Original author: Alex Xu
introduction
Inscription assets, represented by the BRC 20 series, have been very popular recently. I think this is the second wave of assets to rise this year since the launch of the ordinal protocol. The author has recently conducted research on the current inscription market. In addition to digesting industry information and data, the author also participated in some online and offline BRC 20 themed exchange activities and formed some staged views on this market. I try to organize them through this article. and expression.
This article attempts to answer the following questions:
What is an inscription asset? What are the selection criteria for the popular BRC 20 assets?
What is the core value proposition of inscribed assets represented by BRC 20 assets?
Are inscribed assets a good business innovation?
What is the mechanism logic and driving force behind the skyrocketing growth of Inscription assets?
What are the scripts for the next stage of Inscription?
Deduction of the path of the collapse of Inscription Assets
The content of the following article is the authors staged opinions as of the time of publication. There may be errors and biases in facts and opinions. It is for discussion only. We also look forward to corrections from other investment research colleagues.
Inscribed Assets and Criteria for “Quality Assets”
Inscription assets refer to virtual assets that are created by recording information in a specified format on BTC (or other blockchains), and then converting the accounting information in a specified format on the chain through a specific indexing protocol. Such assets can It is a homogeneous asset (such as BRC 20 assets), or it can be non-fungible (such as NFTs like Bitcoin Frogs).
For Bitcoin, as a public ledger, its main purpose in the past was to record transfer transactions on the network. After Bitcoin completed the Taproot upgrade in November 2021, it provides more efficient data storage capabilities as a public ledger, and can upload text and multimedia content at a lower cost, which provides a technical foundation for inscription assets.
Compared with Ethereum, the issuance and operation of assets are based on smart contracts, while BTCs inscribed assets are issued and operated based on on-chain information + index specifications.
Although the mechanisms are different, both are assets issued based on data from the blockchain public ledger.
Token-like inscription assets on Bitcoin, source: BTCTOOL
NFT-like inscription assets on Bitcoin, source: BTCTOOL
Based on different inscription index specifications, there are different types of homogeneous assets such as BRC 20 and ORC 20.
This article mainly discusses BTC inscription assets, focusing on BRC 20 assets as an example. Currently, most of the inscription assets with the highest market value are the BRC 20 series.
Although there have been BRC 20 star assets such as Ordi and Sats that have experienced huge increases this year, and other BRC 20 assets such as Rats have also increased significantly, most of the BRC 20 assets issued during the same period have returned to zero within one or two months after issuance. Liquidity is completely lost.
Judging from several inscribed assets and BRC 20 discussions that the author has participated in, participants in inscribed assets have the following overview of the “promising” BRC 20 asset characteristics:
Good name: related to Bitcoin and inscription culture (Ordi, Sats), or animal coins (the Meme craze in 2021 was mostly named after animals)
Be original: don’t be a crude copy of other Meme, but create your own IP
Look at the community: Does the project have an influential leader? Is there any radical, high-profile, and continuously publicized community expansion action?
Look at the chips: the proportion of chips of large investors in the early stage cannot be too high, especially the proportion of pure investors (who do not participate in the promotion, only hold the currency and lie flat) cannot be too high.
Of course, the application of the above standards in practice is not simple.
The quality of a name is a matter of opinion. Even within the relatively narrow circuit of Inscription, the trend has experienced many changes. The current naming logic paid for by the market may not be favourable in a few weeks.
BRC 20 Asset Value Proposition and Business Innovation
There are many opinions on the value proposition of BRC 20 assets in the market. The author summarizes the main points as follows:
The fair launch mechanism ensures that everyone can only obtain assets on an equal basis. Unlike mainstream web3 projects where VCs make early investments, they can obtain chips at a lower cost and then sell them to the public at a high price at the secondary level.
The protocol format of BRC 20 is simple and has a single function, so there are no risks related to smart contracts, such as project party Rug, blacklisting, contract hacking, etc.
It enriches the accounting purposes and asset categories of the Bitcoin network and creates a large amount of network fees, which can fill the Bitcoin network security budget after the subsequent BTC block output continues to decrease.
