The story is full of pivotal moments. Some slip in without warning, just to dust off

The story is full of pivotal moments. Some slip in without warning, only to be dusted off and thrust into the spotlight of historians decades later, while others emerge with all the fanfare of a holiday parade. From a hype perspective alone, the launch of the Runes Token Standard seems to fall into the latter category.

On April 19, the new protocol – designed to facilitate the more efficient creation of fungible tokens native to Bitcoin and coinciding with the planned fourth Bitcoin (BTC) halving – led to a flurry of investment activity. Over 7,000 rune tokens were created in the first two days after launch. At the time of writing, over 91,000 runes have been mined on Bitcoin, with $4.5 million in transaction fees paid to miners. At the height of the hype in mid-April, demand pushed transaction fees to an all-time high of $128.45.

At the time, many analysts wondered whether we were seeing a repeat of the decentralized finance (DeFi) “summer” of 2021, when the launch of numerous decentralized applications and tokens led to frenzied activity and a sudden influx of liquidity into Ethereum. blockchain. But if so, autumn has arrived quite quickly; By mid-May, the number of runic inscriptions had decreased by 99%.

The runes were engraved between April 20 and May 26, 2024. Source: Dune

Therefore, the runes were released Really A historic moment for Bitcoin DeFi (BTCFi) or just a momentary expression of interest? Maybe it was a bit of both.

Facilitating the Runes Protocol to mint tokens can help enable liquid storage and therefore investment activity, Layer 2 expansion, and DeFi innovation. But make no mistake: runes alone are just one advancement among many. Over the past decade, the BTCFi revolution has unfolded quietly – and pending the possible approval of the Bitcoin Improvement Proposal (BIP) OP_CAT in 2025, it appears poised to spur growth without precedent for Bitcoin.

Related: Runes Protocol Will Spark a New Season for Bitcoin After Halving

But before we can predict what will happen, we need to think about our current situation. Widespread adoption depends on three key pillars: visibility, diversity and accessibility. As the first and largest cryptocurrency, Bitcoin attracts attention and respect but (at least for now) falls short of the other two categories.

Temporary Hurdle: Innovators Address BTCFi’s Capital Inefficiency and Limited Scalability

Bitcoin is capital efficient but not capital efficient. Despite its high market capitalization, leading position as a store of value, and large purchases by investors, BTC is largely underutilized as an investment asset. As of early April, around 65% of Bitcoin’s supply had not changed in over a year. That’s 10% less than in January, which coincided with the launch of several exchange-traded funds. As investors begin to put their Bitcoin to work, more than half remain hunkered down.

To be fair, Bitcoin investors have had plenty of reasons to be conservative, given the lack of sustainable yield opportunities, the absence of institution-friendly yield products, and the unknown risks of moving or deploying assets. Enter our slow undercurrent of revolution – a slow, stretchy climax Years Continued determination to evolve Bitcoin from a store of value into a vibrant financial ecosystem in its own right.

Related: 3 Trends to Consider Before Bitcoin’s Uptrend Resumes

Efforts so far are focused on two main priorities: making Bitcoin more programmable and improving capital efficiency. By design, the current Bitcoin network does not provide smart contract functionality. While this reduces complexity and the risk of security breaches, it also prevents the use of logical loops and conditionals, thereby limiting the development and scaling of decentralized applications. High transaction fees on blockchain and inefficient coding protocols – even runes – have hindered active, yield-generating investment activities.

Bitcoin’s decentralized financial ecosystem may be nascent, but it is undoubtedly booming. In addition to DeFi fundamentals such as DEXs, Money Markets, Vaults, Oracles and Stablecoins, BTCFi includes solutions aimed at addressing current risks facing BTC, Bitcoin assets and the network. Public and purpose-built L2s, such as Stacks, Merlin and B2, are developing their own BTCFi ecosystems. Projects like Babylon are driving the development of DeFi by bridging the gap between proof-of-work and proof-of-stake models.

Taking all of this in context, the emergence of BTCFi and the subsequent “Summer of Bitcoin DeFi” seems inevitable, even if long overdue. But defenders will likely have to wait another year — or two, given the time for innovation — before the season begins.

OP_CAT could mark the start of a new BTCFi renaissance – if it continues until 2025

If the runes arrived in a cacophony, the OP_CAT Bitcoin proposal arrived in a whisper. This document is expected to be revised in 2025 and will bring back smart contract functionality that has not been available on Bitcoin since Satoshi Nakamoto himself disabled it in 2010. OP_CAT would allow loops and logical conditions, thus allowing the creation of rules or conditions on how money can be spent in Bitcoin – opening the door to many development possibilities, including layer 2, smart contracts, etc.

If OP_CAT is adopted, it will radically change the way people use Bitcoin and usher in a new renaissance for projects seeking to make Bitcoin more programmable or more capital efficient. Innovators will finally have a secure way to adapt Bitcoin’s programmability to critical use cases such as decentralized finance, scalability, and chain-to-chain interoperability, leading to more abundant investment opportunities, diversified and profitable.

At this point, we will officially have the second pillar of mass adoption. Bitcoin will continue to attract attention as an area of ​​expansion in decentralized finance. This, coupled with the development of secure and robust infrastructure, could lead to a massive influx of capital into Bitcoin revenue-generating protocols. Obstacles exist, of course. For example, as L2 and DeFi ecosystems emerge and grow, they will form their own communities and mine their own version of BTC – which will inevitably lead to fragmentation of liquidity and returns.

Accessibility is also a concern. Despite its appeal and potential, cryptocurrency can seem intimidating and inaccessible to retail investors. Although institutional actors are committed to this cause, there is still work to be done to educate and involve the general public. Many Bitcoin holders and potential users may be familiar with the use of DeFi or the underlying concepts (e.g. bridging). Education and the abstraction of concepts will be important priorities for ecosystem defenders who intend to encourage their adoption by the general public.

THE real BTCFi summer may be a few years away, but if history tells us anything, it’s that we need to start empowering our future users. NOW. While not all of these quiet moments of progress and preparation make the headlines of early Runes, they are all important. Much like blockchain work, writing history is a collective effort; Individuals must come forward and contribute to the cause. Things are improving, changes are happening, and our collective advocacy on this issue is strong – the only question remaining is when we will see our vision for BTCFi realized.

Michael Bandy He is a guest columnist for Cointelegraph and co-founder and chief strategy officer at Persistence One, a layer-one blockchain. He holds a bachelor’s degree in electronic engineering from the University of Mumbai.

This article is intended for general information purposes and is not intended and should not be relied upon as legal or investment advice. The views, thoughts and opinions expressed herein are those of the author alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

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