In a previous article, " Runes Protocol Launched Five Days Ago, What Are People FUDing About? ", I briefly analyzed the underlying reasons for everyone's FUD about the Runes Protocol: the current layer 1 protocol only supports the excessive issuance of assets without any new narratives, and has not achieved the greater value of making assets flow. It is precisely because there is no further development except for hype and meme that the high gas caused by Runes only lasted for a few days before plummeting and returning to the "normal level" of less than 50.
So, what kind of layer of protocol do we need to support the long-term development and value narrative of the BTC ecosystem? Instead of releasing a few memes and then ending up with most protocol assets returning to zero.
Author: Portal_KayX/Retweet: @portal_kay
1. Comparison of the characteristics of mainstream BTC layer 1 protocols
Before discussing this issue, we need to have a basic understanding of the mainstream BTC layer 1 protocols. Here we draw on the content of cipher's course "Overview of Bitcoin Layer 1 Asset Protocol" and summarize it from four aspects: additional data location, two-step operation, balance model and issuance method.
(I strongly recommend Cipher's course content. The explanations of several protocols are very clear. Friends who are interested can take a look.
Details: https://www.youtube.com/watch?v=mgUxYU5tcJM)
2. What kind of protocol can support the explosion of BTC ecology?
If we expect a BTC ecosystem where various DApps flourish and Bitcoin assets flow freely, to realize this vision, I think the asset issuance protocol of the first layer needs to have the following four characteristics:
1. Efficient and convenient asset circulation
First of all, whether assets are on the first or second layer, efficient circulation is the basis for releasing the value of assets. The circulation of the second layer is relatively easier to achieve. Here we focus on the flow of assets on the first layer, which is mainly divided into two types:
1.1 Transfer transaction of the asset itself
Due to the underlying logic of PoW, the flow of assets on the first layer is naturally limited to one block every 10 minutes. Therefore, as long as the convenience of asset transactions on the first layer can be achieved like the transactions of BTC itself, the transfer of any amount can be completed with just one transaction, which can meet the basic requirements.
If the assets are only transferred between two wallets, except for BRC-20, other protocol assets can already realize the transfer of any amount in a single transaction. The biggest problem lies in the DEX exchange order. At present, ARC-20, Runes, and RGB++ can only realize the one-time order transaction of all assets on a single UTXO, and cannot allow users to choose any amount to place orders.
For example, there are 2 runes in the wallet, and each rune is 100 tokens. The scenarios that users want to achieve and the operations that the current trading market can support are as follows:
1️⃣ Place an order for 50 tokens: This cannot be achieved directly; you must first perform a split operation, transfer 50 tokens from one UTXO to yourself, then split it into two UTXOs, and then place an order for the 50 tokens on the UTXO alone.
2️⃣ Place an order for 150 tokens: This cannot be done directly; the 50 tokens are the same as the previous case, and need to be transferred and split first; then choose a rune of 100 and a rune of 50 respectively in the exchange, and place an order for both at the same time.
It can be seen from this that the current transactions of the first-layer assets of various protocols on DEX are not flexible enough, which inevitably reduces the liquidity of various first-layer assets.
1.2 Exchange of different assets
In addition to the transfer of assets themselves, the circulation of assets also includes the mutual exchange between various layer-1 assets. Moreover, this exchange should preferably be completed without relying on a centralized node. To achieve this function, it is not only the ability of the protocol itself, but also another important infrastructure: Swap based on the first layer. At present, many projects have emerged in this track, and DotSwap is running faster. MagicEden has also reserved the entrance to Rune Swap, and it is estimated that the product will be launched soon.
In addition, if a credible BTC network stablecoin can emerge, the exchange of assets will be more efficient. As an intermediary for exchange, stablecoins can allow users to see the actual price of an asset more intuitively, and can also eliminate exchange concerns caused by exchange rate fluctuations of the intermediary itself.
2. Flexible and diverse asset issuance
If the goal is to lay the foundation for the BTC ecosystem to explode, then the first-layer protocol must be able to support more flexible asset issuance methods. Fair Launch alone cannot cover a variety of usage scenarios. Currently, the Runes protocol can already support 3 different asset issuance methods:
(1) Fair Launch, which means 100% open and fair minting;
(2) Fixed Cap, which means 100% pre-mining by the project party;
(3) Combining the two, the project party pre-mines a part and the rest is fair minted.