In the author’s opinion, the above statements have some truth, but they are not the main source of this year’s BRC 20 asset boom and huge wealth effect.
So, is the inscribed asset represented by BRC 20 a good business innovation?
This depends on what interests are used to evaluate good.
This is of course a good innovation for trading platforms, asset speculators and Bitcoin mining practitioners, because the emergence and popularity of this type of asset has actually increased their income.
But when it comes to whether inscription assets provide broad commercial value, such as reducing the production costs of goods and services, improving business efficiency, and optimizing resource allocation, based on current observations, the author holds a negative attitude.
BRC 20 is essentially just a new form of meme asset.
The author does not exclude Meme. As a medium for speculation, Meme assets are a negative-sum game in terms of the overall wealth of speculators (the trading platform and the project side will continue to draw money from speculation), but it provides the accompanying speculation\gambling The mental refreshment generated by the behavior truly meets the needs of this type of users. This is one of the reasons why people still visit casinos occasionally or continuously even though they know that many gambles are mathematically unprofitable.
Peoples resilience in gambling and greed is often no less important than physiological needs such as food and sex. This is the root of the long-term survival of the Meme track.
But as far as the Meme track is concerned, the BRC 20 assets can only be said to enrich the product categories, and the change of technical mechanisms brings not much real innovation.
Take the most recognized “fair distribution” of BRC 20 as an example. As long as it is properly designed, fair distribution based on smart contracts can also be achieved and is not an exclusive function of Inscription Track.
The much-criticized VC invests in the early stage, and retail investors take over later model, VC invests in the stage when the project has nothing but a business plan, faces huge uncertainty, and must necessarily invest at an extremely low early stage. Participation price serves as a condition for hedging risks. By the time the project tokens are circulated to the secondary market, many of the uncertainties of the previously invested projects have been transformed into certainties, such as there are already available products, evaluable and observable data, a more mature market environment, and the pursuit of Listed trading platforms, etc. The project at this time is no longer the early project that was invisible and existed only in white papers and financing PPTs in the early days, and the token prices are naturally different.
From this logic, the same is true for VC-free Meme projects such as Shib and Pepe. In the early days, they were just a concept. It was uncertain whether they would receive enough attention and speculative funds in the future, and whether they would receive attention and recommendations from other KOLs. Therefore, purchasing their tokens at that time was extremely cheap. When their currency holders grow rapidly, their resources become increasingly abundant, and more and more people are optimistic about it, uncertainty becomes certain, and their secondary prices have already been dozens or hundreds of times higher than before.
So, as a meme form that is not new, what is the reason for the explosion of BRC 20 assets this year, especially in the second half of the year?
The mechanism logic and driving force of the skyrocketing inscription assets
We analyze the wealth carnival phenomenon of BRC 20 from the two perspectives of mechanism logic and driving force.
Mechanism logic
As mentioned above, BRC 20 is essentially a speculative medium, and the only utility of the speculative medium for participants is to quickly create astonishing wealth. And the law of large numbers, People always rush to tell each other when they get rich, but always keep silent when they lose money determines that even if the majority of people lose money in a certain market, the headline circulating in the community may still be Group Friends The investment story of a 100-fold counterattack. This disproportionately amplifies the public impression that rich people frequently emerge in certain types of asset speculation.
This time BRC 20 is more efficient in creating a wealth effect than the conventional ERC 20 Meme.
The core reason is that most BRC 20 assets were traded in the form of OTC pending orders in the early days - and even until now - while the trading positions of Meme in ERC 20 format are mainly in AMM DEX or CEX, and the former is far deeper. Much smaller than the latter. This also means that the capital required to buy BRC 20 assets is much lower than that of regular ERC 20 assets (especially during rising market sentiment), and the same buying pressure can provide higher gains.
To translate, due to the thin liquidity of the OTC model, the same purchasing power for BRC 20 assets can drive a more exaggerated increase than ERC 20 Meme, forming a stronger and faster wealth effect.
In addition to the difference in pull costs, BRC 20, which does not trade on CEX, also lacks short-selling mechanisms such as perpetual contracts, which further liberates the short-term upside potential of related assets.
