Last week, CKB Chinese (@CKB_CN) hosted a Space on the topic of "Exploring the Potential and Investment Opportunities of Bitcoin Finance (BTCFi) through the Upgrade of RGB++ Layer". The Space invited UTXO Stack founder and RGB++ protocol author Cipher, Rats Builder Eric, AMBBI Builder AMAI, LBank co-founder Xiangzhang, KOL Kongkong, and CKB Eco Fund's Research Lead Dr. Hongzhou Chen.
This Space lasted for nearly an hour and a half. If you haven't had a chance to listen to the audio replay, you can do so when you have time: https://x.com/HelloKellyup/status/1813194302979514783
Here are some key points shared by the guests, organized based on the audio replay:
Silence in the BTC Ecosystem#
Host: With the continuous development of the Web3 industry, the BTC ecosystem was booming last year, with various protocols and projects emerging, such as BRC20, BTCFi, Runes, and BTC L2. However, while BTC's position in the cryptocurrency world remains strong, the innovation and development of the BTC ecosystem still face many challenges. Recently, some BTC L2 projects that were popular a few months ago, as well as Runes, NFTs, and other projects, seem to have fallen silent. As core participants in this field, please share your perspectives on how to interpret this bottleneck?
Kongkong: The BTC ecosystem emerged with Runes. BTC has irreversible consensus and nativeness, so people have high expectations for the BTC ecosystem. However, there will inevitably be ups and downs in the technological growth path, and it is impossible to achieve instant success. Currently, there are many BTC L2 projects, and a large part of them directly use the EVM system, which has many problems. In my opinion, many L2 projects will be eliminated in the future, while projects based on native BTC protocols or derived from the underlying BTC architecture will go further and gain more recognition.
Cipher: The entire Bitcoin ecosystem encountering certain bottlenecks or cooling down was foreseeable. When Runes was popular, most mainstream assets were meme coins, which relied on consensus and community promotion. However, consensus and community cannot be too widespread, as it would lead to decentralization, which would reduce consensus cohesion. Therefore, the capacity of the meme coin track is very limited, and a protocol may have a few leading meme coins, but it is difficult for others to survive.
So, how can we break through? When meme coins encounter bottlenecks, people naturally turn to utility tokens, which means assets must have utility or empowerment. This empowerment inevitably relies on programmable assets, rather than non-programmable assets. Therefore, only Turing-complete or programmable assets have the ability to carry the next narrative of the Bitcoin ecosystem. This is why we introduced the concept of RGB++ Layer at this time.
In our ecosystem, some applications have already been released or are ready to be released, such as UTXOSwap, which is an AMM DEX in the UTXO world seamlessly connected to the RGB++ ecosystem. There will be more products and applications in the future. The next stage, known as BTCFi, is when the assets we previously minted finally have utility and can participate in various DeFi applications. This is the technical and product foundation for the explosive growth of the Bitcoin ecosystem.
Dr. Hongzhou Chen: After the issuance of various runes and symbols in the Bitcoin ecosystem, they have indeed cooled down a bit, but from the feedback from various communities, people are still here. On the other hand, everyone is actually waiting to see if there are any technological projects or infrastructure that can emerge. Cipher just mentioned this, so there is no need to be so pessimistic. These technological projects and infrastructure have development cycles of at least a few months, so we need to be patient. After these infrastructures and applications are built, there will be many possibilities for Bitcoin's native finance, and I personally have great confidence in the future development of the ecosystem.
Interpreting Bitcoin L2#
Host: With the emergence of so many BTC L2 solutions, how do you interpret Bitcoin Layer 2?
Cipher: Regarding Bitcoin L2, in the early days, people thought more about solutions like the Lightning Network. Some also consider the RGB protocol as L2. After the Runes craze, more people refer to cross-chain bridges combined with the EVM system as L2. Bitcoin Magazine believes that Bitcoin L2 must meet three conditions: 1) use Bitcoin as the native asset; 2) use Bitcoin as the settlement mechanism to enforce transactions; 3) demonstrate dependence on Bitcoin's functionality. If the Bitcoin network fails but the related system can still operate, then it is not Bitcoin's L2. Therefore, there is no unified standard for Bitcoin L2, and everyone is building their own solutions.
However, from a technical perspective, they can be divided into several categories. One category utilizes some of Bitcoin's native features, such as PoW, UTXO, and joint mining with Bitcoin, to increase Bitcoin's throughput or expand its smart contract capabilities. RGB++ uses some of Bitcoin's native features on Layer 1, such as its association with Bitcoin UTXOs, protected by Bitcoin's PoW security. Another category relies on cross-chain bridges, which are more like sidechains, transferring assets from Bitcoin to a new chain to enable various applications. There is also a category in between, represented by Babylon. Babylon provides security for L2 by staking BTC.
Personally, as a Bitcoin L2, it is best to leverage Bitcoin's technical characteristics and advantages, rather than simply copying the Ethereum model, although the latter can bring the entire Ethereum ecosystem. Without utilizing Bitcoin's technical features and advantages, there is no essential difference between Bitcoin L2 and Ethereum L2, and the possibilities for gaining additional users and profits will be reduced.
RGB++ Layer aims to build Bitcoin L2 projects using some of Bitcoin's native features. What are the benefits of doing this? Let me give a few examples. One is bridgeless cross-chain (Leap), where RGB++ assets can be transferred between L1 and L2 without relying on any form of multi-signature cross-chain bridge. This relies on the ability to link UTXOs between different chains. Another example is security. Bitcoin cannot guarantee the security of sidechains, but our RGB++ can achieve forced withdrawal. If a node in L2 goes down and cannot access L2 data, we can still use local data on L1 to achieve asset withdrawal. This is the benefit of using Bitcoin's UTXO model. If we were to adopt an account model, we would not have these advantages.
