Everything We Know About Bitcoin DeFi So Far (2023)

bitcoin defi May 23, 2023
Bitcoin rabbit hole
There's so much info to cover that we're not gonna waste any time thinking of a catchy hook for you sers...

If you're a degen, then you need to pay attn to what I'm about to tell you...
Down the rabbit hole we go! ๐Ÿ‘‡



What this post will cover:


1๏ธโƒฃ We Are Early (and its dangerous)

2๏ธโƒฃ The Degens Are Coming!

3๏ธโƒฃ The Current Landscape

4๏ธโƒฃ BRC-20

5๏ธโƒฃ ORC-20

6๏ธโƒฃ SRC-20

7๏ธโƒฃ Lessons From the Past

Bitcoin DeFi is not an oxymoron anymore, or is it?๐Ÿ‘‡

1๏ธโƒฃ We Are Early (and its dangerous)


Here's the timeline so far:

SegWit update = Aug 2017 ๐Ÿ‘‡

Taproot update = Nov 2021 ๐Ÿ‘‡

Ordinals protocol launch = Jan 2023 ๐Ÿ‘‡

BRC-20s launch = Mar 2023 ๐Ÿ‘‡

ORC-20s launch = May 2023 ๐Ÿ‘‡

SRC-20s launch = May 2023 ๐Ÿ˜…
Most of the dev hype has happened in the last 6mo, so we're def in the EARLY DAYS of Bitcoin DeFi.


Early = Risky, and don't you ever forget that Mr. Degen!

So, what are the risks?

There are lots, but here's the TLDR;

This experiment is likely to FAIL.๐Ÿ˜จ

We'll rephrase it: this experiment is likely to fail on its FIRST ATTEMPT.

This is normal.

Its how new technology works.

Tech takes time.

This doesn't mean we won't have a "Bitcoin DeFi Summer" speculative mania over the next few months tho...

It just means we should be very careful about how we invest, because this tech is many years away from being ready, and perhaps it never will be.

Only time will tell.

If you wanna know more about the tech and the history of development that got us here, go read this article ๐Ÿ‘‡
So, how early is it, really?

Well, let's look at some numbers...

DeFi TVL in Ethereum rn = $31.2B

DeFi TVL in Bitcoin rn = $0 ๐Ÿ‘‡ Image
Current marketcap of ERC-20s = ~$355B

Current marketcap of BRC-20s = ~447M ๐Ÿ‘‡ ImageImage
ERC-20 active address count change (30d) = +7%

BRC-20 active address count change (30d) = +10,000% ๐Ÿ‘‡ ImageImage
Tx count change on Ethereum (30d) = +20%

Tx count change on Bitcoin (30d) = +2,400% ๐Ÿ‘‡ ImageImage
As you can tell by the data, we're likely at the start of a new crypto speculative cycle...


...which is why we've seen a Cambrian-style explosion in Bitcoin DeFi development over the last 30 days! ๐Ÿ‘‡  

2๏ธโƒฃ The Degens Are Coming!



Anecdotally, we can also tell you:

๐Ÿ˜ฒ ETH devs are building on BTC

๐Ÿ˜ฎETH degens are minting on BTC

๐Ÿ˜›ETH apes are all over BTC DeFi Telegram, Discord, and Twitter!

3๏ธโƒฃ The Current Landscape

Bitcoin DeFi is brand new, but not as underdeveloped as you might think...

The following types of infrastructure projects already exist or are being built:


In the coming weeks we'll write about projects in these different categories, so we won't get into that here.

Instead, let's explore the current Bitcoin DeFi token standards.๐Ÿง

Because the long-term success of this experiment hinges on their viability...๐Ÿ‘‡

4๏ธโƒฃ BRC-20: The Fungible Token

Allows creation of fungible tokens on top of sats.

(a) Susceptible to double-spending

(b) Restrictive naming space (4 letters)

(c) No custom keys

(d) Static design

(e) No partial tx or cancellation


5๏ธโƒฃ ORC-20: The Upgrade?

Supports a wider range of formats and consists of key-value pairs.

(a) No double spend

(b) Tracks initial balance

(c) Flexible naming space (any size)

(d) Flexible keys

(e) Upgradeable

(f) Allows partial tx and cancellation

Utility = IMPROVED ๐Ÿ‘‡
๐Ÿค”When we first read the difference between BRC-20 and ORC-20 our first thought was:

BRC-20 is pointless, worthless.

Then, we found out BRC-20s can be migrated to ORC-20s.

We think this will be a crucial part of the narrative going forward. ๐Ÿ‘‡  
๐Ÿšจ Almost $500M have already made their way into BRC-20s.

The fact that this capital can migrate itself into a better (more functional) token standard at some point in the future keeps the Bitcoin DeFi dream alive (at least for now) in our opinion.๐Ÿ‘‡



6๏ธโƒฃ SRC-20: The Semi-Fungible Token


Embeds data differently than ordinals and inscriptions.

(a) Cannot be pruned

(b) Costs more

(c) Requires multisig

(d) Can be destroyed if UTXO tied to it is spent

Utility = LIMITED ๐Ÿ‘‡  
The takeaway from our deep-dive into the token standards is this:

BRCs are technologically crude (vs ERCs)๐Ÿ‘‡  
Here's the difference:

ERCs are formal standards which can generate smart contracts that can execute scripts within consensus of Turing complete blockchains.

BRCs are JSON files (text files) with serial numbers. ๐Ÿ‘‡ 


So, what does it all mean?


It means you're early.

It means 95% of what you hear about Bitcoin DeFi is HYPE.

However, this massive level of hype also means a speculative cycle is around the corner, Bitcoin DeFi Summer is coming! ๐Ÿ‘‡ 
We'll continue to cover this story as it unfolds...

Next time, we'll look at projects we think will do well when the hype cycle starts up again.

For now, we'll leave you degens with this๐Ÿ‘‡  

7๏ธโƒฃ Lessons From the Past

1. Pay attn to basic utility (swapping, staking, bridging, LP’ing).

2. Pay attn to memes, as they are easily understood.

3. Watch out for scams.

4. Code will fail, so watch our for hacks.

5. Most tokens will lose 99% of value, esp vs BTC itself.  

Do your own research. Don't trust, verify.


Here's a list of resources:


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