The Rise of BTCFi – Is This The Next Great Bitcoin Narrative?

GM anon! ☕📃

We are on the verge of the historic Bitcoin halving.

In the previous newsletter, we discussed the macroeconomic factors surrounding BTC as we head into the halving.

Today, let’s look at Bitcoin’s ecosystem as a whole. As frequent readers already know, we have covered BRC20, Ordinals, and Runes multiple times before. 

NFTs were a major driving force behind Ethereum in 2021, when it reached its all-time high of $4,878.26. With Ordinals and Inscriptions, we have already seen a similar wave of NFT activity on Bitcoin.

Today, let’s focus on how certain investments can help you dive deeper into the Bitcoin ecosystem. We will also discuss BTCFi, an umbrella term for DeFi on Bitcoin. Let’s dive in.

How Did the DeFi Summer Affect Ethereum?

DeFi Summer, spanning from mid-2020 to early 2021, marked a transformative era for Ethereum, characterized by explosive growth and heightened investor engagement.

This period saw the total value locked (TVL) in DeFi protocols soar as new projects proliferated, fueled by the innovative mechanisms of yield farming and liquidity mining. As you can see, TVL jumped from <$1b to over $100 billion during this period.

For decentralized networks like Ethereum, TVL is a crucial factor for several reasons:

• Trust: More TVL simply means more trust. If more people are willing to lock up their money within the protocol, then that’s a huge tick mark for credibility.

• Liquidity: Liquidity is king. More TVL equates to more liquidity and more fair trades.

So, what fueled the 2020 DeFi summer? 

Yield farming became a game-changer by incentivizing users to provide liquidity to DeFi protocols with the promise of substantial returns in the form of newly minted tokens. This led to a rapid influx of capital and was instrumental in the meteoric rise of platforms like Uniswap and SushiSwap.

The period also underscored the value of decentralized exchanges (DEXs), which allowed users to trade cryptocurrencies directly from their wallets, eliminating the need for traditional financial intermediaries. 

What a “DeFi Summer” can do for Bitcoin

So far, Bitcoin has made its name for being the OG cryptocurrency and a decentralized store-of-value. It is the very definition of an “ultrasound asset.”

However, the blockchain hasn’t really been known for its programmability.

Now, all that is changing before our very eyes. Innovations like Taproot allow developers to create Inscriptions, Runes, BRC20 tokens, etc.

NOTE: Taproot is a major upgrade to Bitcoin that introduces more efficient and cost-effective smart contract capabilities to the network. 

As programmability increases and our perception of the Bitcoin blockchain changes, will we see a similar influx of liquidity usher in? Will utility and blockchain usage go through the roof like NFTs and DeFi did for Ethereum?

We also need to consider how the Maxis will feel about this. Will they demand a fork to ensure their version of Bitcoin remains “pure” and free from programmability?

If that happens, then what will that do to BTC’s value?

It is difficult to answer these questions, but they are certainly something to keep in mind. Here is what Casey Radomor, the driving force behind Runes, believes:

Now, before we even talk about “what” Bitcoin will become in the future, let’s answer this question?

Why Bitcoin?

Why build on Bitcoin at all? What’s the main advantage developers get from actively working on BTCFi projects?

Well, turns out there are several advantages. 

With its unparalleled security and robust decentralization, Bitcoin has established itself as an ideal foundation for the burgeoning Bitcoin DeFi (BTCFi) ecosystem. The intrinsic qualities of Bitcoin's blockchain are pivotal in fostering an environment where financial applications can thrive with trust and stability.

• Security and Reliability: Bitcoin's blockchain is among the most secure digital ledgers, having been thoroughly battle-tested over a decade against a wide array of threats. This level of security is crucial for applications that require high trust and reliability, which is a fundamental necessity for financial services.

• Decentralization and Censorship Resistance: The strength of Bitcoin's decentralization lies in its widespread node distribution, which enhances its security and ensures it remains resistant to censorship and free from central points of failure.

• Economic Stability and Network Effect: Bitcoin’s fixed supply and its position as a widely recognized and accepted form of digital gold provide a stable economic backdrop for building financial applications. This economic stability, when paired with Bitcoin's extensive network effect—which includes a large user base, a diverse developer community, and substantial investor interest—creates a fertile ground for BTCFi projects to grow and achieve widespread adoption.

• Innovation Through Layered Solutions: Bitcoin’s adaptability is showcased through innovations like the Lightning Network, which enable fast and scalable transactions while preserving the security and decentralization of the base layer. The ongoing development of protocols such as Simple Contract Language (SCL) further expands Bitcoin’s capabilities, enabling smart contracts and tokenization directly on its blockchain.

• Longevity and Continuous Development: Bitcoin's longevity and continuous development ensure that investments into BTCFi projects are not only secure but also future-proof.

As the BTCFi ecosystem continues to evolve, Bitcoin is set to play a central role in the future of finance, transforming how we interact with financial systems globally.

Getting In On The Action🎬

So, the halving is just a couple of days away, and you're eager to join the action by purchasing some collections or tokens that will reward you with tokens or other goodies once the Runes upgrade is live. But where do you start? It seems like everything has already surged in value, and now you're unsure how to quickly get involved! Fear not, anon! This is where we come in!

