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 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 others, seem to have gone silent. As core participants in this field, how do you interpret this bottleneck from your own perspectives?
Kongkong: The BTC ecosystem has emerged since the beginning of Runes. BTC has irreversible consensus and nativeness, so everyone has high expectations and hopes for the BTC ecosystem. However, there will inevitably be ups and downs in the technological growth path, and it is impossible to achieve success overnight. 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 those protocols based on native BTC or derived from the underlying BTC architecture will go further and be recognized by more people.
Cipher: The entire Bitcoin ecosystem encountering certain bottlenecks or cooling down was foreseeable. When Runes was very popular, most mainstream assets were meme coins, which relied on consensus and community to thrive. However, consensus and community cannot be too large, as too much decentralization would reduce the cohesion of consensus. 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 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 there. 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, which at least take months. We just 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.
How to View and Interpret Bitcoin L2#
Host: With so many BTC L2 solutions emerging, how do you view and interpret Bitcoin Layer 2?
Cipher: Regarding Bitcoin L2, in the early days, many people thought it was more like the Lightning Network, while others considered the RGB protocol as L2. After the Runes frenzy, more people referred to the cross-chain bridge 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, so 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 uses 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 UTXO, protected by Bitcoin's PoW security. Another category relies on cross-chain bridges, which are more like sidechains that transfer 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, I believe that as a Bitcoin L2 solution, it is best to utilize Bitcoin's technical features and advantages, rather than simply copying the Ethereum model, even though the latter can bring the entire Ethereum ecosystem. Without utilizing Bitcoin's technical features and advantages, there is no fundamental difference between Bitcoin L2 and Ethereum L2, and the possibilities for gaining additional users and profits will be reduced.
RGB++ Layer hopes to build Bitcoin L2 projects using some of Bitcoin's native features. What are the benefits of doing this? Let me give you 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 of UTXOs to be connected between different chains. Another example is security, as Bitcoin cannot guarantee the security of sidechains, but our RGB++ can achieve forced withdrawal. If a node in L2 goes down and we cannot access L2 data, we can still use local data on L1 to achieve asset withdrawal. This is the benefit we gain from using the Bitcoin 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.
Kongkong: 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 ultimately 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?
Kongkong: 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 do certain things, 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 really been realized. When we see a large number of users flooding in, it may just be to play with some memes, and there is no sustainable business model to drive the mass demand for blockchain. Many demands are short-term, including Ethereum's DeFi Summer, where the number of users sharply declined after the frenzy. However, DeFi Summer did establish many infrastructures, such as DEXs and stablecoins.
Let's go back to 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 are the uses and destinations of these assets? The essence of RGB++ Layer is to add a programmable layer to Bitcoin, issue programmable assets on Bitcoin L1, and then use various DeFi applications to accommodate the subsequent uses of these assets.
As for whether the industry will have a breakthrough, whether it can achieve mass adoption, and whether we can give all these high hopes to our ecosystem, I think it is a bit unrealistic and unfair. However, we can at least work on infrastructure within the Bitcoin ecosystem, create more use cases, and further advance the utility of Bitcoin. For example, the upcoming IBO platform allows Bitcoin to participate in new token sales through smart contracts. After the tokens are issued, they will directly enter an AMM DEX to create liquidity for the assets. The IBO model is between the VC model and Fair Launch, community-driven, and the project team also has the motivation to promote their project development.
In the previous discussions, a guest mentioned community consensus. I believe that community consensus is the result, and the wealth creation effect is also the result. There must be a foundation before the result. 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 space. However, this has been proven 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 stages, 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 a single project team can solve. It depends on industry trends, such as the impact of macro factors like the Federal Reserve's interest rate cuts and the US presidential election in the second half of the year. What we can do is to be prepared technically so that when the big wave comes, we have something, a narrative, to catch it.
Host: UniSat also released a Bitcoin L2 solution. What are the advantages of RGB++ Layer compared to it?
Cipher: First, I think the industry is big enough, or the Bitcoin track is big enough, so we don't have much competition, but more like exploring different technological routes. We have also had in-depth communication 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 some OP Codes that Bitcoin has not officially activated, such as OP_CAT. RGB++ Layer is also based on Bitcoin UTXO, but it expands on many things and achieves Turing-completeness and programmability. While Fractal Bitcoin and Liquid are more like Bitcoin in terms of development models, the downside is that they are also limited by Bitcoin and can only achieve limited scalability, making it difficult to achieve Turing-complete smart contracts.
Therefore, Fractal Bitcoin and RGB++ Layer are exploring different directions and are both very meaningful.
How to Expand the Cake Together#
Host: From the perspective of project teams, how should we work together to expand the Bitcoin ecosystem and make the cake bigger?
Kongkong: I think we should listen more to the ideas of the community, as 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, bring out new things, and establish closer connections with the community and 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 jointly organize side events with other project teams in the industry to discuss how to prosper the Bitcoin ecosystem and provide better products to the community.
Listen to the audio replay of this Space: https://x.com/HelloKellyup/status/1813194302979514783