The inscription assets, represented by the BRC20 series, have recently gained significant popularity. This surge seems to be the second major wave of asset appreciation this year since the launch of the ordinal protocol. I have recently conducted research on the current market for inscription assets. This involved digesting industry information and data, as well as participating in various online and offline BRC20-themed events, leading to some interim opinions about this market, which I will attempt to organize and express in this article.

This article seeks to answer the following questions:

1. What are inscription assets? What are the selection criteria for popular BRC20 assets?
2. What is the core value proposition of inscription assets, particularly BRC20 assets?
3. Are inscription assets a good business innovation?
4. What are the mechanisms and driving forces behind the rapid surge in inscription assets?
5. What are the potential next phases for inscription assets?
6. How might inscription assets collapse?

The content of the following article represents my interim views as of the time of publication. There may be factual errors and biases in my observations and opinions, which are intended solely for discussion. I also look forward to corrections from peers in investment research.

Inscription Assets and the Standards for “High-Quality Assets”

Inscription assets refer to virtual assets created by recording information in a specified format on BTC (or other blockchains), which are then transformed through specific indexing protocols. These assets can be homogeneous (such as BRC20 assets) or non-homogeneous (like Bitcoin Frogs, similar to NFTs).

For Bitcoin, as a public ledger, its primary use has been to record network transfer transactions. However, after Bitcoin’s Taproot upgrade in November 2021, it gained more efficient data storage capabilities. This enabled lower-cost uploads of text and multimedia content, laying the technical foundation for inscription assets.

Compared to Ethereum, where asset issuance and operation are based on smart contracts, BTC inscription assets are issued and operated based on on-chain information and indexing standards. Although the mechanisms differ, both are assets issued based on blockchain public ledger data.

Token-like inscription assets on Bitcoin, Source: BTCTOOL

NFT-like inscription assets on Bitcoin, Source: BTCTOOL

Based on different inscription indexing standards, there are various types of fungible assets, such as BRC20 and ORC20.

This article primarily discusses BTC inscription assets, focusing on BRC20 assets as an example. Currently, the highest market value among inscription assets is mostly in the BRC20 series.

Despite the significant surge in BRC20 star assets like Ordi and Sats this year, others, like Rats, also saw notable increases. However, most BRC20 assets issued during the same period have trended towards zero value, losing all liquidity within a month or two of issuance.

From the inscription asset and BRC20 discussions I’ve participated in, participants have outlined the following characteristics for “promising” BRC20 assets:

• Good Name: Related to Bitcoin and inscription culture (e.g., Ordi, Sats) or animal-themed (reflecting the 2021 Meme craze centered on animals).

• Originality: Should not be a crude copy of other Memes, but instead create its own IP.

• Community Focus: The project should have influential leaders and a community that is aggressive, high-profile, and continuously expanding through promotions.

• Token Distribution: In the early stages, a low proportion of tokens should be held by major investors, especially those who are pure investors (not involved in promotions and only holding the tokens).

Of course, applying these standards in practice is not straightforward.

The appeal of a name is subjective, and even within the relatively narrow field of inscriptions, trends have shifted multiple times. What the market favors in naming logic now might not be popular in a few weeks.

The Value Proposition and Business Innovation of BRC20 Assets

The market presents various value propositions for BRC20 assets, summarized as follows:

• The fair launch mechanism ensures that everyone can acquire assets in an equal manner, unlike mainstream web3 projects where venture capitalists (VCs) invest early, acquiring tokens at lower costs and selling them at higher prices to the public.

• The BRC20 protocol is straightforward and singular in function, thus avoiding risks associated with smart contracts, such as project abandonment, blacklisting, or contract breaches.

• It enriches the Bitcoin network’s accounting purposes and asset types, generating substantial network fees that can supplement the decreasing Bitcoin network security budget as BTC block output continues to decline.

In my view, these arguments have merit but are not the primary sources of BRC20 assets’ popularity and significant wealth effect this year.

Is BRC20, as a representative of inscribed assets, a good business innovation? The answer depends on the perspective of “goodness” being considered. For trading platforms, asset speculators, and Bitcoin mining professionals, it is undoubtedly a beneficial innovation, as the emergence and popularity of such assets have tangibly increased their income. However, regarding the broader commercial value, such as reducing production costs of goods and services, enhancing business efficiency, and optimizing resource allocation, I maintain a skeptical stance at this stage.

Fundamentally, BRC20 is merely a new form of Meme assets. I don’t dismiss Meme assets – as mediums of speculation, they cater to the psychological thrill accompanying speculative or gambling behaviors, satisfying the needs of such users. This is why people occasionally or regularly visit casinos despite knowing the mathematical unprofitability of gambling. The resilience of human nature in gambling and greed is as strong as basic physiological needs, underpinning the longevity of the Meme sector.

However, within the Meme field, BRC20 assets have only diversified product categories without significant genuine innovation in technical mechanisms. For instance, the highly praised “fair distribution” of BRC20 can be achieved with well-designed smart contracts, not an exclusive feature of the inscribed asset race.

The criticized “VCs invest early, and retail investors buy in later” model reflects the huge uncertainties VCs face when investing in a project at an embryonic stage, necessitating extremely low early participation prices to hedge risks. When these tokens circulate in the secondary market, many of the project’s initial “uncertainties” have transformed into “certainties,” such as having a usable product, assessable data, a more mature market environment, and platforms seeking to list the tokens. Hence, the token prices at this stage are naturally incomparable to their initial values.

