Author: The Pioneer of the Web3 World
The protocol pledges BTC to achieve the issuance of protocol tokens, and pledgers can receive returns on protocol tokens. However, this is only a distribution method, and there is no direct relationship between the assets pledged and the protocol tokens. The protocol tokens do not receive the empowerment of BTC.
I participated in an online discussion about a BTC pledge protocol that is being developed.
According to the introduction, the protocol is based on the implementation principle of UTXO, using technologies such as re-marking with OP_RETURN, checking lock time verification with OP_CLTV, and partially signed BTC transactions (PSBT) to achieve local collateralization of BTC assets and issue protocol tokens.
After listening to the introduction, I organized my thoughts and found some aspects that are easy to understand:
1. Security: This is local collateralization, although the assets are constrained due to collateralization for a certain period of time, the control of the assets still remains in the hands of the user.
2. Adaptability: Since it is based on UTXO, the collateralized assets can be applied to all UTXO-based asset protocols, such as Ordinals, ARC20, RUNES, RGB++, etc., for asset interoperability and collateralization.
From the functionality described, the main purpose is to issue protocol tokens through collateralization, and this protocol can serve as a launchpad for other assets.
Based on this, I have a few opinions:
1. Asset correlation: The pledged assets and the assets to be issued are not directly related. It seems that the issuance of protocol tokens is achieved through the pledge of BTC and other assets, but there is no direct relationship between the protocol tokens and the pledged assets, which is different from pledging various assets on Merlin SEAL for $Merl distribution.
2. Means and objectives: Collateralization is a means, and the goal is to consolidate various asset communities to enhance consensus on the issuance of assets. Once involved in collateralization, personal interests may influence decision-making, making it easier to reach consensus.
3. What does TVL indicate? The Total Value Locked (TVL) can to some extent reflect the strength of consensus. In this sense, the protocol needs to take various marketing measures to expand the types of collateralized assets and increase TVL. The more types of assets pledged and the higher the TVL, the stronger the consensus. This requires the operational and resource integration capabilities of the protocol.
However, fundamentally, TVL does not reflect token market value or form token liquidity, nor does it reflect or create real token value.
4. Fairness and decentralization: The distribution of protocol tokens through collateralization may appear fair and decentralized, but the results of token distribution may not be reasonable and decentralized. The amount of tokens obtained is determined by financial strength, which may result in a few people obtaining a large number of tokens and exacerbating token concentration.
5. Programmable and composable DeFi capabilities: Since it is local collateralization, the issued assets are also UTXO-based. Whether it is collateralized assets or protocol assets, they lack programmability and scalability, making it difficult to expand and combine DeFi capabilities. How can tokens be empowered? Currently, it is not known what considerations the protocol has regarding this.
6. Deviation of asset issuance, liquidity, and token value: In this crypto cycle, the issuance of BTC ecology is an important narrative. However, based on the issuance of assets such as BRC2O, ARC2O, RUNES, etc., people are increasingly aware that innovative categories of assets can bring a wave of enthusiasm. But how to maintain continuous liquidity for tokens to provide long-term consensus and value is a challenging task.
If this problem is not solved, the marginal benefits of asset issuance are diminishing overall, which means that the enthusiasm for chasing newly issued assets quickly fades, such as the case of RUNES-like assets, which were highly anticipated but only became popular for two or three days after launching.
7. Returns for pledgers: In terms of returns, although the collateralization method of this protocol also involves local collateralization of high-quality assets like BTC, it is different from Babylon’s BTC collateralization. In Babylon, BTC enhances the security of various POS chains, allowing for continuous returns provided by the POS chains.
The protocol pledges BTC to achieve the issuance of protocol tokens, and pledgers can receive returns on protocol tokens. However, this is only a distribution method, and there is no direct relationship between the assets pledged and the protocol tokens. The protocol tokens do not receive the empowerment of BTC.
In other words, the returns for pledgers are filled with uncertainty. In the short term, they are related to the returns from collateralized mining. In the medium and long term, it depends on whether the protocol tokens have other continuous empowerment methods, such as consensus, liquidity, and value capture.
If not, then the ability to activate idle BTC is limited, and the ability to attract other BTC ecosystem assets will also be restricted.
In other words, if it cannot be achieved through the protocol mechanism and form automatic vitality, it will have to rely on off-chain operations, which becomes a “hard labor” activity.
But on the other hand, in the discussion, the protocol mainly introduced the narrative of “collateralized mining”, and the above analysis is based on this. The analysis may be one-sided or incorrect.
Perhaps they have deeper and more comprehensive considerations, so let’s wait and see. This is just a record for now.