It's important to note that dozens of collections have launched in the past few weeks, each promising great benefits to users who use their precious BTC to buy their Ordinals collections. These collections claim to offer "pre-runes," and some appear to have more momentum behind them than others. 

However, it's also important to realize that all users have at the moment are a bunch of promises; no one knows how this will all play out. Will the market experience a dramatic downturn once the Runes upgrade is live and tokens begin trading? Or will we see new all-time highs for key tokens like Pups? Will Rune fulfill its promise of enhancing the user experience and reducing network congestion? 

The likely scenario is that we'll see a combination of all of these scenarios occurring simultaneously, while many users may also feel that the entire event was underwhelming. What is certain, though, is that in the coming months, this ecosystem will likely soar to new heights. 

So, keep this in mind if you find yourself questioning the purpose of this endeavor by Monday. Think long-term; that's the alpha. Don't lose faith in this ecosystem after the halving and all the hype dies down.

Navigating The Labyrinth

So, when it comes to collections, where should we begin? Let's start with what promises to be Bitcoin's biggest memecoin: Pups!

This can be a bit confusing, so bear with us. 

The artwork you see below, which could give Matisse a run for his money, is a Bitcoin Puppet.

This collection has gained significant traction in recent months. Community members unrelated to the founders launched the Pups token with agreeable tokenomics and an airdrop. 

This airdrop saw all Bitcoin Puppet holders receive a Rune Pup NFT that can be burned at the halving, and holders will receive tokens in return. So, users can acquire Pups tokens on the Rune network by either purchasing them on Unisat as BRC-20 tokens or by holding Rune Pups. Check out BRC-20 Pups here.  Now, the value of Rune Pups NFTs has skyrocketed, but it might be wise to pick up a few BRC-20 tokens as many anticipate the market cap of Pups to rise into the billions in the coming months.

Moving on, another major NFT project in the Bitcoin NFT ecosystem is NodeMonkes. The communities of NodeMonkes and Bitcoin Puppets have a bit of a rivalry going on, which serves as great entertainment for X users. Both communities have a distinct culture, but Puppets take the degen prize.

Now, a similar strategy was launched by a community user when they introduced Rune Nodes. Like Pups, one can buy the NFT and receive tokens at the upgrade or purchase Node tokens on Unisat here.

The NodeMonke community seems to have received their Node tokens rather lukewarmly, which has led to the price and hype around Rune Nodes severely underperforming. Many believe the token is underpriced and will skyrocket later, as Wzrd or Pups has. Others believe the Node token project is dead in the water. 

So this project's future is in fate's hands. If you buy in now at these prices, realize it's a huge gamble. Way more momentum is behind Puppet community projects such as Pups.

Now, the next project on our list is a bit of a dark horse, RSIC Metaprotocol.

The team has been very quiet, but it's known that some Bitcoin OGs are probably behind it. Some have even speculated that the creator of the Rune upgrade, Casey Rodarmor, could have a hand in it.

Now the mechanics of this project worked as such, by holding the NFT you see below, you would mine Rsic tokens in your wallet for every block mined on the Bitcoin network and generate raffle tickets as well, since there is a raffle where five users will receive a huge portion of the token supply.

We’re mentioning this project since it's one of the big ones and many experienced users have moved into it, but truth be told, it's a little late to get involved since there is almost no time to mine tokens by holding the NFT till the halving, the one opportunity that might make it worth it is that many speculate by holding the Rsic NFT, major benefits will be accrued to users in the future.

Next on the list is Runestones, founded by Leonidas in response to what he considered was an unfair distribution of NFTs by the RSIC founders. Leonidas has promised three meme airdrops to the holders of Runestones. It should also be noted that the supply of these NFTs is much larger, at over 100k. 

Now, many hardcore users in the Bitcoin NFT ecosystem have rejected Runestones, with many selling their Runestones to load up on more perceived legitimate projects. Again, the conundrum is how well will these meme airdrops do? Is it worth splurging around $5k for the NFT? Time will tell!

Honorable mentions of collections that have sustained user interest and promise token rewards on the Rune Network include 👇

• Bitcoin Wizards 

• Pizza Ninjas

• Tiny Vikings

• Game of Blocks

• Rune Guardians

Below are the current top 12 BRC-20 collections on Unisat. Pups and Wzrd are leading the way.

In summary, the current landscape is highly speculative, lacking clear direction or tangible information for making informed decisions. While there are advantages to being early to a trend, there are also disadvantages, users need to rely on gut feelings and conduct thorough research into the culture and vibe of each community. So far, Pups seem to emerge as a clear winner in terms of community vibe and culture.

Moreover, while many Bitcoin tokens and NFTs have appreciated greatly in recent weeks, it's essential to consider the number of participants involved in this sector of the market compared to others such as Solana or Base, it's still very small. 

There is much more headroom for projects to reach billion-dollar valuations and tokens to skyrocket in less mature ecosystems like the current Bitcoin ecosystem. The complexity and ambiguity of the Bitcoin ecosystem has shielded it from mass attention and adoption, but this is bound to change.

Let's conclude with a quote by Ansem that perfectly summarizes the situation.

Before we say goodbye for today, hop on over to our lively Telegram community! Chat with our researchers, always ready to tackle your questions, and mingle with fellow enthusiasts! 👇