The inscription is the DeFi Summer of 2023
The core of cryptocurrency lies in narrative, and narrative is a cycle.Author: kaori, nakamao
On November 12, Binance launched the Bitcoin inscription project SATS (1000SATS), reigniting the inscription craze. Meanwhile, the prices of inscriptions on chains like Solana and Avalanche continue to rise, prompting various off-market inscription groups to become active again. Previously, the Rune Alpha token COOK, which had raised community doubts about its legitimacy, had a minting cost of around $25 per piece, but its off-market price has now reached $400. Many crypto users bluntly state that "the authenticity no longer matters," highlighting the extent of FOMO.
Earlier today, according to Mempool.space data, the best transaction fee on the Bitcoin network was 324 Satoshi/vbyte, with the number of unconfirmed transactions reaching 278,087. Observing the block fee rate data of the Bitcoin network over the past month, it can be seen that it has reached a level similar to the previous peak in recent days.
The statement "inscriptions are a bug" has not caused a lasting impact on the inscription market, and the community is daily engaging with different inscription projects, making it hard not to recall the last cycle's DeFi Summer.
The Glory of the DeFi Era
To grasp the rhythm of BTC ecosystem development, one might review the engine of the last bull market—the development path of DeFi.
Compound initiated liquidity mining, attracting funds and popularity to the protocol through on-chain liquidity, while distributing protocol tokens accordingly. Combining protocol tokens with existing assets was the first layer of gameplay in DeFi at that time.
Subsequently, to "improve efficiency" and incentivize the protocol's own tokens, the so-called second pool emerged, where users placed their own tokens into the protocol, striving to achieve the ambitious goal of "pulling oneself off the ground by one's hair." At this point, DeFi entered the second layer of gameplay, marking the great sailing era for DeFi Degens. "Only mine the second pool" became their unchanging declaration.
With the launch of yearn (YFI) on Binance and many centralized exchanges, a host of new KOLs embracing DeFi rallied for it. At the height of the frenzy, the most circulated content in the YFI community was Andrew Kang from Mechanism Capital's valuation model for YFI, along with a website predicting when YFI's price would surpass BTC.
Soon, the DeFi market fell into complete madness, with Big Data Protocol achieving a TVL of $6.5 billion in just two days, becoming the top DeFi project by total locked value. Founders like Shen Yu from F2pool and Cobo, as well as SBF from FTX, participated and contributed a significant portion of the TVL.
Today, while Big Data Protocol still operates on social media, its products have become neglected. Although the tokens have been fully distributed, the initial liquidity pool from the token distribution is still present, with no sign of the initial APY.
During the DeFi Summer era, gas fees often exceeded hundreds of dollars, mirroring the current high transaction fees of BTC. Accompanied by the much-criticized yet indispensable high gas fees of Ethereum, this marked the EVM era of DeFi: Binance Smart Chain (BSC, now BNB Chain), Matic, Fantom, Crons, and Avax C chain. The EVM chains, now abandoned by the market, were once the darlings of retail investors and created many wealth myths.
The above scenario closely resembles the inscription market that has spread from the Bitcoin ecosystem to other chains. Looking ahead, Bitcoin's L2 ecosystem will likely follow the path of more legitimate Rollup L2s, even if it takes time to reach that point. Conversely, Ethereum and its EVM chains may become the ones lacking legitimacy in BTC's bull market.
Are Inscriptions the DeFi Summer of 2023?
The core of cryptocurrency lies in narrative, and narratives are cyclical.
The narrative of the DeFi Summer in 2020 originated from Ethereum, where new asset issuance models like liquidity mining created many wealth myths. Later, as the wealth effect diminished and the bubble burst, Ethereum experienced a massive infrastructure explosion, subsequently launching numerous new tracks like NFT and GameFi, leading to another bull market.
After a year-long bear market, the narrative of inscriptions has re-emerged. Inscriptions originated from Bitcoin, starting from being overlooked to early on-chain exploration, and then to the launch of Unisat and the entry of various CEXs, completing the early capital accumulation of the inscription track.
The further breakout of inscriptions came with Binance's listing of ORDI, akin to the significance of Big Data Protocol during DeFi Summer, while inscriptions on other chains sprang up like mushrooms after rain. Additionally, it has spurred the development of meme coins and NFTs on Bitcoin, with the only difference from DeFi Summer being that back then, people traded fruits, while now they trade animals. In terms of going to zero, inscriptions have performed no worse than liquidity mining.
In December, Jademont, founder of Waterdrip Capital, stated in a Space that at least 10 Bitcoin Layer 2 networks will launch next year, which also means that the Bitcoin ecosystem and the inscription track will further follow a development path similar to that of Ethereum and DeFi in 2020, expanding infrastructure and accommodating more use cases.
Galaxy Research and Mining predicted in March this year that by 2025, the market value of Bitcoin's Ordinals market would reach $5 billion, with only 260,000 inscriptions at that time. Now, the number of inscriptions has reached 47.75 million, growing 180 times in less than a year. The two inscription projects listed on Binance, ORDI and SATS, have market values of $1.15 billion and $1.294 billion, respectively. This indicates that the predictions for the entire inscription market have been significantly underestimated.
Fair Launch
The core logic of inscriptions resembling the former DeFi Summer lies in Fair Launch.
Fair launch was once a hot concept during DeFi Summer, referring to a method of asset distribution where the project team does not retain initial tokens. For example, Andre Cronje, the founder of Yearn (YFI), claimed he did not pre-mine, retain, or notify internal personnel in advance, which boosted his reputation, while Yearn's TVL provided him with the best returns.
As DeFi Summer progressed towards its end, more and more projects emerged, and the entire ecosystem became more mature. Capital also entered the market at opportune times, initiating a VC-driven project launch model, where the more funding received and the more reputable the participating institutions, the better market attention one could garner. This also gave rise to a group of crypto users relying on "farming" for a living and ordinary retail investors eagerly awaiting airdrops from star projects.
The emergence of inscriptions has changed this situation. Some say inscriptions are "the realm of retail investors," as all the chips are minted by retail investors themselves. Although some question their meme coin attributes and lack of practical application scenarios for longevity, from pooling funds to relatively fair computer configurations, retail investors have still gained a lot in this inscription frenzy.
As more inscription projects emerge and the asset issuance phase is over, the Bitcoin ecosystem will enter the application construction phase. As mentioned earlier, the market will see a batch of projects building Bitcoin L2, indicating that inscriptions have reached a point of narrative transformation. However, the new bull market already has the best narrative.
