The Final Chapter of BTCFi: Observing the Ecological Decline from the Big Dump of BitLayer

Written by: Umbrella

On August 27, the BTC ecological project BitLayer landed on Binance Alpha. This BTCFi star project, once full of expectations, has written a footnote for the entire track with a sudden drop.

According to CMC data, BTR opened at a price of 0.1511, but within just a few hours, it plummeted to 0.077, resulting in a daily drop of 48.6%. As of today, August 28, the token is still down 44.3% from its historical high, with a trading volume of 60.3 million USD in the last 24 hours, and a trading volume-to-market cap ratio of 274%. This extreme speculative turnover rate exposes the awkward reality that the project lacks long-term holders.

What is even more thought-provoking is that although the on-chain TVL remains at a relatively high level of $429 million, the dramatic drop in token prices clearly reflects the market’s doubts about the value capture capability of the BTCFi ecosystem.

The sharp drop in BitLayer’s opening price is not just a single occurrence of the “listing is peak” phenomenon; it is also a microcosm of the entire BTCFi narrative transitioning from fervor to decline.

The collective decline of mainstream projects

The BTC ecosystem has once given birth to many phenomenal popular projects, but they all struggle to conceal their fundamental flaws and narrative contradictions.

Merlin Chain: 3.8 billion TVL only remains 50 million

As a former leader in the BTCFi sector, the data changes of Merlin Chain are nothing short of breathtaking.

The project attracted up to $3.8 billion in BTC staking within 50 days of its launch, with a peak TVL of $530 million, becoming the star project with the highest BTC Layer2 TVL and user count.

However, the reality is extremely harsh: according to DeFillama data, the current TVL of Merlin Chain is only $50 million, a drop of over 90% from its peak. Its token, Merl, hovers around $0.115, and although it has risen by 45.1% this year, it is still down 90% from its historical high. Even more heartbreaking is that its 24-hour on-chain inflow is only $1,946.

In just half a year, Merlin Chain transformed from an undisputed leading project in the race to being scorned like a rat crossing the street, and even today, there are still occasional mentions of Merlin, though almost all of them are sarcastic and critical.

Inscription and BTC NFT: From Carnival to Self-Mockery

The Ordinals inscriptions and BRC-20 tokens that once ignited the BTC ecosystem are no longer in the spotlight.

Recalling that hot winter when inscriptions were all the rage, every public chain was launching its own inscription products, causing the market to fall into a frenzy of inscription trading. BTC, as the origin of everything in the crypto world, gave birth to popular projects like Sats and Ordi. The slogan “Buy Ordi today, drive an Audi tomorrow” seems to still resonate in our ears.

Nowadays, the phrase “Ordinals are dead” has shifted from being a joke to an inside self-deprecating meme, with even the official accounts of the inscription projects starting to use this meme for self-mockery.

The 24-hour active users in the BTC NFT market are less than 2,000, accounting for only 1.7% of the overall chain activity, which is far lower than that of the ETH or Solana ecosystems.

The actual use of inscriptions and NFTs is still a contentious topic in the market, but previously active users have been leaving one after another. The loss of user confidence also suggests that this narrative is gradually being forgotten in people’s minds as the fast-paced cryptocurrency market evolves.

In addition to Merlin Chain, BTC inscriptions, and NFTs, other BTCFi projects are gradually exposing their shortcomings or flaws in their models.

Babylon’s current TVL has reached a historic high of 6.3 billion USD, yet the price of the token has dropped 77% from its peak, exposing the shortcomings of its single staking model and lack of innovative applications; similarly, Core, a popular project in the BTC ecosystem, currently has a TVL of only 386 million USD, a decline of over 70% since the beginning of the year.

However, the truth behind the data is even more severe: apart from Babylon, most BTCFi projects generate daily revenue of less than $50,000, which is far below the revenue levels of traditional DeFi projects that often reach several million dollars. The unsustainability of this business model is being ruthlessly exposed by the market.

Narrative fatigue and internal contradictions

The fundamental dilemma of BTCFi stems from the technical limitations of BTC itself.

As “digital gold,” BTC is not designed to have the programmability of smart contracts, which means that all BTCFi applications must rely on compromise solutions such as sidechains, L2, or cross-chain bridges.

According to DeFillama data, in current mainstream BTCFi projects, bridged assets account for 80%-100% of the TVL: Merlin Chain’s bridged TVL accounts for as much as 80%, Core reaches 94%, and Bitlayer is even close to 100% reliant on BTC cross-chain.

This extreme reliance on cross-chain infrastructure not only increases security risks but also contradicts the core spirit of BTC’s decentralization and autonomy.

On social media, discussions about BTCFi have shifted from early excitement and exploration to a stage of skepticism characterized by “prove-your-worth”. An increasing number of KOLs are also listing the BTC ecosystem as a doomed track.

The attitude of retail investors in the market is self-evident; the expectations for the BTC ecosystem are being diluted again and again by the fresh narratives surrounding ETH and SOL. The recent continuous selling of BTC by large whales to swap for ETH undoubtedly pours cold water on this pile of ashes.

Image source @ Ai Yi

On the other hand, the dire situation of the BTC ecosystem also reveals the inherent contradictions in the economic models of most BTCFi projects.

In order to attract liquidity, project teams must offer high-yield incentives, but high yields often rely on token issuance, which in turn can dilute long-term value.

The extremely high turnover rate of BitLayer and the user attrition of the Merlin chain both demonstrate the unsustainability of this mining and dumping model.

BTC, returning to the spiritual totem

Looking back at the rise and fall of BTCFi, we may need to reassess BTC’s position in the crypto ecosystem.

Unlike ETH, which was designed from the beginning as a “world computer,” BTC is more like a crypto totem, and the role of a totem is to consolidate consensus and belief, rather than functional expansion.

ETH can support the DeFi ecosystem because its architecture has been optimized for programmability. The value proposition of BTC has never been about “what can be done,” but rather “what it represents.” Perhaps when we try to make BTC accommodate complex financial applications, we are already violating its essence.

Compared to BitLayer and Merlin, Babylon is relatively successful, and its success precisely proves that as a pure BTC staking protocol, it does not attempt to change BTC, but rather utilizes BTC’s security to provide services for other chains. This kind of specialized approach may be the correct way for BTC to participate in DeFi.

The decline of BTCFi is not the failure of BTC, as can be clearly seen from BTC’s continuous breakthroughs to new highs this year. BTCFi is more like a rational correction by the market to excessive financialization.

BTC remains the most important store of value in the crypto world, but it will never be, nor should it be, the next ETH.

Recognizing this point may be a sign of the entire industry maturing.