Ordinals has opened up new protocols and application scenarios for the Bitcoin ecosystem. In the Bitcoin ecosystem, challenges and opportunities coexist, and investors are constantly looking for new projects that have the potential to lead the development of the industry. Ordinals Asia specially invited three leading figures in the Bitcoin ecosystem - Jeff, founder of Merlin Chain, Yushan, partner of Waterdrop Capital, and BMAN, co-founder of ABCDE Capital, to talk about their views from the perspectives of investors and entrepreneurs.
The following is the full text of the conversation, compiled based on the on-site recording.
Jeff: Hello everyone, this is the Chinese VC Dialogue. First, please briefly introduce yourselves.
BMAN: I am BMAN from ABCDE Capital. I have 12 years of experience in the crypto field and have gone through many market cycles. We have a total of 400 million in funds and have invested in many Bitcoin ecosystem projects such as Merlin Chain, UniSat, and Babylon. I am very happy to share my views on the Bitcoin ecosystem here. Thank you.
Yushan: Hello everyone, I am Dashan from Waterdrop Capital. I joined the crypto world in 2013 and co-founded Waterdrop Capital with two other partners in 2017. Since 2021, we have started investing in the Bitcoin ecosystem and participated in the financing of Merlin Chain with ABCDE. We are also continuing to look for innovative projects in the Bitcoin ecosystem, and I am very happy to share them with you later. Thank you.
Opportunities to invest in the Bitcoin ecosystem
Jeff: Let’s go back to the beginning. When did you start investing in Bitcoin ecosystem projects and what was the first project you invested in?
BMAN: First of all, of course, Merlin. The reason we want to invest in the Bitcoin ecosystem is that the emergence of Ordinals in March last year made us realize that Bitcoin is far more than just digital gold. It has become an ecosystem. This is an important turning point. Before that, we worked in the crypto world for 12 years, but we couldn’t do anything with Bitcoin.
But since last year, we have been able to engrave assets on Bitcoin and even create ecological projects. Therefore, we think it is necessary to use part of the funds for Bitcoin ecological investment. In September last year, we held demo days, and it was at that time that Merlin Chain was discovered. I have known Jeff for a long time before, and I know that Jeff has been involved in the construction of the Bitcoin ecosystem, including BRC-420 protocol, Bitmap Explorer, etc. I found Jeff at that time and discussed with him that we need a Bitcoin Layer 2 that can aggregate all assets together, which is one of the reasons for the birth of Merlin Chain. I think it was a thought-provoking conversation, and it was also the motivation for us to decide to lead the investment in Merlin later. Merlin is the first ecological project we participated in the investment. After that, we successively invested in Babylon, UniSat, Botanix, Arch, etc. At present, our investment in the Bitcoin ecosystem has accumulated more than 50 million US dollars, which may be the most invested Asian VC. We will continue to invest in the field in the future. If you have innovative and bold ideas, you are also welcome to find me to communicate.
Yushan: For me, I was a Bitcoin miner about 10 years ago. One of the more important nodes in the last bull market was the Taproot upgrade of Bitcoin in 2021. In the bull market of 2021, everyones attention was on the DeFi Summer of the Ethereum ecosystem, and almost no one cared about what happened to Bitcoin. But as Bitcoin miners, we clearly know that after the Bitcoin Taproot upgrade allows the issuance of new assets, some new ideas will definitely appear in the ecosystem.
Three years ago, we invested in a project called OmniBoat, which was our first investment in the Bitcoin ecosystem. Unfortunately, Tether decided not to support multi-chain assets at the time, so we started looking for other investment opportunities in the field again, including some Bitcoin Layer 1 projects and invested in a Layer 1 game. We also discovered Merlin shortly afterwards. Although I have known Jeff for a short time, I know that he has experience in AI in the Web2 field, and I think what they are doing is very beneficial to the Bitcoin ecosystem, so I chose to invest in Jeffs project later. But Jeffs RCSV project was actually built on Layer 1, and I didnt expect that the team would choose to make a Bitcoin Layer 2 later.
Bitcoin Layer 1 has the potential for more innovation
Jeff: As we all know, ABCDE Capital and Waterdrop Capital have invested in many Bitcoin ecosystem projects. In addition, Merlin is about to launch the Grants plan to provide support for more ecosystem projects. Friends with new ideas and intentions are welcome to come to us for discussion.
Lets go back to Layer 1. Currently, there are many Ordinals, BRC-20, and Runes Marketplace on Bitcoin Layer 1, but as far as I know, many Layer 1 projects are fair launches and not profitable. My second question is, what investment opportunities are there on Layer 1 today? Do you think it is more difficult to invest in Layer 1 projects than Layer 2 and other DeFi protocols?
BMAN: First of all, I think the spirit and charm of the Bitcoin ecosystem has always been that projects (especially Layer 1 assets) have always been Fair Launch. I think in the next one or two years, there will be more and more innovations in Bitcoin Layer 1, such as OP_CAT. Last month, we hosted Bitcoin Day in Hong Kong and invited the founder of StarkWare, who also talked about BTC Cairo and OP_CAT. There has always been a small group of people on StarkWare developing around OP_CAT and BVM. This is very interesting because StarkWare has always been a builder of the Ethereum ecosystem, but decided to join the Bitcoin ecosystem to participate in the construction of OP_CAT. We can build Bitcoin Layer 1 verification based on OP_CAT, and I also believe that with the support of OP_CAT, there will be more innovations in Bitcoin Layer 1, including the programmability and verifiability of the Bitcoin network.
