Last week, CKB Chinese (@CKB_CN) held a Space with the topic of "Exploring the potential and investment opportunities of Bitcoin Finance (BTCFi) from RGB++ Layer Upgrade", and invited UTXO Stack founder and RGB++ protocol author Cipher, Rats Builder Eric, AMBBI Builder AMAI, LBank co-founder Xiang Chang, KOL Kong Kong, and CKB Eco Fund Research Lead Dr. Hongzhou Chen.
The following are some key points shared by some guests based on the audio playback:
The silence of BTC ecosystem
Moderator: With the continuous development of the Web3 industry, the BTC ecosystem was hot last year, and various protocols and projects emerged one after another, such as BRC20, BTCFi, Runes, and BTC L2. However, BTC's position in cryptocurrency remains solid, but the innovation and development of the BTC ecosystem still faces many challenges. Recently, some BTC L2 projects that were popular a few months ago, as well as inscriptions, runes, NFTs, etc., seem to have fallen into silence. You are all core participants in this track. From your own perspective, how do you view this bottleneck?
Kong Kong: Since the inscription, the BTC ecosystem has come into being. BTC has irreversible consensus and nativeness, so everyone is very optimistic about the BTC ecosystem and has great expectations. However, there will definitely be ups and downs in the growth path of technology, and it is impossible to achieve it overnight. There are many BTC L2 projects at present, a large part of which are directly applied to the EVM set, and there are many problems. In my opinion, many L2 projects will be eliminated in the future, and those projects based on the native BTC protocol or derived from the BTC underlying architecture will go further and be recognized by more people.
Cipher: It is foreseeable that the entire Bitcoin ecosystem will encounter certain bottlenecks, or be cold, because when the inscriptions were very popular, most of the mainstream assets were Meme coins, which are driven by consensus and community, and there cannot be too many consensus and communities, because once there are too many, it will cause dispersion, and once it is dispersed, its consensus cohesion will be reduced. Therefore, the capacity of the Meme track is very limited. A protocol may have the top few leading Meme coins, but it will be difficult for them to survive in the future.
So, how to break the deadlock? When Meme coins encounter bottlenecks, people will naturally turn to utility tokens, that is, assets must have uses or empowerment. And this empowerment must rely on a programmable asset, not a non-programmable asset. Therefore, at this time, only Turing-complete or programmable assets have the ability to take on the next narrative of the Bitcoin ecosystem. This is why we released the concept of RGB++ Layer at this point in time.
In our ecosystem, some applications have been released or are ready to be released, such as UTXOSwap, which was launched a few days ago. It is an AMM DEX in the UTXO world and seamlessly connects to the RGB++ ecosystem. More products and applications will be released in the future. The next stage, the so-called BTCFi, is that the assets we minted before finally have a way to play and utility, and can participate in various DeFi applications. This is the technical and product foundation for the explosion of the Bitcoin ecosystem.
Dr. Hongzhou Chen: After the various inscriptions and runes in the Bitcoin ecosystem were issued, they have indeed cooled down a bit, but judging from the information fed back by various communities, people are still there. On the other hand, everyone is actually waiting to see if there are any technical projects and infrastructure that can be run. Cipher just talked about this, so there is no need to be so pessimistic. These technical projects and infrastructure have a development cycle, which takes at least months, so we just need to wait patiently. After these infrastructures and applications are built, Bitcoin's native finance will have many ways to play. I am personally very confident about the subsequent ecological development.
How to view and interpret Bitcoin L2
Host: There are so many BTC L2s emerging now. How do you view and interpret Bitcoin Layer 2?
Cipher: Regarding Bitcoin L2, in the early days, people thought it was more like the Lightning Network, and some people also thought that the RGB protocol was also considered L2. After the inscription craze, more people also called the cross-chain bridge plus EVM L2. Bitcoin Magazine believes that Bitcoin L2 must meet three conditions: 1) Use Bitcoin as the native asset; 2) Use Bitcoin as a settlement mechanism to enforce transactions; 3) Demonstrate functional dependence on Bitcoin. If the Bitcoin network fails but the related system can still operate, then the system is not Bitcoin L2. Therefore, there is no unified standard for Bitcoin L2, and everyone builds it on their own.
