DOG leads the resurgence of rune popularity; when will the track experience an explosion?
In the past month, DOG has risen from the bottom to a new high, driving a wave of increase and new attention for the Rune token.Author: Alfred @GametoRich, Cycle Capital
I. What are Runes
At the beginning of 2023, the BRC-20 standard, based on the Ordinals protocol, sparked a wave of construction and speculation around BTC assets, promoting hot attention and capital inflow into BTC Layer 2, DeFi, and other ecological infrastructure, positively impacting the long-term development of the BTC ecosystem. However, the speculation around BRC-20 also led to network congestion and redundant data on Bitcoin. In response, Casey Rodarmor, the creator of the Ordinals protocol, proposed the Runes protocol in a blog post in September 2023, aiming to build a replaceable token protocol based on BTC UTXO, known as the "Runes Protocol."
The Runes protocol was officially launched on April 20 this year during the Bitcoin halving. Initially, due to the enthusiasm for the first batch of rune minting, the BTC network's Gas fee peaked above 1000 sats, reaching unprecedented levels. However, market attention quickly shifted from runes to other sectors. Over the past month, DOG has risen from its bottom price to a new high, driving a wave of increase and new attention for rune targets.
1. How Runes Work
The Runes protocol issues and tracks tokens using Bitcoin's native UTXO model, making it more native and decentralized. Additionally, rune balances are directly held by UTXOs, with a single UTXO capable of holding an arbitrary number of runes. This mechanism avoids the creation of "garbage" UTXOs, making it more efficient and reducing on-chain space usage.
Specifically, Runes data is stored in the OPRETURN field, which is an operation code ("opcode") from Bitcoin transactions that allows for the storage of 80 bytes of data in transaction outputs. Transactions use the OPRETURN tag in protocol messages, followed by data pushes starting with the uppercase letter R. Issuance or transfer transactions specify and allocate data pushes to UTXOs in subsequent messages. Invalid protocol messages will result in the burning of runes.
The following diagram visually explains how the Runes protocol conducts issuance and transfer transactions:
Source: Crypto.com Research, GitHub, Casey Rodarmor Blog
2. Comparison of Runes and BRC-20
Compared to BRC-20, the Runes protocol has several important features:
Runes are specifically designed as replaceable tokens, based on Bitcoin's native architecture, without relying on off-chain data and requiring only a single minting, making it simpler and more efficient. In contrast, BRC-20 is based on the Ordinals protocol, which is more suitable for building non-fungible tokens, relies on off-chain indexing, and requires two mintings, making it overall more complex.
Runes data is stored in the 80-byte OP_RETURN field, while BRC-20 uses witness data, which can occupy up to 4MB. In comparison, tokens built on Runes are more compatible, occupy less space, and reduce blockchain bloat.
The Runes protocol is based on the UTXO model, allowing it to integrate with and inherit the security of Bitcoin's native architecture. It has stronger scalability in the future and can seamlessly adapt to the development routes of the BTC ecosystem, such as the Lightning Network and BTC Layer 2.
Source: Binance Research, Ordinals/BRC-20 documentation
3. The Significance of Runes
It further creates a way to issue BTC assets that can break boundaries. Since BRC-20 introduced inscribed assets, this new asset form has brought more attention and capital into the BTC ecosystem. The meme craze on SOL and Base chains in 2023 confirms that memes significantly attract capital to their respective chains. The Runes protocol aims to create a dedicated, replaceable token standard more suitable for speculative activities for BTC.
This asset issuance method is simpler, more efficient, and more compatible than previous methods. The Runes protocol issues tokens based on Bitcoin's native UTXO architecture, without relying on third parties and off-chain data, occupying less space, reducing network congestion, and will seamlessly integrate with various upgrades and ecological solutions of the BTC network in the future (such as L2, bridging, etc.).
The popularity of this asset can further address Bitcoin's security budget issues. Runes transactions can contribute more transaction fees to the network, especially after the halving when miners' block rewards decrease, providing a new source of income that positively impacts the maintenance of network security and sustainability.
II. Overview of Sector Data
From the BTC network data perspective, in terms of transaction volume and share, runes currently account for about 20% of the total network. When the Runes protocol was first launched, transactions were very FOMO, peaking at 81.3%. It then quickly entered a cooling period, and currently, runes account for about 10-40% of the network, allowing us to observe the current market heat of runes.
Comparing runes with BRC-20, runes have become the most active L1 asset outside of BTC transactions, with a ratio of about 4:1. The highest proportion of runes occurred during the halving launch, at about 99%, with a low of about 55%. Currently, the trading heat of runes has surpassed that of BRC-20 tokens.
In terms of fee contribution, native Bitcoin transaction fees account for 70-80%, while runes account for 10-20%, and Ordinals and BRC-20 combined account for about 10%. On the halving day, the proportion of runes reached a peak of 70%. Currently, the speculation around runes has broadened the income sources for BTC network miners and has the highest proportion among new assets.
Source: Dune @cryptokoryo
If we consider both runes and BRC-20 as memes, the meme market capitalization on the Bitcoin chain is the lowest, accounting for less than 0.1% of the chain's total market cap. In horizontal comparison, the meme leaders on ETH and SOL chains account for over 3% of their respective chain market caps. As Bitcoin is the chain with the highest consensus, market cap, and mainstream capital attention, there is potential for the meme coin market cap to expand further. In vertical comparison, while the overall trading volume and fee contribution of runes have surpassed BRC-20, the leading rune's market cap still lags behind that of BRC-20's leading token. If it can list on a top-tier CEX, it has the potential to surpass ORDI.
