Explore the Runes Protocol releases: Projects and tools you need to watch

Author: IGNAS | DEFI RESEARCH Translation: Shan Ouba, Golden Finance

Bitcoin halving and Runes protocol are coming!

Bitcoin halving is 3 days away, and Runes protocol will be launched at the same time on the halving block!

I believe you have heard of Runes protocol, but I want to share my view on why I am short-term bearish but long-term bullish, and how to prepare and which protocols/tools to use to seize the opportunity.

Views on Runes Protocol (Short-term)

First, I will share some of my negative views on Runes.

I expect the warm-up market to continue to be hot before the protocol goes live. Assets like Runestone, RSIC, and PUPS have surged, and those holding these assets will receive airdrops of Rune tokens. The newly issued Rune tokens may perform strongly for a while.

However, just as the NFT craze subsided after the JPEG revelation, the market will cool down. Here are some reasons:

• Bitcoin transaction fees will become very expensive for underfunded traders, limiting their active trading of Runes (which in turn will promote the development of Bitcoin L2).

• Runes may not be a significant improvement over BRC20 in terms of trading experience, because UTXOs and BRC20s are traded similarly to NFTs.

• The early trading interface of Uniswap and Ordinal wallets is the same as BRC20, and only two kinds of information can be bought and sold in a transaction: 1) the number of tokens and 2) the price of each package.

• The number of newly issued Rune tokens will be very large: dozens or hundreds of new tokens may be minted every day (and the handling fees are high), which will distract traders and reduce the capital inflow of each token.

• At least initially, Runes are as useful as BRC20, both are memecoins. As the excitement of the “new” wears off, this sentiment may wane, especially if no Rune tokens can sustain gains and retail investors lose money.

• Also, the Rune 0 (UNCOMMON•GOODS) series set by Casey Rodamor himself is hard to pull higher because it 1) can be minted for free over 4 years and 2) can only be minted 1 per transaction.

Thoughts on Runes Protocol (Long-Term)

If I’m right and the hype cools off quickly after the Runes Protocol launches, the best opportunities will come after the sell-off.

Here’s why:

• Hype for narratives tends to come in waves.

• The first wave is usually driven by the excitement of newness, often stemming from innovative technology or simple meme potential. Meme tokens are a bit like gambling: the vast majority of meme tokens that are pumped up rarely have a second wave.

• However, narrative hype based on technological innovation is more likely to recover after the first wave of hype fades. Ordinal Inscriptions launched in December 2022, but the first major wave came with the launch of BRC20 in May 2023. The freely mintable BRC20 quickly pulled up and then fell, but as developers continue to build, the second and third waves arrived in late 2023.

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• Now we are in the fourth wave of Ordinals, with the hype that warmed up Runes. While many narratives failed to survive the first wave (check out ERC404 transactions), I believe Runes will have a fifth, sixth, and even more waves.

Here are the reasons:

• Multiple protocols are building infrastructure for Rune tokens. But it takes time to develop new DEXs/markets. For example, Saturn is building a familiar-looking DEX for Rune, but it will take time to make its user experience smooth. I will share more protocols worth watching below.

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• The Runes Protocol aims to consolidate the BTCFi industry around a single standard for development. Imagine what Ethereum would be like without the unified ERC20 standard - tokens would not be interchangeable between Aave and Uniswap. This is exactly what is happening with Bitcoin right now. Before Runes, we had BRC20, CBRC-20, ARC-20, BRC-420, etc. It was a mess.

• I am also bullish on Runes long-term because it captures the three pillars of a thriving crypto ecosystem. Here is my framework for this bull run.

In my opinion, the success of any crypto ecosystem is driven by three key elements: technological innovation, token minting opportunities, and fascinating storytelling. Here’s an explanation of how Runes fit into this.

• Technology Innovation: We were previously told that NFTs and tokens could not exist on Bitcoin. However, Bitcoin NFTs have outperformed Ethereum NFTs this cycle. ORDI, the first BRC-20 token on Bitcoin, is trading at $1 billion on Binance.

The trick is to convert fungible satoshis into non-fungible satoshis. When a satoshi has an inscription on it, it is no longer equal to another satoshi.

This is one of the most exciting “zero to one” innovations of this cycle. If you want to know how we got here, check out my previous blog post on BTCFi.

• Token Minting: This is one of the reasons we have crypto cycles. During every bull run, new tokens are created out of thin air and given crazy valuations. Just as central banks can overprint fiat, as money and attention flow into crypto, we also tend to issue too many tokens. Hence, the market crashes.

This cycle is no different. I wrote more about how this happened long before this bull run began.

However, token minting has previously been limited to smart contract blockchains such as Ethereum/Solana. Until the Ordinals theory came along, which accidentally gave rise to BRC20.