But technically, they can be divided into several categories. One category uses some native features of Bitcoin, such as PoW, UTXO, and joint mining with Bitcoin, to increase Bitcoin's throughput or expand Bitcoin's smart contract capabilities. RGB++ uses some native features of Bitcoin on the first layer, such as it is associated with Bitcoin UTXO and is protected by the security of Bitcoin PoW. The other category relies on cross-chain bridges, which are more like what we used to call side chains, which transfer assets on Bitcoin to a new chain to realize various applications. There is also a category between the two mentioned above, represented by Babylon, which provides security for L2 by staking BTC.
I personally think that as a Bitcoin L2, it is best to utilize some of Bitcoin’s technical features or advantages, rather than copying Ethereum’s, although the latter can move the entire Ethereum ecosystem over. If some of Bitcoin’s technical features and advantages are not utilized, there is no essential difference between Bitcoin L2 and Ethereum L2, and the possibility of acquiring additional users and revenue will be reduced.
RGB++ Layer hopes to use some of Bitcoin's native features to build Bitcoin L2 projects. What are the benefits of doing so? Let me give you a few examples. One is bridgeless cross-chain (Leap). RGB++ assets can be transferred between L1 and L2 without relying on any form of multi-signature cross-chain bridge. This relies on the feature that UTXO can be connected in series between different chains. Another example is security. Bitcoin cannot guarantee the security of the side chain, but our RGB++ can achieve forced exit. That is, when the L2 point node is down and the L2 data cannot be obtained, we can still use some local data to realize the exit of assets on L1. Behind this is actually the benefit of using the Bitcoin UTXO model. If you copy the account model, you can't get these advantages.
To sum up, I think the emergence of so many Bitcoin L2s is a good thing, because everyone is trying different directions, but I personally am more optimistic about the L2 solution that evolves based on Bitcoin's native technology and native technology route.
Kumi: Different Bitcoin L2 solutions are definitely different in technology, but I personally prefer to focus on consensus and the wealth-creating effect of these projects. From the user's perspective, these projects will ultimately rely on the power of consensus.
Can BTCFi reproduce the grand occasion of DeFi Summer?
Host: Will BTCFi (Bitcoin Finance) replicate the grand occasion of Ethereum DeFi Summer?
Kumi: From the perspective of new asset issuance methods, it is possible that the Bitcoin ecosystem will experience the same kind of DeFi Summer.
Cipher: Let me first talk about my opinion on "many Bitcoin L2s are fake demands", which I half agree with. The demand for L2 is obviously based on the premise that L1 is either congested or cannot do some things, and the current situation is that Bitcoin, Ethereum and other chains are not congested in the bear market.
If we look at it from a broader perspective, this is actually a problem for the entire industry. Several years ago, everyone started talking about mass adoption, but it has not really been implemented until now. Everyone sees a large number of users pouring in, maybe just playing some memes, and there is no sustainable business model to drive large-scale demand for blockchain. Many demands are short-term, including Ethereum's DeFi Summer. After the craze, the number of users dropped sharply, but DeFi Summer did build a lot of infrastructure, such as DEX, stablecoins, etc.
Let's go back to the real needs of Bitcoin L2. In the blockchain industry, asset issuance has always been a core topic, but what to do after the asset issuance is completed, what is the use and where to go. The essence of RGB++ Layer is to put a programmable layer on Bitcoin, issue programmable assets on Bitcoin L1, and then use various DeFi to undertake the subsequent use of these assets.
