Since the Ordinals protocol was born in December 2022, the Bitcoin ecosystem has experienced rapid growth and consensus building in the past year. Project parties, venture capital institutions (VCs) and mainstream exchanges have joined in to jointly promote the development of the Bitcoin ecosystem, forming three main tracks: a layer 1 asset issuance protocol, a layer 2 expansion solution, and Bitcoin staking.
The rise of layer 1 asset issuance protocols
Driven by Binance's launch of BRC-20 tokens ORDI and SATS spot trading at the end of 2023, the inscription concept became popular again in the early 2024. This trend not only led other chains to follow suit, but also promoted the rise of other layer-one asset protocol tokens such as ARC-20, SRC-20 and PIPE.
In January 2024, RSIC and Runestone launched rune pre-mining and airdrop gameplay. This innovative mechanism made the community look forward to the upcoming Runes protocol. Subsequently, on April 20, 2024, when Bitcoin was halved for the fourth time, Casey, the founder of Ordinals, announced the launch of the token protocol Runes. However, as the project raised the on-chain handling fee to more than 2,000 satoshis/byte in order to compete for the inscription number, the speculative enthusiasm quickly subsided within two weeks. Although the market value of Runes briefly exceeded US$2 billion in June and November, the vitality and liquidity of new issuance in the ecosystem have always been in a downturn.
Fierce Competition for Bitcoin L2
In early 2024, the Bitcoin L2 track ushered in a blowout development. In the past year, more than 100 Bitcoin L2 projects have emerged in the market, but according to DefiLlama data, only 19 projects are still in existence, with a survival rate of less than 20%, and the total TVL (locked volume) is only about US$2.8 billion. In contrast, the TVL of Arbitrum alone in Ethereum L2 is as high as US$3 billion.
Most of the early Bitcoin L2 projects lacked innovation and generally adopted a similar EVM architecture + cross-chain bridge expansion solution. This model is often questioned - "If this is also considered Bitcoin L2, then Ethereum is the best Bitcoin L2." In the competition, some Bitcoin L2 projects stimulate TVL growth through points and team incentives. On February 9, 2024, the popular project Merlin led the Bitcoin TVL snatching war, and its TVL reached US$543 million in just 24 hours. Subsequently, B² Network, BEVM and Bitlayer also joined the competition.
In the end, Merlin won the competition with a TVL of more than 3 billion USD within a month, and launched OKX’s official token MERL on April 19. However, after the launch, the price of MERL reached a high of 1.78 USDT, and then quickly collapsed, falling by as much as 85%. This phenomenon turned the market’s expectations for the Bitcoin L2 ecosystem into disappointment and criticism.
The potential and risks of Bitcoin staking
In December 2023, the Bitcoin staking protocol Babylon announced the completion of $18 million in financing and officially opened the narrative of Bitcoin staking and re-pledge. In August 2024, the first phase of staking on the Babylon mainnet was launched, reaching the upper limit of 1,000 BTC in just 3 hours. As of now, Babylon’s TVL has reached 57051.72 BTC (approximately US$5.64 billion), but compared with EigenLayer’s TVL of US$15.718 billion, Babylon’s performance is still inferior. At the same time, against the background that the price of Bitcoin continues to break new highs, the market attention gained by Babylon has not increased significantly.
According to Babylon's official website, re-staking protocols (such as Lombard, Solv Protocol, PumpBTC, Bedrock, and Chakra) account for more than 60% of its total staking. The operating mode of these platforms allows users to exchange BTC for platform-wrapped BTC, while enjoying the dual benefits of Babylon and platform points. However, the circulation of wrapped BTC may exceed the value of locked BTC, and this mismatch brings potential liquidity risks.
Gradual improvement of infrastructure
The general infrastructure of the Bitcoin ecosystem has also gradually matured this year. Platforms such as Unisat and OKX Wallet have technically supported multiple asset protocols and have become the main wallets and trading markets in the Bitcoin ecosystem. The improvement of these infrastructures has laid a solid foundation for the further development of the ecosystem.
Summarize
Driven by the Ordinals protocol, the Bitcoin ecosystem has experienced a year of rapid development and boom, but also exposed many problems. From the first-layer asset issuance protocol to the L2 competition to Bitcoin staking, each track has shown potential and challenges. With the gradual improvement of infrastructure, the future prospects of the Bitcoin ecosystem are worth looking forward to, but it is still necessary to find a balance between innovation and liquidity risk.