In 2024, I feel "regret" about the Bitcoin ecosystem

Author: Golem, Odaily Planet Daily

As 2024 comes to an end, people in the crypto space have their own year-end summaries: first, to see if the investment returns this year have outperformed the market (just a reminder, BTC has risen over 130% this year), and second, to summarize the development of the sectors/ecosystems they are concerned about over the past year.

The Solana ecosystem, Base ecosystem, TON ecosystem, and AI Agent sector have all had their shining moments this year. For the Bitcoin ecosystem, although many things have happened this year, including ecological infrastructure and application innovation, it has not yet met the expectations people had at the beginning of 2024.

As a result, some have summarized this year’s silence in the Bitcoin ecosystem as a "failure," while others, steadfast OGs of the ecosystem, continue to choose to "believe." As an ordinary player in the Bitcoin ecosystem from the beginning, I choose to conclude this year with the word "regret."

2024 Actually Has a Good Start

2024 actually has a good start for the Bitcoin ecosystem. At the beginning of the year, people held expectations for the Bitcoin ecosystem, believing that 2024 would be the year of its complete explosion and entry into the mainstream, much like the current belief that 2025 will be the year of the AI Agent ecosystem's explosion.

Why did we have such high expectations for the development of the Bitcoin ecosystem in 2024? Perhaps it is because since the birth of the Ordinals protocol in December 2022, the Bitcoin ecosystem has undergone a year of growth and consensus-building, transitioning from the "barbaric era" to the "industrial era." Project teams, VCs, and mainstream exchanges have all entered the space, forming three main tracks: asset issuance protocols, L2, and Bitcoin staking.

From the perspective of asset issuance protocols, influenced by Binance's launch of BRC 20 tokens ORDI and SATS spot trading at the end of 2023, the concept of inscriptions became popular again at the beginning of 2024. Not only did this heat inspire other chains to follow suit and start their own inscription modes, but it also drove up the tokens of other asset protocols such as ARC 20, SRC 20, PIPE, etc. Meanwhile, the rune pre-mining and airdrop play initiated by RSIC and Runestone in January 2024 also filled people with anticipation for the upcoming Runes protocol.

From the development of L2, Bitcoin L2 experienced explosive growth at the beginning of 2024. With the hot asset issuance and trading, the congestion issues on the Bitcoin mainnet and players' demand for increased playability of mainnet assets made Bitcoin L2 a popular entrepreneurial direction. By early 2024, it was reported that over 100 Bitcoin L2 projects had emerged in a short period. Although many of these projects were poorly constructed and aimed at "making a quick profit," overall, domestic and foreign VCs began to invest heavily in Bitcoin L2, hoping that Bitcoin L2 could replicate the glory of the Ethereum L2 ecosystem in 2024.

69 Bitcoin L2 projects summarized by @Bitvmclub in March 2024

In terms of Bitcoin staking, the Bitcoin staking protocol Babylon announced in December 2023 that it had completed a $18 million financing round, officially kicking off the narrative of Bitcoin staking and re-staking. With the Ethereum ecosystem's top-tier project EigenLayer as a model for re-staking narratives, people believe that with Bitcoin's stronger consensus foundation and security compared to Ethereum, the prospects for Bitcoin staking and re-staking in 2024 will be very broad. This will not only awaken dormant Bitcoin whales to participate in the Bitcoin ecosystem but also form a re-staking ecosystem comparable to Ethereum's.

In addition to the overall positive trends exhibited by the three main tracks at the beginning of 2024, the general infrastructure of the Bitcoin ecosystem (such as wallets, cross-chain bridges, and trading markets) has also gradually improved during this period. Unisat and OKX Wallet have technically supported multiple asset protocols, becoming major wallets and trading markets in the Bitcoin ecosystem.

The approval and listing of the Bitcoin spot ETF on January 11, 2024, marked Bitcoin's formal integration into traditional finance. At the same time, this further strengthened people's expectations for the Bitcoin ecosystem, as a network worth trillions of dollars would inevitably develop into a market scale of hundreds of billions of dollars.

However……

Regrettably, the Bitcoin ecosystem in 2024 did not welcome the attention and development that surpassed previous bull market peaks, and instead entered a long period of silence.

Mainnet Asset Performance Deteriorating

On April 20, 2024, Bitcoin experienced its fourth halving, and the token protocol Runes, developed by Ordinals founder Casey, also announced its launch. In order to compete for inscription numbers, project teams raised on-chain fees to over 2000 satoshis/byte. People believed this was the beginning of the Runes relay BRC 20 that would sustain the prosperity of the Bitcoin ecosystem, but unexpectedly, Runes peaked at the start, and speculative enthusiasm faded within two weeks. Although the market cap of Runes briefly surpassed $2 billion in June and November, the vitality and liquidity of new projects within the ecosystem remained sluggish.

At the same time, the performance of other asset protocols this year has been similar, with ORDI's peak drop reaching 70%. New assets initially sparked FOMO among market participants, but later, due to the lack of new capital and traffic, they deteriorated, such as the PIZZA airdrop from Unisat and CAT 20 from the Fractal network.

The reasons for this may be twofold: first, after experiencing previous Bitcoin bull markets, the narrative of fair asset issuance for Bitcoin after Runes no longer excites the outside world and fails to generate a wealth effect; second, there is a lack of synergy between domestic and foreign markets, with large communities for Runes primarily led by overseas users, while major funds in the Chinese-speaking region remain focused on BRC 20, such as this year's popular inscriptions like "ground-push coins" 𝛑 and 𐊶.

Bitcoin L2 Survival Rate Below 20%

At the same time, regrettably, the Bitcoin L2 ecosystem in 2024 did not achieve the prosperity that was initially expected. "Except for the Lightning Network, all other Bitcoin L2s are castles in the air," Casey, the founder of the Ordinals protocol, criticized when discussing Bitcoin L2 in an interview.

