosystem projects, etc., which are more favorable for projects with experience in the cryptocurrency industry or asset operations.
The reason “trash” assets seem “useless” but still attract buyers is due to their innovative narrative methods. The narrative in the article talks about the revival of Bitcoin, while NFTs play with cultural significance. Currently, the padding of Runes seems to be the most sufficient, with the founder being Casey of Ordinals, and various community plays similar to RSIC continue to emerge. RCSV, the project behind Merlin, has issued BRC420 blue boxes, which can be seen as starting from issuing new assets, focusing on asset speculation, and ultimately returning to a larger infrastructure story.
Other Bitcoin Layer2 chains and cross-ecosystem chains similar to Babylon may need to consider not only how to create a more decentralized and secure Layer2 chain (as the narrative foundation for orthodox projects), but also how to create new asset categories and innovative fair asset distribution methods before launching the chain. Simply airdropping Bitcoin from users’ hands is not enough.
Firstly, we hope to allow Bitcoin users to stake their assets in our protocol without trust, without the need to transfer funds from cold wallets, using similar Bitcoin-native underlying validation logic, similar to Bitcoin Covenant, DLC, etc.
Secondly, we hope that the interest or new assets obtained from staking can be exchanged back for Bitcoin in some way, generating an attractive annualized return in Bitcoin terms.
For degens, newly issued assets should have relatively fair participation methods, relatively limiting the advantage of large holders, rewarding early community core users, encouraging participation in open-source community building, contributing to the development of Bitcoin-based tools and documentation, rewarding the open-source community, and so on. Community feedback is an important non-technical means of obtaining legitimacy, sometimes even more important than technical means themselves.
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