How we got here, what to do now with Bitcoin, 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’m very excited about (and invested in).
In this article, I want to take my time, explain how we got to this point, introduce the protocols you can use right now, share some tips to get started, and discuss what’s next.
Why be bullish on BTCFi
Until recently, Ordinals and BRC20 didn’t meet 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?Are you just looking for alpha on X?With so many tokens and narratives to consider, how do you assess which tokens have the potential to outperform Bitcoin?
Ordinals and BRC20 intrigued me because it was 1) innovative and 2) very good at storytelling.
However, the BRC20 token has inflated too fast without any flywheel effect to curb inflation. BRC20 is freely minted in a “fair release”, but without any diversity or use case support. Like Meme coins. This can dilute users’ attention span and access to the ecosystem’s funds. This is how the 2017-18 ICO ERC20 boom ended.
But things have changed since then.
First, the ORDI token has cemented itself as the first meme coin on Bitcoin to be listed on major exchanges.
Second, true native dApps launched on Bitcoin (not L2), which are somehow usable and have native tokens.
Third, CEXs like OKX and Binance are investing heavily in inscriptions by launching their own inscription services, marketplaces, and listing BTCFi assets.
Fourth, the airdrop has reached Bitcoin, rewarding users who hold a particular asset.
Finally, a new fungible token standard will be launched on the Bitcoin halving block to challenge BRC20’s dominance.
Now, BTCFi is a fast-growing crypto category with a core community that seems to be dominated by non-Western users!
The total market capitalization of all BRC20s reached $2.8 billion, which is enough to draw attention, but also low enough to get 100x upside early on.
In addition, the Ordinals inscription is a lifeline for Bitcoin’s security, as $306 million in Bitcoin fees have been paid to miners.
Note the significant increase in inscriptions tx in March and how they can reappear at the end of 2023.
The top-of-the-line Ordinals NFT collection is also selling well. “Genesis Cat” by Taproot Wizards sold for $254,000 at Sotheby’s. The current reserve price is $13,000. Of the top 20 NFTs by floor price, 3 are Bitcoin NFTs. More people will join the ranks soon.
But why would anyone pay so much? Let’s briefly recap where it all began.
Here’s an important short story.
It started with the Ordinals protocol, introduced by Casey Rodarmor in December 2022, which allowed each satoshi of Bitcoin (the smallest unit of BTC) to carry unique data, including NFTs.
1 Bitcoin = 100 million Satoshi.
Ordinals NFTs are not your Ethereum NFTs, with a link to off-chain storage. Ordinal JPEG is forever engraved on the satoshi. I think Ordinals NFTs can be the ultimate option for exclusive collections and PFPs.
Think about it: a satoshi engraved with a JPEG might be worth more than its market price. This alone makes the value of the entire Bitcoin chain exceed the total market capitalization of Bitcoin. (The same applies to other chains, but makes me sound smart).
However, this innovation was not discovered until March 8, 2023, when an anonymous developer “domo” launched the BRC-20 token.
The BRC-20 token uses JSON data (text-based data format) engraved on satoshi. They’re not perfect and are more like tradable NFTs than fungible tokens. For example, you need to “inscribe” (by making an on-chain transaction on BTC) before you can sell or transfer these tokens.
In any case, the launch of the BRC-20 attracted attention and speculation, although Casey criticized the agreement for deviating from his original vision and confusing the Ordinals space.
Around the same time, another anonymous developer, Beny, launched multiple projects that introduced a sophisticated governance model into the Ordinals ecosystem. This is my first attempt to create a unified ecosystem with a flywheel effect, and this is what I was looking for.
These include the TRAC token, the Tap protocol, and the Pipe protocol, each of which is interconnected and extends the initial concepts of Ordinals and BRC-20.
TRAC Token: A governance token used in the ecosystem, including the TAP and PIPE protocols.
TAP Protocol: Supports swaps, liquidity pools, airdrops, 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 ARC20 tokens. Atomicals uses Bitcoin’s UTXO model to mint tokens, where 1 token = 1 sat.
To put it simply, 1000 ORDI BRC20 tokens can be engraved on 1 sat. That’s why you need to “split” BRC20 tokens onto more sats before you can sell them. But one Atomicals ARC-20 is always equal to 1 sat.
Casey doesn’t seem to like the addition of protocols such as BRC-20, and he proposes Runes, a new token protocol based on Bitcoin’s UTXO technology (the same as Atomicals) that aims to integrate a more “orthodox” approach into Bitcoin’s token offering.
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 hasn’t been developed yet, and the community is already speculating about what will happen during the first Bitcoin halving block in April.
As you can see, the Bitcoin ecosystem is huge and grows with multiple Bitcoin asset standards. Not all of the DeFi applications mentioned above are true native Bitcoin dApps.
Building on Bitcoin requires specific knowledge, which only a few protocols are able to implement. In this tweet from Wazz, all the mentioned protocols are ERC20 tokens. As a large number of fake bitcoins or BTC L2s 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 Satoshi
Rare satoshis attracts the interest of collectors due to its unique characteristics and historical significance, and is classified by rarity.
This fascination is a growing niche where fanatics (or degens) are keen to get a SAT with a unique story or value, not just a 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, the SAT has been involved in the famous pizza deal.
Hitman: Sat is involved in a deal for Ross Ulbricht to hire a hitman.
Silk Road: On June 27, 2014, U.S. marshals seized and auctioned off the SATs from Silk Road.
For example, a black rare SAT sold for $165,000 (3.9 BTC), making it the highest price ever sold for a rare SAT.
When you read this, did you feel a strange sense of meme coin potential?
DEX: Take Ordiswap as an example
It’s like Uniswap, but for BRC20 tokens. You can swap, increase liquidity and bridge BRC20
As you can see, the liquidity is very low ($94,000) and the trading volume is currently low.
BitSmiley – MakerDAO for Bitcoin
bitSmiley allows the minting of an over-collateralized stablecoin: bitUSD (based on its bitRC-20 standard), invested by OKX Ventures.
But that’s not all. They will also be whisk:
- bitLending: Bitcoin’s native peer-to-peer lending protocol.
- Credit Default Swap (CDS) This entails bundling similar loans and assessing credit default based on the default rate.
Liquidium – Ordinal lending venue
Liquidium is also easy to understand. If you hold expensive Ordinals, you can borrow Bitcoin. Or short them with “expensive” NFTs.
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 space land. So, it turns them into a virtual land, just like the Sandbox does on Ethereum.
Runes Protocol – Bitcoin’s next big thing
In this interview (recommended viewing), Casey (creator of the Ordinals theory) says, “Runes is trying to bring speculation, gambling, and fun to Bitcoin. “So, happy hour is coming.
The protocol will go live sometime in April with the first Bitcoin halving block. But speculation has already begun.
Finally, the sophistication of OrdFi/BTCFi offers many opportunities for those willing to learn!
BTCFI started late, and the narrative is dominated by the Chinese, but I’ll be honest with you, the Bitcoin DeFi ecosystem is in its early stages, full of loopholes, and not easy to use, and the opportunity is here.