I used to be concerned about BTCFi due to unlimited token minting. BRC20 (and Runes) can be minted easily without any actual value accumulation because there are no smart contracts on Bitcoin.

But the Ordinals community has managed to find convergent Schelling points by assigning “elder” value to early Ordinal NFTs and airdropping tokens to these NFT collectibles.

Also, without direct value accumulation, all BRC20 tokens are essentially memecoins. Only ORDI managed to gain traction as the first BRC20 token, but now PUPS may have crossed the “Rubicon” and become a true memecoin on Bitcoin. The higher the price of PUPS, the stronger its conviction for retail speculators.

Finally, a growing BTCFi ecosystem is emerging with native tokens that challenge the status of memecoins and rationalize holding BRC20/Runes as value accumulation tokens. More on this later.

• Compelling Narrative Story: Narrative brings the technical aspects and token economic model to life, allowing people to understand, believe in, and participate in them.

For example, Bitcoin Ordinals is a sexy story as a non-fungible token on the most secure and decentralized blockchain. Also, playing memecoin on "old fogey" Bitcoin? It's much cooler than playing memecoin on Solana or Ethereum.

The crypto Twittersphere is catching up with the technical innovation of Ordinals/Runes, and the narrative is very hot.

If you missed the opportunity to warm up to Runes tokens, this short-term bearish but long-term bullish scenario may be the best case scenario. It can give you enough time to research and prepare after the hype subsides and before the second wave of Runes arrives.

The best time to learn was yesterday, the next best time was today. So here is a brief introduction to Runes.

What you need to know about the Runes protocol

The Runes protocol was developed by Casey Rodamor, the creator of the Ordinals theory, as a refutation of BRC20. Casey is not a fan of BRC20, so expect Casey to do the same with fungible tokens as he did with NFTs.

You see, BRC-20 tokens use JSON data (text formatted data) inscribed on Satoshi. They are more like NFTs than fungible tokens in terms of ease of trading. For example, you need to "inscribe" (via an on-chain transaction on Bitcoin) before buying, selling, or transferring these tokens.

Also, BRC-20 creates "junk" or "leftover" transactions that clog the network.

On the other hand, Runes uses the UTXO model that has been giving everyone headaches. Here's how I break it down:

Ethereum follows an account-based model, while Bitcoin uses UTXOs (Unspent Transaction Outputs) to track user states and balances.

For example, if you have a UTXO of 1 bitcoin and want to send 0.3 bitcoin to someone else, the transaction will use the entire 1 bitcoin UTXO as input. The transaction will then create two outputs: one sending 0.3 bitcoin to the recipient, and another returning 0.7 bitcoin (minus any transaction fees) to your address as two new UTXOs.

So technically, when you say “I own 1 Bitcoin,” you should say “I own a UTXO that allows me to spend 1 Bitcoin.”  (Thanks to Alchemy for this quote.)

In the example above, when you use a 1 Bitcoin UTXO as an input, that UTXO is “destroyed” and two new UTXOs are minted: 0.3 UTXO is sent to the recipient, and 0.7 UTXO (minus fees) is returned to you.

As you can see, these UTXOs are like NFTs!

However, while each inscription (e.g. BRC20) is unique, each unit of Rune is the same. They are fungible tokens. You can transfer Rune tokens just like regular Bitcoins, without having to do a BRC20 inscription every time you send them.

For Runes, UTXOs can now store 1 Bitcoin, 100 Rune Token A, and 50 Rune Token B as a "Runestone".

Tip: Create multiple UTXOs by sending the amount of Bitcoin you are willing to invest per Rune to a new wallet. This way you can participate in multiple tokens without waiting for previous transactions to complete. Or use Luminex.

Runestones (not to be confused with Runestone Ordinals) are Rune protocol messages that are stored in Bitcoin transaction outputs when you send UTXOs.

The Runes Protocol is coming to Bitcoin on the halving block! Here is a summary of some of the things that are coming, and the terms you should understand when you see related discussions on social media.

Terms Explained About the Runes Protocol

• Runestone: A Rune Protocol message, stored in a Bitcoin transaction output. It can contain information about etching new runes, casting existing runes, and transferring runes between addresses.

• Etching: The process of casting a Rune for the first time. Once engraved, the properties cannot be changed.

• Edicts: Not covered yet, will be covered in a future article.

You can learn all of this cool vocabulary in Casey's official documentation to impress your friends.

Here are some other simple terms and facts about Runes you should know:

• Rune Names: Initially only 13+ character names were allowed; this limit was reduced by one character every 4 months until all names were allowed after 4 years.

• Rune Numbers: Indicates the order in which the Runes were created, starting with "Rune 0" then "Rune 1", etc.

• First Rune (UNCOMMONGOODS): Free to mint, no supply cap, only 1 UG can be minted per mint. 1 UG is basically equivalent to a Bitcoin transaction fee.