As for whether the industry will have a breakthrough and whether mass adoption can be achieved, I think it is a bit unrealistic and unfair to put all such high hopes on our ecosystem. However, we can at least do some infrastructure work in the Bitcoin ecosystem to realize more gameplay and take the use of Bitcoin one step further. For example, the IBO platform that will be launched soon uses Bitcoin to subscribe to new coins through smart contracts. After subscribing to new coins, they will directly enter the AMM's DEX to complete the creation of the trading pool, allowing the assets to immediately have liquidity. The IBO model is between the VC model and the Fair Launch model, which is community-led, and the project parties are also motivated to promote their project development.
In the previous sharing, a guest mentioned community consensus. I think community consensus is a result, and the wealth-creating effect is also a result. There must be a foundation before the result. From the perspective of RGB++, what we found is that we have unique technical advantages, and this technical advantage can gain some product advantages, and the product advantages can make users feel them, thereby further promoting community consensus. This is our path.
Finally, regarding BTCFi Summer, there has never been a large-scale connection between the project developers, community and financing on Bitcoin in the past, but this has been verified in the Ethereum world. We have moved this over and at the same time provided the subsequent infrastructure, including easy-to-use wallets, browsers, trading pools, AMM DEX, lending, stablecoins, etc. After we have prepared all these, it is very likely that we will replicate the success of Ethereum DeFi Summer.
RGB++ Layer Aggregate Liquidity
Moderator: How does RGB++ Layer gather more liquidity?
Cipher: Liquidity fragmentation is actually a common problem of L2. From a technical perspective, we can achieve bridgeless cross-chain based on the UTXO chain, and can naturally aggregate assets on different L2s to make an application similar to full-chain DeFi. Of course, objectively speaking, we are still in the early stages, and the number of assets and users on the RGB++ Layer is not enough, but in the long run, once our business expands to other different L2s, the advantages of technical architecture will allow us to solve these problems that seemed difficult to solve in the past.
On the other hand, how to let new funds in, that is, how to let new liquidity in. I think this is not something that can be solved by a technology or a project, but depends on the trend of the industry, such as the impact of macro factors such as the Fed's interest rate cut in the second half of the year and the US election on the trend. What we can do is to make technical preparations first, so that when the tide comes, we have something and a narrative to catch up.
Host: UniSat also released a Bitcoin L2. What are the advantages of RGB++ Layer compared to it?
Cipher: First of all, I think this industry is big enough, or the Bitcoin track is big enough, and we don’t have too much competition. It’s more like two technical routes exploring in different directions. We have also had in-depth communication on the technical level.
The exploration direction of Fractal Bitcoin is somewhat similar to that of Liquid, the forerunner network of Bitcoin, and the advantage is that it is more like Bitcoin. It is also based on PoW, and introduces the security part of Bitcoin into Fractal Bitcoin through merged mining. In addition, it is more of a technical innovation, such as the introduction of OP Codes that have not yet been officially opened by Bitcoin, such as OP_CAT. Although RGB++ Layer is also based on Bitcoin UTXO, it has expanded a lot of things and achieved Turing-complete programmability expansion. Fractal Bitcoin and Liquid are more like Bitcoin in development models, and the disadvantage is that it is also limited by Bitcoin and can only be expanded to a limited extent, and it is difficult to achieve Turing-complete smart contracts.
Therefore, Fractal Bitcoin and RGB++ Layer are exploring in different directions, and both are very meaningful.
How to Make a Large Cake
Moderator: From the perspective of the project, in the process of promoting the growth of the BTC ecosystem, how should we work together to make this pie bigger?
Kumi: I think we should listen more to the community’s ideas, because the project needs the power of the community to drive it forward, and we must also protect their interests.
Cipher: I think the responsibility of the project is to build more applications, come up with new things, and connect more closely with the community. Projects should cooperate more with each other. The Bitcoin ecosystem is still in its early stages, and we are actively connecting with more project parties. For example, we will actively participate in the Bitcoin Conference in the United States, and jointly organize side events with other project parties in the industry to discuss how to prosper the Bitcoin ecosystem and how to make better products for community users.