In summary, I believe that the emergence of many Bitcoin L2 solutions is a good thing because everyone is exploring different directions. However, I personally still prefer L2 solutions that evolve based on Bitcoin's native technology and technical roadmap.
Kumi: Different Bitcoin L2 solutions may have technical differences, but personally, I am more inclined to focus on consensus and the wealth creation effect brought by these projects. From the perspective of users, these projects also need to rely on the power of consensus.
Can BTCFi Replicate the Glory of DeFi Summer?#
Host: Will BTCFi (Bitcoin Finance) replicate the glory of Ethereum's DeFi Summer?
Kumi: From the perspective of new asset issuance methods, it is possible to drive the Bitcoin ecosystem to experience the same glory as DeFi Summer.
Cipher: Let me first address my view on the statement "many Bitcoin L2 solutions are pseudo-demands." I agree with half of it. The demand for L2 is obviously based on the premise that L1 is either congested or unable to perform certain tasks, but the current situation is that Bitcoin, Ethereum, and other chains are not congested during the bear market.
If we look at it from a broader perspective, this is actually a problem for the entire industry. Many years ago, people started talking about mass adoption, but until now, it has not been truly realized. When we see a large number of users flocking in, they may only play with memes and not have a sustainable business model to drive the mass demand for blockchain. Many demands are short-term, including Ethereum's DeFi Summer, where user numbers sharply declined after the hype. However, DeFi Summer did establish many infrastructures, such as DEXs and stablecoins.
Let's talk about the real demand for Bitcoin L2. In the blockchain industry, asset issuance has always been a core topic, but what to do after asset issuance, what utility and purpose it serves. The essence of RGB++ Layer is to add a programmable layer to Bitcoin, issuing programmable assets on Bitcoin L1, and then using various DeFi applications to accommodate the subsequent use of these assets.
As for whether the industry will have a breakthrough, whether it can achieve mass adoption, and place such high expectations on our ecosystem, I think it is a bit unrealistic and unfair. However, we can at least focus on building infrastructure within the Bitcoin ecosystem, creating more use cases, and advancing the utility of Bitcoin. For example, the upcoming IBO platform allows Bitcoin to participate in token sales through smart contracts. After the token sale, the assets will immediately enter an AMM DEX to create liquidity. The IBO model is between VC and Fair Launch, community-driven, and the project team is motivated to push their project development.
In the previous discussions, a guest mentioned community consensus. I believe community consensus is a result, and the wealth creation effect is also a result. There must be a foundation before these results. From the perspective of RGB++, we have found that we have unique technological advantages, which can bring advantages to certain products, and these product advantages can be truly felt by users, thereby further promoting community consensus. This is our path.
Finally, regarding BTCFi Summer, there has never been a large-scale connection between project developers, communities, and financing in the Bitcoin world. However, this has been verified in the Ethereum world. We are bringing this concept to Bitcoin and preparing the necessary infrastructure, such as user-friendly wallets, browsers, trading pools, AMM DEXs, lending platforms, stablecoins, etc. Once these are ready, it is very likely that we can replicate the success of Ethereum's DeFi Summer.
Aggregating Liquidity with RGB++ Layer#
Host: How can RGB++ Layer aggregate more liquidity?
Cipher: Liquidity fragmentation is a common problem in L2. From a technical perspective, based on UTXO-based chains, we can achieve bridgeless cross-chain functionality, aggregating assets from different L2 solutions to create a DeFi application similar to a full-chain DeFi. Of course, objectively speaking, we are still in the early stage, and the number of assets and users on RGB++ Layer is not enough. However, in the long run, once our business expands to other L2 solutions, the technical architecture advantages will allow us to solve problems that seemed difficult to solve in the past.
On the other hand, how to attract new funds and bring in new liquidity is not something that a single project or team can solve. It depends on industry trends, such as the impact of macro factors like the Fed's interest rate cuts and the US elections in the second half of the year. What we can do is prepare the technology and have a narrative ready when the big wave comes.
Host: UniSat also released a Bitcoin L2 solution. What advantages does RGB++ Layer have over it?
Cipher: First, I think the industry is big enough, or the Bitcoin track is big enough, so we don't have much competition. It's more like exploring different technological routes. We have also had in-depth discussions at the technical level.
Fractal Bitcoin's direction is somewhat similar to Liquid's direction—a leading network for Bitcoin. The advantage is that it is more like Bitcoin. It is also based on PoW and introduces Bitcoin's security through merged mining. In addition, it has more technical innovations, such as introducing OP Codes that Bitcoin has not officially activated, such as OP_CAT. Although RGB++ Layer is also based on Bitcoin UTXO, it expands many things and achieves Turing-complete programmability. While Fractal Bitcoin and Liquid are based on Bitcoin in terms of development models, the disadvantage is that they are also limited by Bitcoin and can only achieve limited scalability and Turing-complete smart contracts.
Therefore, Fractal Bitcoin and RGB++ Layer are exploring different directions and are both meaningful.
Expanding the Cake Together#
Host: From the perspective of project teams, how can we work together to expand the Bitcoin ecosystem and make the cake bigger?
Kumi: I think it is important to listen to the community's ideas because projects need the power of the community to drive them, and we also need to protect their interests.
Cipher: I think the responsibility of project teams is to build more applications, introduce new things, and collaborate more closely with other project teams. Currently, the Bitcoin ecosystem is still in its early stages, and we are actively connecting with more project teams. For example, at the Bitcoin conference in the United States, we will actively participate and co-host side events with other project teams in the industry to discuss how to make the Bitcoin ecosystem thrive and deliver better products to the community.
Listen to the audio replay of this Space: https://x.com/HelloKellyup/status/1813194302979514783