Bitcoin Season 2 Proposal Faces Initial Backlash
If you haven’t been around for too long, it’s hard to fully appreciate how quickly the narrative can change in this industry, especially when you’re playing catch-up. Trends get old and memes get tired. It’s fair to say that this year’s seasonal craze is currently feeling the pressure of Bitcoin’s declining momentum.
It’s easy to dismiss this as a temporary slowdown due to a typical bull market correction, but the strong underlying currents are running counter to the popular scaling narrative. As this tide recedes, it becomes a little harder to ignore the naked swimmers.
Is the airdrop meta over?
If it wasn’t already clear, recent projects proposing to “build on Bitcoin” have so far been more opportunistic than innovative. That’s right. BitVM and ordinal have sparked real interest and creativity, but follow-up is not desirable. This was mostly caused by lazy operators. Instead of doing the actual engineering work, other third-rate entrepreneurs in the industry simply took the Ethereum playbook and ran it on Bitcoin.
In my last article I made the case for why this modular cottage industry has further exacerbated the wear and tear on Ethereum from a scalability perspective, but recent developments have highlighted just how misaligned economic incentives have become.
Of course, the obstacle to this infrastructure arms race has been the initiator’s ability to print tokens as if they were out of style. Unfortunately, it looks like those plans are starting to falter. You may remember how Dentacoin raised billions of dollars and then everyone eventually turned their backs on the ICO. Something similar is happening as we speak.
Just a few months ago I explained how the points concept conquered the token airdrop meta. Alternative execution layers were popping up left and right, advertising the opportunity to collect the final reward in exchange for liquidity on the network. The premise was very simple. Users will be incentivized to use the application in certain rollups or donate assets to the trading pool. Once the chain is launched, tokens will be allocated to a semi-random set of eligible participants. The idea was that this would be more aligned with the protocol and its future.
It turns out that the exact opposite is happening: Last week’s highly anticipated token airdrop exposed the absurdity of this approach.
How do pseudonym systems verify a user’s identity? Unable to confirm. The lack of verification creates an opportunity for any competent actor to impersonate any user. Not surprisingly, well-capitalized actors were quick to notice this trick and were very busy exploiting it to their advantage. Instead of users, airdrops attracted mercenaries who plundered every new tier they could place their wallets in.
You may be wondering why I am writing about tokens in a Bitcoin article. It just serves as a reminder that any Bitcoin expansion proposals or layers involving tokens should be avoided at all costs. Putting aside the fraudulent nature of the asset, this playbook is a tell-tale sign of a project that is lagging even by Ethereum standards. I don’t care what technology they claim to use, nor do I need to care about execution environments or zero-knowledge proofs. The opportunity is coming for them and we can expect them to shortcut “users” at every moment to benefit from the liquidity left in this racket. Stay away.
Ethereum’s Identity Crisis
The Bitcoinlayers platform reported yesterday that more than half of the current expansion proposals for Bitcoin plan to use Ethereum’s EVM as their technology platform. I don’t know what to think of these numbers. It may be generous to link one of these to Bitcoin, but the market is clearly interested in exploring this idea.
This is especially meaningful considering the current unstable state of Ethereum. I wouldn’t call it a civil war yet, but some battle lines are being drawn and the results will be testament to the roll-up-centric roadmap. I previously presented the case for network fragmentation in Ethereum. Suffice it to say that the situation is rapidly escalating and the project is again facing serious discussion and reflection.
Meanwhile, a group of developers argue that the rollup operation should be included in the protocol to consolidate economic activity and improve user experience. Another group is questioning the initiative, claiming that it will further centralize MEV mining and affect censorship resistance. It seems that Vitalik will have to pull another rabbit out of his hat.
Combined with fatigue with the commoditization of EVM execution environments, the previously praised modular thesis is starting to look rather weak. At least the original playbook no longer seems to hold and the narrative is changing again.
It’s starting to look quite outdated by industry standards, and for emerging Bitcoin layers that haven’t even launched yet, this may be a better time!
memetic exhaustion
You’ll never notice me being bearish on memes. But they move in cycles, and the latest iteration has lost some of its luster. I am not ready to reach the peak of this new meme paradigm, but this is another example of a new Bitcoin layer emerging late. Without dog and cat tokens, what market would there be for all the infrastructure being built?
The ground is shifting under the feet of the new generation of Bitcoin builders. I think those who choose to take the longer route of doing real work will be more likely to make it to the other side of this bull market. That will require learning valuable lessons from the experiments being conducted on the other side of the pond. Given the rapidly changing situation, patience will likely be required.