Yushan: I agree very much with BMANs point of view just now. I also think that OP_CAT will be an important turning point for Bitcoin after it is passed. However, due to the differences between core developers, Bitcoin miners and the community, it is not easy for the OP_CAT proposal to be passed. We may not see the result of the proposal in the next one to two years. In addition, I think PSBT (Partially Signed Bitcon Transactions), MAST (Merkelized Alternative Script Tree) and other Layer 1 protocols are also worthy of our attention.
We are also trying to attract other ecosystems, especially Ethereum ecosystem developers to participate in the Bitcoin community. Looking back at the beginning, the idea of Ethereum actually originated from Bitcoin, and other technologies and ideas such as the challenge mechanism between Layer 1 and Layer 2 were also the earliest discussed in the Bitcoin forum. This also means that many new ideas and thoughts are hidden in Bitcoins code, proposals and forums, and we need to discover and promote them ourselves. Yesterday I was still communicating with a senior Bitcoin core developer, and they are still developing some seemingly simple but far-reaching codes. Therefore, I hope that more and more developers can participate in this game and bring us more possibilities.
Characteristics of Bitcoin entrepreneurs: the best and only, and seize the opportunity
Jeff: What advice do you have for builders of the Bitcoin ecosystem, and what qualities do you hope to see in the founders and builders of ecosystem projects?
BMAN: This is a good question. In fact, I am also the founder of the project. I founded my own project in 2015, and ABCDE is also a new starting point for me. I think that for a project founder, you need to first find a track that can be defined by yourself. ABCDEs purpose has always been to invest in the best and only projects, so my advice to founders is to be the best and only in a certain track. Merlin Chain has such characteristics-it has its own token standards, ace projects, the highest TVL and the best community, which is why we lead Merlin. For example, BitLayer is the first Bitcoin Layer 2 built on BitVM, and Babylon is the first and only Bitcoin native liquidity pledge protocol. Therefore, as a founder of a project, you must look at the entire market and find a track that you can define, and become the best and only project in it, which is enough for you to capture more than 80% of the value in this narrative, because the second place is simply not cared about.
Yushan: First of all, I think a good developer is not completely equivalent to a good founder. As a founder, you have to do much more than just write beautiful code. You also need to consider everything else, including the market and financing. First of all, the most important thing for a project is timing. I think the Bitcoin ecosystem will have three waves.
First, there are assets issued on Layer 1, such as Ordinals, BRC-20, and Runes. Bitcoin Layer 2 is next. I have recently communicated with many Bitcoin Layer 2 project founders and found that they just want to be another Merlin, which is not practical because the TVL and other achievements Merlin has now achieved are not replicable. At present, there are more than 10 Bitcoin Layer 2 projects in this field, most of which are different. For example, some projects use bitVM technology, while others choose to use multi-signature or side chain. I think there is no shortage of EVM Layer 2 in the current ecosystem. What we always lack is a more native Bitcoin Layer 2, such as Bitcoin Layer 2 based on Lightning Network, Taproot Assets, RGB, and UTXO. I think the third wave of Bitcoin ecology will appear in these areas. We are also looking forward to more and more founders and hypothesists joining us, and hope to see Merlin Chain and other Bitcoin Layer 2 networks move towards large-scale adoption as soon as possible.
Lessons Learned from Bitcoin Ecosystem Investing
Jeff: Last question, let’s talk about mistakes and failures. What are the biggest failures in Bitcoin ecosystem investing and the lessons learned from them?
Yushan: Just kidding, our biggest mistake is that if we go back to last year, we would have invested more in Merlin. I think for the Bitcoin ecosystem, we need to work more with the mainstream media. When we first started thinking about investing in the Bitcoin ecosystem last year, many mainstream media we talked to didn’t care about it. They thought that Bitcoin Layer 2 was just a copy of Ethereum and was not practical. We couldn’t convince them at the time, but now we can confidently say that their idea at the time was completely wrong. Having said that, there are still many voices criticizing Bitcoin Layer 2 in the market. For the entire Bitcoin ecosystem, effective communication with the media is essential.
B MAN: What I learned is that we need to unite all founders and builders to build the Bitcoin ecosystem together. Everyone knows that there is too much FUD and vicious competition in this ecosystem, but I think the main theme at this stage should not be competition. In fact, we should all be partners and companions, because if we can push the value of the ecosystem to hundreds of billions or even more, everyone will benefit from it. Therefore, my point of view is that we need to build together instead of FUDing each other.
Jeff: Finally, I want to say that when I talked to some media reporters, they told me that the Solana ecosystem has a spirit of building together in a small community, Ethereum always follows Vitaliks guidance, and when it comes to Bitcoin, people see Ordinals, BRC-20, Runes and other assets dividing the Bitcoin community. Therefore, I think what we need to do in the next one to two years is to build together, help each other, and Make Bitcoin Fun Again together.
