Exploring the Intersection of BRC-20 ($MUBI & $ORDI)

December 8, 2023

What are BRC-20 Ordinals?

BRC-20 can be considered as the Bitcoin version of ERC-20 (similar but still different). It was introduced in 03/2023 by an anonymous developer known as Domo. The technology behind comes from Bitcoin’s SegWit soft fork (2017) and Taproot Upgrade (11/2021), which enabled Ordinal Inscriptions.

How are Ordinals created?

Ordinals are “inscribed” or written as a number onto a satoshi (abbr. sat), the tiniest unit of bitcoin. This ordinal number along with the ordinal’s data, is included in a specific section of the bitcoin transaction known as the “witness signature” field. This data verifies the legitimate ownership of the funds being used and ensures they are not double spent.

Unlike ERC-20s, BRC-20 is still in the proposal phase and the tokens are not easily traded on decentralised exchanges at the moment, though trading of its tokens are concentrated within centralised exchanges such as Binance, OKX and Bybit. But with the recent Bitcoin rise, popularity of the BRC20 tokens along with its Ordinals have seen growth over the past 6 months especially from the Asian markets.

History (Ordinals ≠ BRC-20)

Ordinals & BTC NFT

Ordinals is an NFT protocol based on the BTC network. By assigning a unique and immutable identity to sats (that is, ordinal number + comment), Ordinals makes each homogeneous satoshi a unique “Non-Fungible Token”. Thus, Ordinals endows sats with higher transaction and collection value. When the smallest unit becomes a new hype target, to some extent, it can be regarded as an expansion of Bitcoin.

Since Ordinals was created in Dec. 2022, ~7.8 million NFTs and tokens have been minted as of 18/05/2023, which opens a new gate of the Bitcoin ecosystem.

Figure 1. Ordinals – Inscriptions (overtime), Source: Dune Analytics

Unlike ETH based ERC20 NFTs, Bitcoin NFTs which are minted based on Ordinals are stored in the Bitcoin blockchain, which is closer to a “true” NFT as its metadata cannot be altered once published and verified in the network. For ETH NFTs, the ERC721 token usually only contains an ID, which is directed to a URL to retrieve the Metadata of the NFT that could be altered at any point by the team or external parties who have control of its smart contract keys.

Both methods of generating an NFT has its pros and cons, the main differences between these two can be summarized in Figure 2 below.

Figure 2. BTC NFT vs ETH NFT, Source: Galaxy Research

Although still in its infancy, some blue chip NFTs have begun to enter the market. Yuga Labs’ ‘Twelvefold’, which was announced on 27/02/2023, received the highest offer of 7.115 BTC. CryptoPunks also issued 10k Bitcoin Punks. There are also some third-party nodes in the market to help users mint BTC NFT without building a full node themselves, including Ordinals Bot and Gamma.

According to Galaxy Digitals report, the market size of BTC NFT can reach $4.5 bn by 2025. Also, market infrastructures to support BTC NFT will tend to be perfected in Q2 2023, which ultimately occurred with various new bridging projects such as $VMPX and $MUBI which we will cover in this report as well.

BRC-20: The Evolution of Ordinals

It is worth noting that NFT can be obtained by filling in different information on sat. Then if the information we fill in has certain rules, or fill in according to a unified standard (i.e. Deploy, Mint & Transfer), can we produce fungible tokens (FT) in BTC? The answer is yes.

BRC-20 is a technology that uses Ordinals to create and trade fungible tokens (FT) on the Bitcoin blockchain. Simply speaking, BRC20 can be considered as a mutated Ordinals NFT. The inscriptions on the NFT are pictures,while the ones marked on BRC20 are all Text data in an unified JSON format. In BRC20, the inscription is also used as an accounting book for BRC20 tokens, which can be used to track the transfer of each token. Yet, BRC-20 tokens cannot interact with smart contracts and cannot perform any automated operations.

$ORDI is the first token issued under BRC-20 standard (09/03/2023), with the maximum of 1,000 tokens minted at a time, for a total of 21,000,000 tokens. $ORDI was free at the initial stage of issuance, and users only needed to pay gas fee to obtain tokens. All 21,000,000 $ORDI tokens were minted in less than 18 hours. As of 22/05/2023, the floor price in the secondary market is $11.48/$ORDI. From Dune Analytics, the total of ~8.5 million of $ORDI were minted, and generated $1,458 BTC as gas fees.