Only when the protocol supports flexible asset issuance methods can it meet the actual usage scenarios of various projects, such as:
1️⃣ Issue Meme coin, 100% Fair Mint, all depends on community consensus;
2️⃣ The project party issues project governance tokens and distributes them to investors, ecosystems and other stakeholders according to the planning of token economics;
3️⃣ The reward tokens of a certain project are 100% pre-mined and airdropped to community users;
4️⃣ For projects jointly built by the project owner and the community, the project owner reserves a portion for operational needs, and the rest is Fair Minted by the community.
5️⃣ …
3. A layer supports limited programmability
The core value of the first layer of BTC lies in having the broadest consensus and the greatest degree of asset security. On the premise of being able to ensure the security of the first layer of assets, it only needs to implement some basic programmable features to stimulate very considerable asset liquidity.
In this regard, one of the solutions that can be seen at present is Babylon. Although Babylon did not launch its own layer 1 protocol, it used BTC's own timelock and hash lock settings to ultimately achieve the ability to participate in staking and obtain staking income by keeping BTC assets in the holder's own wallet. Therefore, other BTC layer 1 protocols can also use these BTC settings to improve the programmability of their own protocols at the first layer.
In addition, the ARC-20 protocol also disclosed that it is developing AVM, which can implement smart contracts on the BTC layer and realize basic DeFi functions such as recharge, pledge, and lending. However, AVM has not yet disclosed too many implementation details, so I will not go into details about this.
As various projects work hard, I believe that more excellent solutions will emerge in the future. If we can achieve an annualized interest income of 5+% very safely, we should be able to attract a large amount of BTC funds.
4. Layer 2 supports complex smart contracts
Since the first layer of BTC cannot achieve Turing completeness, it is inherently not equipped to operate complex smart contracts. In this case, we can only rely on the second layer for the flourishing of DApps. Of course, the high programmability of the second layer must be based on the premise that assets can inherit most of the security of the mainnet.
Recently, several EVM-compatible L2 projects have experienced different degrees of cross-bridge congestion, which has given everyone a deeper understanding of this: the project party temporarily changed the conditions for fund withdrawal, insufficient liquidity of cross-chain bridge funds, high handling fees, etc. These problems will undoubtedly discourage large BTC funds. If a second layer cannot improve the liquidity of BTC assets, then such a second layer will not have much significance.
The BTC ecosystem needs an asset flow method that is consistent with its own characteristics. In this regard, the most competitive solution should be the "isomorphic binding" solution implemented by RGB++ in the CKB network. The first-layer assets can be safely transferred to the second-layer network through Leap operations without the need for cross-bridge. At the same time, the CKB network can support the construction of relatively complex smart contracts, providing a foundation for the emergence of various ecological DApps.
3. BTC Ecological Development Vision
The scenario I expect to see the real rise of the BTC ecosystem is as follows:
🔹 The first-layer asset issuance protocol has gradually stabilized, and assets can perform simple DeFi operations on the BTC mainnet, such as: Swap, liquidity mining, mortgage lending, etc.
🔹 Layer 1 assets can enter the Layer 2 network safely, conveniently, efficiently, and at low cost.
🔹 Various new and interesting applications have appeared on the second-layer network, including but not limited to various DeFi, GameFi, and SocialFi products.
🔹 A large number of DApps with active users and real asset flows have emerged in the entire ecosystem, and these DApps issue their own project tokens based on a credible layer of protocols, gradually allowing the core assets in the ecosystem to be supported by actual business value.
Seeing these imaginary scenes, some friends may think that there is nothing magical about them. It is no different from the current situation of Ethereum. Yes, with my limited imagination, I really can't think of a more sexy new story. However, for the BTC network, these all need to be built from scratch. Even if it only reaches the current state of Ethereum, the value of the entire ecosystem can reach a trillion US dollars. What's more, we rely on BTC, a value network that carries 50% of encrypted assets.
Come witness this process happen, or better yet, become a participant and build it in your own way!
Disclaimer: This article is for reference only and should not be used as legal, tax, investment, financial or any other advice, and does not represent the position of RunesCC.