In addition, in the exchange, core participants of BRC 20 stated that the “mother-inclusion rate” in speculation in this field is very high. That is to say, the large number of investors entering the market are not the old leeks around us who are familiar with Defi and are keen to invest in mainstream crypto assets, but there are many aunt-type investors who are encouraged by the team leader and guided by the local push force to enter the market. They are more obedient to orders and are easily influenced by community leaders. Some of them don’t even know how to sell. This has formed a pattern of (3, 3) holding coins without selling in some projects, which reduces the short-term selling pressure of the project.
This year, the Web3 wallet promoted by Okex has a good experience in BRC 20 asset transactions and the complete infrastructure of the wallet has further smoothed and shortened the entry path for mom speculators, allowing them to smoothly enter this new market. .
driving force
The popularity of BRC 20 inscription assets is a rare speculative bright spot in the bear market. Many stakeholders have sufficient motivation to promote the continued development and expansion of this craze.
Mining Group: Inscription trading is booming, miners and mining pools earn a lot of fees, and mining machines are selling better. They are the direct beneficiaries. Naturally, they hope that this Inscription Summer will not end early.
Exchange: The new speculative business has brought more handling fees + more new users + the effective activation of this strategic product, the wallet. Okex is undoubtedly the big winner of the Summer of Inscription, and Binance has also begun to follow suit.
CX Team: New themes, new stories, the human resources in hand can be monetized again
The above three forces are adding fuel to the flames, and it is possible to accelerate the popularity of inscription assets to the next stage.
The script for the next stage
In the next stage, there must be a script for the next stage to make this already large market bigger and hotter. The following may be some representative event nodes:
Second-tier CEX continues to list more inscription assets in addition to Ordi and Sats, continues to drive the rise of other Meme, and introduces more traditional crypto investors into the BRC 20 speculative market
Binance and other leading CEXs have launched more Inscription assets, introducing mainstream crypto funds into the BRC 20 market through CEX
Other innovations besides pure Meme have emerged, such as the BRC 20 Meme that introduced the Ponzi mechanism, and even more exaggerated wealth effects
But will the inscription market jump to a hotter stage as expected, or will it gradually cool down or even collapse?
Let’s take a look at the possible paths and conditions for its collapse.
Deduction of the path of the inscription market collapse
As mentioned above, the exaggerated wealth effect of BRC 20 assets in the early stage was determined by comprehensive factors such as the low liquidity of the OTC order trading mechanism, the high proportion of mom-related investors, and the large number of stakeholders.
Low liquidity will cause asset prices to skyrocket when they are rising, and will also cause asset prices to plummet when they cant find buyers when they fall. Most people dont understand that 95% of the book wealth in their wallets may be false market value, which is based on the premise that they can run fast and have other people as exit liquidity.
Elements of this market crash include:
Sickle-shaped projects over-issuance and rapid exit. Under the premise that users and funds in the market are limited, the main opponents of the banker power of each BRC 20 project are the bankers of other projects. When users and funds are attracted to buy other BRC 20 projects, the funds in the market can take over their own chips. Part of it disappeared. Therefore, due to the fierce competition for users and funds, the overall time node for bankers to send chips to escape will be increasingly earlier to ensure their own profits. This results in the window period for users to speculate and make profits getting shorter and shorter. When the loss stories in the market are overwhelmingly higher than the fortune stories, negative communication and ridicule become the mainstream, users stop taking action, and the BRC 20 Meme market liquidity dries up.
User inflow stalls. Factor 1 may cause some CEXs to become more cautious when listing more BRC 20 assets, which further results in users and capital inflows not being able to keep up with the speed of market makers.
After BRC 20 is listed on CEX, the main liquidity position will also transition to CEX, which will lead to increased resistance to pull orders. In addition, short-selling tools such as contracts are complete. If the mechanism is not changed, the wealth effect after listing on the exchange may significantly fade.
The two factors 1, 2, and 3 continue to strengthen each other, forming a collapse pattern.
postscript
Strong greed and gambling are the most important sources of vitality in the encryption industry. I will continue to observe how the Summer of Inscription experiment will evolve.
For related articles about Meme, you can also readBear market bargain hunting, dont choose Meme。