This logic applies to VC-less Meme projects like Shib and Pepe. Initially, they were mere concepts with uncertain futures in terms of attention and speculative capital, as well as endorsements from key opinion leaders. Therefore, their tokens were extremely cheap. As their holders increased rapidly, resources became abundant, and more people became optimistic, their “uncertainties” turned into certainties, with secondary market prices soaring to tens or hundreds of times their original value.

So, what exactly fueled the exceptional popularity of BRC20 assets, a not-so-new Meme form, especially in the latter half of this year?

The Mechanism and Driving Forces Behind the Surge in Inscription Assets

We analyze the wealth frenzy of BRC20 from two perspectives: mechanism logic and driving forces.

Mechanism Logic

As previously mentioned, BRC20 is essentially a speculative medium, whose sole utility for participants is to “quickly create astonishing wealth.” The law of large numbers, where people tend to broadcast their riches but remain silent about their losses, ensures that even if the majority in a market are losing money, community headlines are likely to celebrate “investment stories of members making a hundredfold comeback.” This disproportionately magnifies the public impression of frequent wealth creation in certain asset speculations.

BRC20, in contrast to typical ERC20 Memes, achieves a higher efficiency in creating a “wealth effect.” The primary reason lies in the fact that most BRC20 assets, especially in their early stages and even now, are traded via OTC orders, whereas ERC20 Meme transactions primarily occur on AMM DEXs or CEXs, with the latter having much greater depth. This means that less capital is required to pump BRC20 assets compared to typical ERC20 assets (especially during periods of rising market sentiment), as the same buying pressure can lead to higher price increases.

In simpler terms, due to the thin liquidity in OTC models, the same purchasing power can produce more exaggerated price increases for BRC20 assets compared to ERC20 Memes, forming a stronger and faster “wealth effect.”

Besides the difference in pumping costs, BRC20s not traded on CEXs also lack mechanisms like perpetual contracts for short-selling, further unleashing the short-term upward potential of these assets.

Additionally, key participants in BRC20 trading mentioned that speculation in this domain has a high “mom rate.” This means that many investors are not the typical DeFi enthusiasts or mainstream crypto asset investors, but rather “mom-type” investors inspired by “team leaders” and guided by “ground promotions.” These investors are more obedient, easily influenced by community leaders, and some don’t even know how to sell, leading to a (3,3) hold-and-not-sell scenario in some projects, reducing short-term selling pressure.

This year’s emphasis on Web3 wallets by Okex has facilitated BRC20 asset transactions and the completeness of wallet infrastructure has further smoothed and shortened the entry path for “mom-type speculators,” enabling them to easily access this new market.

Driving Forces

The popularity of BRC20 inscription assets is a rare speculative highlight in a bear market. Various stakeholders have ample motivation to continue promoting and expanding this trend.

• Mining Community: The boom in inscription trading brings substantial fee income for miners and mining pools, and also boosts mining rig sales. They are direct beneficiaries and naturally wish for this “Inscription Summer” to last.

• Exchanges: The new speculative business brings more fees, new users, and effective activation of strategic products like wallets. Okex is undoubtedly a big winner of Inscription Summer, with Binance also beginning to follow suit.

• CX Teams: With new themes and stories, their human resources can once again be monetized.

These three forces combined could potentially accelerate the inscription asset trend into its next phase.

Next Phase Script

For the market, which is already sizeable, to grow even larger and hotter, it needs a script for the next phase. Some potential representative events might include:

• Secondary CEXs continuing to list more inscription assets beyond Ordi and Sats, driving up other Memes and drawing more traditional crypto investors into the BRC20 speculative market.

• Leading CEXs like Binance listing more inscription assets, drawing mainstream crypto funds into the BRC20 market.

• The emergence of innovations beyond pure Memes, such as BRC20 Memes incorporating Ponzi schemes, exaggerating the wealth effect even further.

But will the inscription market successfully transition to a hotter phase, or will it gradually cool down or even crash abruptly?

Let’s explore the potential paths and conditions for its collapse.

Pathways to the Collapse of the Inscription Market

As previously mentioned, the exaggerated wealth effect of BRC20 assets in their early stage was determined by a combination of factors: low liquidity in OTC order trading mechanisms, a high proportion of maternal investors, and the involvement of numerous stakeholders. Low liquidity can cause asset prices to surge during rising periods but can also lead to dramatic declines when buyers are scarce. Most people fail to realize that 95% of the wealth on their account balance may be “illusory market value”, contingent on their ability to act quickly and on the presence of others to provide exit liquidity.

The elements contributing to this market collapse include:

1. Over-issuance and rapid exit of scythe-shaped projects. Given the limited number of users and funds in the market, the main competitors of BRC20 project manipulators are other project manipulators. When users and funds are drawn into buying other BRC20 projects, the money available to take over one’s chips diminishes. Therefore, due to fierce competition for users and funds, the overall timeline for manipulators to divest becomes increasingly earlier to ensure their profits. This results in a shorter window for users to realize speculative gains. When the market is overwhelmingly filled with loss stories rather than tales of wealth, negative publicity and ridicule become mainstream, deterring further investment and leading to a liquidity drought in the BRC20 meme market.
2. Slowing user influx. Factor 1 may lead some CEXs to be more cautious in listing additional BRC20 assets, further slowing the influx of users and funds compared to the speed at which manipulators operate.
3. After BRC20 assets are listed on CEXs, liquidity mainly shifts to CEXs, increasing the resistance to price pumping. Coupled with the availability of shorting tools like contracts, without a change in mechanisms, the post-listing wealth effect may significantly diminish.
4. These three factors continuously reinforce each other, leading to a crash scenario.

Postscript

Resilient greed and gambling instincts are vital sources of energy in the crypto industry. How this experiment with the Inscription Summer will evolve remains to be observed by the author.

Disclaimer：

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