• Rune ID: Generated based on the transaction block and position, such as "500:20".

• You can mint Runes by entering the Rune ID. For example, the RuniGun bot on Telegram will allow minting Runes by Rune ID. So if you know the ID, you can mint without relying on a third-party UI. You can check out the bot (disclaimer, I have no affiliation with this bot, just found it on X).

• Rune Symbol: A non-unique currency symbol for the Rune, such as $, ⧉, or or the universal currency symbol ¤.

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Look out for upcoming projects, protocols and tools

I originally planned to write an article on "How to prepare for the Runes Protocol launch". However, there are already several similar posts on X discussing the same protocol.

The key thing to know is that the Rune game has already started, and multiple pre-run protocols have been launched, promising to airdrop Rune tokens after the protocol launches on the Bitcoin halving block.

The hype started with the RSIC protocol, which mysteriously airdropped tokens to RSIC NFT miners of the Ordinal OG wallet.

At the time I said “something big is brewing in the BTCFi space” but didn’t really know how it would play out. We now know that RSIC started a race to attract the attention of Rune speculators.

If you don’t hold RSIC, I don’t think it’s the right time to get in: by holding RSIC and mining RSIC points, you can get RSIC Rune tokens as rewards. In theory, RSIC should trade at $0 on the halving block.

As a response to the RSIC team (who kept 10% of RSIC for themselves and were not transparent about the airdrop criteria), Leonidas launched a Runestone airdrop to 112.4k OG wallets. By holding Runestone, you will get not just one, but three Rune memecoin tokens.

“Get one later this month, get one later this year, get one more when we become the top memecoin in the world” - Leonidas

Runestone is currently valued at $549 million, making it the second largest pre-launch Runes collection after Rune Pups + PUPS.

But since RSCI is worth less the closer it gets to the halving, the true RSIC valuation is about $588 million based on the price of $0.028 per 1 RSIC Rune on the whale market.

Rune Pups ($80m) + PUPS memecoin ($421m) had a total transaction volume of $501m. Keep in mind that both Rune Pups and PUPS token holders will migrate to Runes, with 23% allocated to Rune Pups and 77% to PUPS.

There are generally arbitrage opportunities between Rune Pups NFTs, PUPS on Uniswap, and bridged PUPS on Solana.

This is not financial advice, but are you willing to participate at these valuations? If my short-term expectations are correct, then their valuations should drop shortly after launch.

Regardless, this is a speculative decision you should make on your own. There are multiple other Runes protocols on Magic Eden with valuations below $100m.

I won't sell, though. I got into the ecosystem early and am willing to hold. Also, these three main assets are becoming Schelling points for the Rune ecosystem, hopefully they will hold their value and get more airdrops.

In the long run, new protocols will emerge to take advantage of the hype around the Runes protocol. Here are the protocols and tools you'll want to get started with.

Notable Protocols

• Luminex: Casts runes, can be split UTXO, mint multiple runes with the same wallet. Popularized by Xverse wallet, so probably good.

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• Sovryn: Swap/lend runes with their own sidechain. Launched at halving. Sovryn will launch their DEX on Bob L2, which is the same link I referral link.

• RunePro: Building dex and Etching protocols. Not live yet. https://twitter.com/Rune_Pro

• Rune Bitcoin: Provides etching, transfer services for runes, and also builds a marketplace and a DEX.

• Runessance: Lending protocol for Runes and Bitcoin.

• Liquidium: Borrow Runes and Ordinals. Or earn Bitcoin yield. Points system live. Liquidium airdrops have points.

• Saturn: AMM/Orderbook exchange for Bitcoin assets. Liquidity may not exist during Runes release.

• RuniGun: Telegram bot for minting, creating, and managing Runes. Couldn't export my private keys, so be careful.

But you may use Magic Eden and Unisat to trade Runes and OKx Web3 wallet if you are a mobile user. Personally, I alternate between Unisat, Xverse, and OKx wallets.

I’ll be doing a dedicated blog post about BTCFi ecosystem dApps in the future. There’s a lot to unpack here, so be sure to subscribe.

Helpful Rune Tools

• SatScreener: Live token aggregator for the Rune and Bitcoin ecosystem. Since Coingecko/CMC sucks for the Bitcoin ecosystem, Satscreener is the place to keep track of token info.

• Runesmarketcap: Find Rune Protocol by provenance, market cap, type, and more.

• Runealpha: Rune explorer, live data, Etch (minting) protocol all in one. Very useful.

• Rune Terminal: Build scanners, minters, and launchpads. Has its own serial number, will be rewarded with RUNI airdrops after halving.

BTCFi is still in its early stages. It's like going back in time, back to Ethereum DeFi before the birth of Uniswap in 2019-20, there will be a lot of opportunities.