Source: Cycle Research
III. Runes Evaluation System and DOG Analysis
This article believes that the evaluation of popular rune projects can be analyzed from three stages and nine dimensions. In the early stage, focus on distribution methods, decentralization, founders, and storytelling; in the mid-stage, focus on continuity of dissemination and price continuity; in the mature stage, focus on trading volume, market cap, chip structure, and price stability.
Based on the above logic, this article identifies DOG as the leading project in the current rune sector:
1. Distribution Method: Layered Distribution Design Bearing All On-Chain Costs, Large Scale
Before the launch of the Runes protocol, distribution was conducted in phases, starting with the issuance of rune stone NFTs (Runestone) for speculation, waiting for the halving day when the Runes protocol would go live, to airdrop the first rune to rune stone holders. Moreover, both the airdrop of rune stones and the first rune were completely free for the recipients, funded by the community, with the project party bearing the on-chain costs of issuance.
2. Degree of Decentralization: Early Stakeholders are High-Quality and Numerous, Achieving Rapid Cold Start and Extensive Dissemination Among Core Users
The rune stone airdrop was given to over 110,000 users who had actively participated in the BTC inscription ecosystem, with the rule being that they must have at least three inscriptions in block 826,000 (excluding inscriptions starting with "text/plain" or "application/json," including curse inscriptions retrievable by ordinals). The first rune, DOG, was airdropped to over 70,000 steadfast rune stone holders.
3. Founders and Storytelling
The founder, Leonidas, is an OG in the BTC community and a co-founder of the cutting-edge Ordinals browser Ord.io, closely related to Ordinals creator Casey, with frequent interactions. The name of the rune stone links the Runes protocol launched on halving day and the Runes tone encoding instructions in the protocol, making it highly topical and legitimate. In terms of design, Leo collaborated with a sculptor for custom creation, adding an artistic touch. The first airdropped rune is named DOG, which is the most viral meme figure in the crypto world, issued in the most consensus-driven Bitcoin network.
4. Continuity of Dissemination: Strong and Sustained Attention Attraction
Founder Leo, as an OG in the BTC community, possesses considerable dissemination power and resources, especially in the European and American communities, with frequent promotions. The number of tweets can reach about 100 per day, most of which contain detailed data and provocative content, continuously capturing market attention.
5. Price Continuity: Rune Stones and Runes Relay Speculation
The rune stone NFT was preheated before the launch of the Runes protocol, with prices steadily climbing from March to April, peaking at 0.1166 BTC for one. After the first rune DOG was airdropped, the price of rune stones fell, while the price of rune DOG surged after a month of market pricing and consolidation, rising from around 0.0025 to a peak of 0.0097, currently retreating to 0.0078. There will be two more airdrops for rune stones later this year, which may boost rune stone prices again depending on DOG's price situation.
Rune Stone Price, Source: Okx.com
DOG Price, Source: Magic Eden
6. Trading Volume: Dramatically Leading Other Runes, Best Liquidity
The overall liquidity of the rune sector is relatively poor, while DOG has consistently been the top trading target since its launch. Current trading volume is mainly concentrated on Gate, accounting for over 80%, followed by Bitget, Okx wallet, and Magic Eden, with daily trading volume exceeding $70 million, while the second-ranked Runesx has about $2 million. DOG dramatically leads all rune targets, reaching trading volumes comparable to mainstream tokens.
Source: Okx.com
7. Market Cap: Ranked First Overall
Excluding the very low trading volume and high unit price of ZZZ runes, DOG's market cap has maintained the first position throughout its issuance.
Source: Okx.com
8. Chip Structure: Large Number of Holders, but Chips are Not Concentrated Enough
DOG's on-chain holders remain stable at over 70,000, ranking third among runes. Since the main liquidity is on CEX, the actual number of holders should still be first, with a large number of holders and strong consensus. However, the largest holding ratio of on-chain addresses is around 1.69%, and there has been continuous reduction recently, with only five addresses holding over 1%. The fifth-ranked address is rapidly increasing its holdings, but the overall lack of concentration in chip structure may be the reason why, despite its clear leading position, it cannot yet list on a top-tier CEX.
Source: Okx.com
9. Price Stability: Stable Upward Price Movement
DOG's price has risen steadily and strongly after consolidating around the bottom of 0.002. After stabilizing at points 0.004 and 0.007, it can further rise, and even during overall market corrections, the buying power in terms of volume and price remains strong.
Source: coingecko
Based on the evaluation system proposed in this article, we can dynamically analyze the leading projects in the rune sector and filter new minted targets. Due to space constraints, this article will not elaborate further.
IV. Conclusion
Runes are a protocol specifically designed for replaceable tokens, technically simpler, more efficient, and more compatible than BRC-20. In terms of transaction share and fee contribution, they have surpassed BRC-20 tokens, becoming a new asset form that must be taken seriously.
Currently, the main role of runes is to enhance the attention and capital capture of the Bitcoin network as a meme coin, which has significance for sustainable development. However, data shows that it has not yet experienced a comprehensive explosion, indicating further price discovery potential.
This article proposes a three-stage, nine-dimensional evaluation system for rune projects. Currently, DOG is in the leading position compared to other targets, but its chip structure is relatively dispersed, and it may take some time to accumulate before listing on a top-tier exchange.
