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In the scorching summer of inscriptions, an interim view on BRC20.

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Recently, I conducted research on the inscription market and participated in some online and offline BRC20 events, forming some phased views on this market.

Source: MInt Ventures

Introduction

The inscription assets represented by the BRC20 series have recently been very popular. In my impression, this is the second wave of asset bull market this year since the launch of the ordinal protocol. Recently, I have conducted research on the current inscription market, in addition to digesting industry information and data, I have also participated in some online and offline BRC20 theme exchange activities, forming some phased views on this market, and trying to sort and express them through this article.

This article attempts to answer the following questions:

What is inscription asset? What are the selection criteria for popular BRC20 assets?

The core value proposition of inscribed assets represented by BRC20 assets is what?

Is Mingwen Asset a good business innovation?

The mechanism, logic, and driving force behind the explosive growth of Mingwen assets are what?

What are the scripts for the next stage of the inscription?

The Path Deduction of Mingwen Asset's Collapse

The following article represents the author's current perspective at the time of publication, and may contain factual errors and biases. It is intended for discussion purposes only, and the author welcomes corrections from other investment research professionals.

The standard for Mingwen assets and "high-quality assets"

The inscription asset refers to virtual assets that are created by recording information in a specified format on BTC (or other blockchains), and then converting the recorded information on the chain into virtual assets through a specific indexing protocol. These assets can be homogeneous assets (such as BRC20 assets) or non-homogeneous assets (such as NFTs like Bitcoin Frogs).

For Bitcoin, its main use as a public ledger has been to record transfer transactions on the network. However, after completing the Taproot upgrade in November 2021, Bitcoin as a public ledger provides more efficient data storage capabilities, allowing for lower-cost uploading of text and multimedia content. This provides a technical foundation for inscribed assets.

Compared to Ethereum, the issuance and operation of assets are based on smart contracts, while for BTC's inscription assets, they are issued and operated based on on-chain information + index specifications.

Although the mechanisms are different, both are assets issued based on the public ledger of blockchain.

Tokenized inscription assets on Bitcoin, source: BTCTOOL

Bitcoin-based NFT inscriptions, sourced from BTCTOOL

Based on different inscription index standards, homogeneous assets have different types such as BRC20, ORC20, etc.

This article mainly discusses BTC inscribed assets, focusing on BRC20 assets as an example. Currently, the highest market value of inscribed assets is mostly in the BRC20 series.

Despite the significant gains of BRC20 star assets such as Ordi and Sats this year, as well as the notable increase of Rats, the majority of BRC20 assets issued during the same period have experienced a trend of zeroing out, losing all liquidity within one or two months after issuance.

From several inscription asset and BRC20 discussion meetings that the author has participated in, the participants of the inscription assets have the following overview of the "promising" BRC20 asset characteristics:

Good names: related to Bitcoin and inscription culture (Ordi, Sats), or animal coins (the 2021 Meme craze is also mostly named after animals).

Translation: "Native is required: not a crude copy of other memes, but an original IP."

Looking at the community: Are there influential leaders in the project? Are there radical, high-profile, and sustained community expansion actions?

Check the chips: In the early stages, the proportion of chips held by large account holders should not be too high, especially for pure investors (those who do not participate in promotions and only hold coins passively).

Of course, the application of these standards in practice is not simple.

Opinions on whether a name is good or bad vary. Even in the relatively small field of inscriptions, trends have undergone multiple changes. The "naming logic" that is currently popular in the market may not be as popular in a few weeks.

BRC20 Asset Value Proposition and Business Innovation

There are various claims about the value of BRC20 assets in the market, and the author summarizes the main viewpoints as follows:

Let's take a look at the possible paths and conditions for its collapse.

Path Deduction of the Inscription Market Crash

As mentioned earlier, the exaggerated wealth effect of BRC20 assets in the early stage is determined by a combination of factors such as low liquidity of OTC order trading mechanism, high proportion of maternal investors, and numerous stakeholders.

Low liquidity can cause asset prices to skyrocket during periods of growth, but can also cause prices to plummet during downturns due to a lack of buyers. Most people don't realize that 95% of their wealth in their wallets may be "market value," which is based on the assumption that they can sell quickly with other buyers providing liquidity.

The factors contributing to the market crash include:

The excess issuance and rapid exit of sickle-shaped projects. Under the premise of limited users and funds in the market, the main opponents of the BRC20 project's manipulation forces are the manipulators of other project parties. When users and funds are attracted to buy other BRC20 projects, a part of the funds that can accept their own chips in the market disappears. Therefore, due to the fierce competition for users and funds, the overall time node for manipulators to escape will be earlier and earlier to ensure their profits. This leads to a shorter window of opportunity for users to speculate and profit, and when the negative stories in the market overwhelmingly outweigh the success stories, negative publicity and ridicule become mainstream, and users no longer participate, causing the Meme market liquidity of BRC20 to dry up.

The user inflow is slowing down. Factor 1 may cause some CEX to be more cautious when launching more BRC20 assets, which further leads to the speed of user and fund inflow unable to catch up with the speed of the market makers.

After logging in to CEX, the main liquidity battlefield of BRC20 will also transition to CEX, which increases the resistance to price increases. Coupled with the availability of short-selling tools such as contracts, if the mechanism is not changed, the wealth effect after listing may significantly diminish.

1, 2, and 3, the two elements constantly reinforce each other, forming a collapse pattern.

Epilogue

Strong greed and gambling are the most important sources of vitality in the encryption industry. I will continue to observe how the Inscription Summer experiment will evolve.

Related articles about Meme, you can also read "Don't Choose Meme for Bear Market Bottom Fishing".