In the past 12 months, there have been over 100 Bitcoin L2 projects in the market, but according to DefiLlama's data, only 19 L2s remain today, with a total value locked (TVL) of about $2.8 billion. In contrast, the Ethereum ecosystem's L2, with Arbitrum alone having a TVL of $3 billion.

So, why has the expansion of the Ethereum L2 ecosystem been validated as feasible, while the development on the Bitcoin ecosystem has not been satisfactory?

Most early Bitcoin L2s lacked innovation. In the early days of the Bitcoin L2 track, many L2s adopted an EVM-like architecture + cross-chain bridge approach to expand the Bitcoin mainnet in order to attract investment and quickly build an ecosystem. Although this method borrowed from Ethereum's experience, making it easy and quick to build chains and lowering user education costs, it lacked innovation and was often met with skepticism, such as "if this is called Bitcoin L2, then Ethereum is the best Bitcoin L2." This has proven to be true, and as the hype faded, these hastily assembled L2s quickly disappeared.

Bitcoin L2s started the TVL competition too early. Perhaps influenced by Ethereum L2 Blast, Bitcoin L2s learned from the beginning to stimulate TVL growth through points and team incentives. Merlin became a popular chain among Bitcoin L2s, and on February 9, 2024, it fired the first shot in the Bitcoin TVL competition. Within just 24 hours, its TVL reached $543 million, while B² Network, BEVM, and Bitlayer also joined the TVL competition.

Ultimately, Merlin won this competition with a TVL exceeding $3 billion within a month and launched its official token MERL on OKX on April 19. After its launch, the price of MERL peaked at $1.78 USDT but quickly collapsed, with a peak drop of 85%. Since then, the focus on prices has shifted from anticipation to disappointment and criticism regarding the Bitcoin L2 ecosystem.

Who Recognizes the Bitcoin Staking Narrative?

The luxurious financing lineup and "sexy narrative" of Babylon and its underlying Bitcoin re-staking ecosystem is another track that was highly anticipated in the Bitcoin ecosystem in 2024. When Babylon's mainnet launched its first staking phase in August, it attracted widespread attention, reaching the limit of 1,000 BTC in just 3 hours. Currently, Babylon's TVL stands at 57,051.72 BTC, approximately $5.64 billion. However, compared to EigenLayer's TVL of $15.718 billion, Babylon's TVL is only one-third of that, and despite Bitcoin continuously breaking new highs, the market's attention on Babylon has not increased. Who exactly recognizes the Bitcoin staking narrative?

There is a mismatch between the market and the product; real large holders are unwilling to part with their Bitcoin. Babylon's narrative slogan is to unlock the liquidity of 21 million BTC through staking, but the market may not buy it. The market recognizes Ethereum as the on-chain native financial asset while still viewing Bitcoin as "digital gold," which partly explains why the scale of funds for Bitcoin spot ETFs is much larger than that for Ethereum spot ETFs.

For Bitcoin holders, as Bitcoin continues to rise, they are even less willing to part with their holdings. For traditional finance, Bitcoin spot ETFs and MSTR are what they truly favor in BTCFi. This is completely inconsistent with the Ethereum ecosystem, which encourages staking by design.

Babylon sets the stage, but others are performing. According to Babylon's official data, re-staking protocols like Lombard, Solv Protocol, PumpBTC, Bedrock, and Chakra account for over 60% of Babylon's total staking volume. The operation of these platforms can be summarized as users exchanging their BTC for the platform's wrapped BTC, which the platform then deposits into Babylon, allowing users to enjoy dual rewards from Babylon and the platform. However, the problem is that the BTC deposited by users and the platform's wrapped BTC may not be on a 1:1 basis, leading to a situation where the circulating wrapped BTC exceeds the locked BTC value, which may entail liquidity risks.

At the same time, the security of re-staking protocols is also worth considering. Previously, Bedrock suffered an attack that resulted in approximately $2 million in losses on DEX. Although Babylon claims to use a self-custody solution to protect user funds, most of the re-staking protocols behind it use custodial solutions, which contradicts Babylon's initial promotional concept. Therefore, not only are large holders unwilling to stake BTC, but under conditions of unclear returns and insufficient security guarantees, retail investors may also hesitate to participate in staking.

In summary, while the Bitcoin ecosystem had a good start in 2024, the peak performance of the Runes protocol at launch, the rapid cooling of various asset protocols, the dramatic developments of Merlin and other Bitcoin L2s, and the failure of the Babylon ecosystem to bring about the anticipated BTCFi bull market have left us feeling regretful about the development of the Bitcoin ecosystem this year.

Will Everything Be Better in 2025?

It is important to emphasize that what I have said above is not to sing the blues for the Bitcoin ecosystem or to conclude its fate—there is always a gap between people's beautiful expectations for the future and the actual situation, and I call this gap "regret." This is also my summary of the Bitcoin ecosystem this year.

To this day, there are still steadfast holders and builders in the Bitcoin ecosystem. Communities around ORDI, Runes DOG, PUPS, etc., are continuously building, and OKX Wallet and Unisat are still working on improving the infrastructure. Although the Bitcoin L2 bubble has burst, the surviving teams have not given up, and a series of innovations like OP_CAT are on the way. Babylon may also have its TGE in January-February 2025…

Will everything be better in 2025? Although we did not witness a larger-scale explosion in the Bitcoin ecosystem this year, I still believe that the Bitcoin ecosystem will become the protagonist of this cycle, and I look forward to 2025 with confidence.

If it were you, what keyword would you give to this year's Bitcoin ecosystem?