According to ordspace.org, as of 19/05/2023, there have been more than 18k BRC-20 token projects with a total market cap of ~$420 million. For the past few months, the transaction volume of BRC-20 protocols on the BTC network has been dominating the transaction volume and at times exceed 50% of net BTC transactions.

Figure 3. BTC Transactions %, Source: Dune Analytics

How does BRC-20 influence the Bitcoin & BTC ecosystem?

BRC-20 impacts Bitcoin fees and transactions. Since minting and transferring BRC-20 requires more space on the blockchain as the result of its complex mechanism design, the competition of block space can lead to higher transaction fees for users seeking rapid confirmations.

From Glassnode, the miner’s revenue from fees peaked at 42.595% and has seen another rise due to the popularity of BRC20 tokens, driven by $ORDI and newer BRC20 mints such as those instigated by $VMPR and $MUBI.

Figure 4. Bitcoin: Percent Miner Revenue from Fees, Source: Glassnode

Pros & Cons of BTC-20 & Ordinals

Why is it hyped?

Compared with ERC-20

BRC-20 cannot interact with smart contracts (i.e. no burn & lock functions), which means that the issuance of BRC-20 tokens will not be reserved by project team and VC. Everyone is truly an equal participant in the ecosystem.
BRC-20’s value is backed by BTC, which guarantees that BRC-20 tokens will not have the same risk of returning to zero as ERC-20 tokens and ERC-20 sidechain tokens.

Minting & trading of BRC-20 significantly increases transaction fees. High fees and block rewards create astonishing profits for miners.
New narrative in the battle-tested consensus: BRC-20 standard and BTC ecosystem new concepts in the industry, which is easy to obtain market sentiment and the influx of funds. Some leading institutions (e.g. Yuga Labs & CryptoPunks) have entered the arena.
Bitcoin Beta Play:
Being inherently created within the Bitcoin network, BRC20 tokens are currently wrapped as beta risk-on plays for traders to long on as Bitcoin continues to surge in price over the past 12 months.
Low market liquidity: For many of these BRC20 tokens, liquidity on both sell side and buy side of the market is thin, which invites volatility on both sides. Considering that the market is bullish on Bitcoin, we believe that the trend is for the industry to continue to grow as Bitcoin adoption increases over time.

Potential Concerns

The threshold for user participation is high: The BRC-20 standard is relatively complicated and requires additional steps for data storage and transactions. Specifically, when users mint Ordinals, they need to run a full node.Whether it is cumbersome node construction or expensive BTC gas fee for both inscribe & transfer, it will isolate retail investors from entering the market to a certain extent.
Security issues:

There is no AMM on the chain on Bitcoin, and a secure secondary market transaction is required.
Since BRC-20 introduces a more complex mechanism for managing assets, additional tools or platforms are required, which can be vulnerable to malicious attacks and violate the BTC design philosophy – decentralization.
Because of the heavy traffic, Binane paused the withdrawal function twice on 07/05 and 08/05. No block was produced for one hour on 08/05/2023, with 350k unconfirmed transactions. When the fee revenue continues to exceed block rewards, it may cause Time-Bandit Attacks. Miners will choose to process transactions with higher gas fees and ignore transactions with lower fees.

BRC-20s are mostly meme coins, which have neither true values behind nor application scenarios.

Comparing the snapshots between May and December, there is a Cambrian explosion of new BRC20 projects that have surfaced within the ecosystem. However, we note that there are only a few notable names that stood the test of time. These are $ORDI, $MUBI, $VMPX, of which a few more have been listed on Tier 3 exchanges. Other than these projects, we find that the total market cap of BRC20 tokens have inflated from a value of $444 million USD to now over $2 billion USD as shown below (disregard MXLY as it is a scam token valued at $10.6 Trillion USD).

Figure 5. BRC-20 Tokens by Market Cap, Source: brc-20.io (May, 2023)

Figure 6. BRC-20 Tokens by Market Cap, Source: brc-20.io (Dec, 2023)

BRC20 infrastructure is still at its infancy:
With only a few projects and various scams/ponzis within the ecosystem, it is difficult to shift through newer projects that are stable enough for retail adoption. Though more established projects such as ORDI are making a rise.
Regulatory risks: BTC is more of a commodity, but BRC-20 tokens may enable an unregistered securities market on the Bitcoin blockchain.

Deep Dive: $MUBI & $ORDI

As mentioned above, several projects have taken root as a popular narrative leader for BRC20. Within this ecosystem we’ll take a look at Multibit, a bridging solution for EVM chains, BTC network and BRC20/ERC721 compatibility and the main leader of the BRC20 narrative, $ORDI.

MUBI: Multibit

https://www.coingecko.com/en/coins/multibit

Project Name: Multibit
Project Type: BRC20 Token & Ecosystem Bridge
Blockchain: Bitcoin, Ethereum, BSC & Polygon
Ticker: MUBI
Cryptocurrency Rank #: N/A
Max Supply: 903,586,439
Circulating Supply: 903,586,439

T.MCAP/$: $61,850,759
FDV/$: $61,850,759

What is Multibit
MultiBit is the first-ever dual-sided bridge designed for easy cross-network transfers between BRC20 and ERC20 tokens. Through promoting unmatched liquidity for these tokens, MultiBit heightens cross-chain interoperability. Our mission is simple: to foster increased liquidity and accessibility for BRC and ERC tokens in a secure and user-friendly manner.

Investors & Raise Info

Funding Round Raised:
Initially minted on Bitcoin as a BRC20 token as a freely minted token however, the Multibit team reserved a portion of the tokens to bridge and raise funds via:
https://app.bounce.finance/launchpad/multibit

On Ethereum, Multibit had an initial FDV of $400,000, with the following distribution for 387.5 million $MUBI:

KOL Whitelist Sale: 11.25%
Public Sale: 78.75%
DEX Liquidity (to be locked indefinitely): 5%
Team (locked for the first 6 months followed by a 2-year vesting period): 5%

The raise concluded with $196,075 USD raised at a price of $0.000506 USD per MUBI.

This means that early investors had made a 135x ROI on their investments.

Tokenomics
Apart from the above Token Raise allocation, all other MUBI tokens have been minted and available as circulating in the BRC20 and EVM ecosystem.

Liquidity Avenues

CEX:

$MUBI is listed on major Tier 2 & Tier 3 exchanges with concentration of main trading activity in MEXC, Gate and Bitmart.

DEX:

MUBI LP is primarily on Uniswap, with a TVL of $1.9M on Ethereum L1.

Investment Thesis (Market Potential)

1. Bitcoin Beta Play – BRC20
Part of the BRC20 token ecosystem, MUBI is a low market cap Bitcoin beta play for market participants that are interested to invest into the BRC20 space with a focus in its Bridging infrastructure and cross-chain liquidity.

2. First BRC20 Bridge & Bridge Market Leader

Being the first stable bridge between Bitcoin and other EVM chains, Multibit is the leader in bridging liquidity between ecosystems and a market leader for bridging BRC20 tokens to new chains.

Their bridge works as follows:
i. Token Deposit

The journey begins when you deposit your Bitcoin RC-20 tokens (BRC20s) into a unique address provided by the Multibit Protocol. Multibit verifies the token deposits transactions.

ii. Token Minting

Following a successful verification, the Multibit Protocol gets into action and mints an equivalent amount of tokens on Ethereum or BNB chain.

iii. Security

Periodically, the Multibit Protocol gathers up tokens from all the unique addresses it’s given out. These tokens are securely moved to a unified cold wallet.

iv. Token Withdrawal

When you’re ready to withdraw your tokens, the Multibit Protocol will remove (or “burn”) the corresponding amount of tokens from the EVM chain. It then transfers an equivalent value from the secure cold wallet back to you.

3. Surge of BRC20 adoption in EVMs

Over the past few days, a surge in transactions has been observed across all EVMs. A detailed analysis of the transaction hash input data for each EVM indicates that this uptick can be attributed to the introduction of Ordinals inscriptions. These protocols enable the minting of tokens inspired by Bitcoin’s Ordinals (BRC-20).

Noteworthy is the observation that Ordinals on the Polygon network have garnered substantial traction and maintained its dominance over the majority of daily transactions.

Bottom Line

Being the first of its kind to bridge BRC20 tokens between Bitcoin and EVM chains, it sets itself apart as the market leader in its infrastructure niche. As a Bitcoin Beta play, currently MUBI is a crowd favourite and a potential asset for users to invest into to expose themselves to the BRC20 token ecosystem.

Nonetheless, with a relatively high ROI from early investors, newer investors should tread carefully as supply is concentrated in the hands of early adopters of the bridge. However, as long as Bitcoin continues to grow, $MUBI is one of the few projects that continue to grow in terms of TVL, hype and utilisation and would continue to appreciate under Bitcoin’s growth.

ORDI: Ordinals

https://www.coingecko.com/en/coins/ordi

Project Name: ORDI
Project Type: BRC20
Blockchain: BITCOIN
Ticker: ORDI
Cryptocurrency Rank #: 61
Max Supply: 21,000,000
Circulating Supply: 21,000,000

T.MCAP/$: $1,048,995,165
FDV/$: $1,048,995,165

What is ORDI
Ordi (ORDI) is the first BRC-20 token on Bitcoin, utilizing the Ordinals protocol to inscribe information onto satoshis. With a capped supply of 21 million coins, Ordi introduces innovative possibilities for NFTs and tokens, assigning ordinal numbers based on mining and transfer order.

The open-source initiative on GitHub includes a BIP for the ordinal scheme, an index for satoshi tracking, a wallet for ordinal-aware transactions, and a block explorer. Despite lacking intrinsic value as a meme token, Ordi’s novelty and innovation have propelled it to significant market capitalization, marking it as a symbol of cryptocurrency ingenuity.

Investors & Raise Info
None; ORDI was minted freely during their inception and its cost is effectively zero plus the Bitcoin network gas fee minters had paid.

Funding Round Raised:
None

Tokenomics
ORDI was minted with a total supply of 21,000,000. Inherent to the Bitcoin vision, ORDI was created by Domo as an idea and experiment on the Bitcoin network. There will be no more new ORDI coming onchain as all tokens were minted at Genesis.

His work is documented here:
https://domo-2.gitbook.io/brc-20-experiment/

Liquidity Avenues
CEX:

ORDI is listed on all main CEX with concentration of main trading activity in Tier 1 & 2 exchanges such as Binance, OKX, Bybit and others.

DEX: None

Investment Thesis (Market Potential)

1. BRC20 Market Leader

Being the first BRC20 token along with being critical infrastructure for other BRC20 tokens being built on top of the BTC network, $ORDI sets itself apart from its competitors as the leading and oldest BRC20 token available in the market.

2. Bitcoin Beta Play – BRC20
As a #1 ID BRC20 token and the most decentralised BRC20 token out there, ORDI sets apart as a Bitcoin beta play for market participants that are interested to invest into a deflationary asset within the Bitcoin ecosystem.

3. Deflationary Narrative
Having only 21 million tokens available and minted, the deflationary narrative has taken hold on ORDI which is akin to Bitcoin’s lost Bitcoin supply, whereby there will be a net deflationary rate for ORDI over time, which means as supply dwindle due to the loss of private keys and lost sat transaction, ORDI will be more valuable in the future.

4. Surge of BRC20 adoption in EVMs
Similar narrative for $MUBI, $ORDI also experienced a surge in attention due to the increase of adoption of BRC20 on other chains (see previous $MUBI chart).

Bottom Line

As the BRC20 market leader with limited supply and a surge in demand of ownership of the token in centralised exchanges and onchain, ORDI has become a popular hold for investors who are bullish on Bitcoin but wanted a higher beta coefficient to Bitcoin.

Despite its popularity, due to it being limited in supply and currently only available in centralised exchanges, investors should tread cautiously in investing in ORDI due to its highly volatile nature. Nonetheless, it is currently the easiest asset to expose investors to the Bitcoin network and BRC20.

References