Original author: Umbrella

On August 27, the BTC ecological project BitLayer was launched on Binance Alpha. However, this BTCFi star project, which was once highly anticipated, wrote a footnote for the entire track with a sharp drop in price.

According to CMC data, BTR opened at 0.1511, plummeting to 0.077 within hours, a 48.6% single-day drop. As of August 28th, the token remains 44.3% below its all-time high, with a 24-hour trading volume of $60.3 million and a volume-to-market-cap ratio of 274%. This extreme speculative turnover exposes the project's lack of long-term holders.

What is even more thought-provoking is that although the on-chain TVL remains at a relatively high level of US$429 million, the steep drop in token prices clearly reflects the market's doubts about BTCFi's ability to capture ecological value.

The sharp drop in BitLayer’s opening price is more than just a case of “peaking at the time of listing”. Behind it is a microcosm of the entire BTCFi narrative from frenzy to decline.

The collective decline of mainstream projects

The BTC ecosystem has also produced many phenomenal popular projects, but they are unable to conceal their essential flaws and narrative contradictions.

Merlin Chain: 3.8 billion TVL only 50 million left

As the former leading project of BTCFi, Merlin Chain’s data changes are breathtaking.

Within 50 days of its launch, the project attracted up to US$3.8 billion in BTC pledges, with a peak TVL of US$530 million, making it a star project with the highest TVL and number of users on BTC Layer 2.

However, the reality is stark: According to DeFillama data, Merlin Chain's current TVL is only $50 million, a plunge of over 90% from its peak. The price of its Merl token hovers around $0.115. While up 45.1% year-to-date, it's still down 90% from its all-time high. Even more heartbreaking is the fact that its 24-hour on-chain inflow is only $1,946.

It only took Merlin Chain half a year to go from being the undisputed leader in the industry to being condemned by everyone like a rat crossing the street. To this day, people still occasionally mention Merlin, but almost all of them are sarcastic and complaining about it.

Inscriptions and BTC NFTs: From Carnival to Self-Deprecation

The Ordinals and BRC-20 tokens that once ignited the BTC ecosystem are now no longer as popular as they used to be.

Looking back on the winter of cryptocurrencies, every public blockchain launched its own cryptocurrencies, fueling a widespread crypto craze. Bitcoin, the origin of the crypto world, gave rise to popular projects like Sats and Ordi. The slogan "Buy an Ordi today, drive an Audi tomorrow" still rings in my ears.

Nowadays, the phrase "Ordinals are dead" has gone from being a mockery to a self-deprecating meme within the circle. Even the official account of the Inscription Project has begun to use this meme to make fun of itself.

The BTC NFT market has fewer than 2,000 active users in 24 hours, accounting for 1.7% of the total chain activity, far lower than the ETH or Solana ecosystem.

The actual use of inscriptions and NFTs is still a controversial topic in the market, but once active users are leaving one after another. The loss of user confidence also indicates that the status of this narrative in people’s minds is gradually being forgotten with the fast pace of the encryption market.

In addition to Merlin Chain, BTC Inscriptions and NFT, other BTCFi projects have gradually exposed their own shortcomings or model defects.

Babylon's current TVL has hit a record high of US$6.3 billion, but the price has fallen 77% from its peak, exposing its shortcomings of a single staking model and a lack of innovative applications; Core, also a popular project in the BTC ecosystem, currently has a TVL of only US$386 million, down more than 70% from the beginning of the year.

The truth behind the data is even more serious: with the exception of Babylon, the daily fee income of most BTCFi projects is less than US$50,000, far lower than the millions of dollars of income of traditional DeFi projects. The unsustainability of this business model is being ruthlessly exposed by the market.

Narrative fatigue and internal contradictions

BTCFi’s fundamental dilemma 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 side chains, L2 or cross-chain bridges.

According to DeFillama data, among the current mainstream BTCFi projects, bridge assets account for 80%-100% of TVL: Merlin Chain's bridge TVL accounts for as high as 80%, Core reaches 94%, and Bitlayer is almost 100% dependent on BTC cross-chain.

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

On social media, discussions about BTCFi have shifted from early excitement and exploration to a "prove-your-worth" phase of skepticism. An increasing number of influencers (KOLs) are also labeling the BTC ecosystem as doomed to failure.

The attitude of retail investors is self-evident. Their expectations for the BTC ecosystem are being repeatedly diluted by the fresh narratives surrounding ETH and SOL. The recent surge in whales selling BTC for ETH has undoubtedly poured cold water on this embers.

Image source @Ai Yi

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

In order to attract liquidity, project owners must provide high-yield incentives, but high returns often rely on additional token issuance, which in turn dilutes long-term value.

The extremely high turnover rate of BitLayer and the user loss of Merlin chain both prove the unsustainability of this mining and selling model.

BTC, Return to Spiritual Totem

Looking back at the rise and fall of BTCFi, we may need to re-examine the positioning of BTC in the crypto ecosystem.

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

ETH can support the DeFi ecosystem because its architecture is optimized for programmability. Bitcoin's value proposition, however, has never been about what it can do, but rather what it represents. Perhaps when we try to make Bitcoin support complex financial applications, we've already violated its essence.

Compared to BitLayer and Merlin, Babylon is relatively successful. Its success demonstrates that as a pure BTC staking protocol, it doesn't attempt to change BTC, but rather leverages BTC's security to provide services for other chains. This "specialization" approach may be the right way for BTC to participate in DeFi.

The decline of BTCFi isn't a failure of BTC, as evidenced by BTC's continued record-breaking performance this year. Rather, BTCFi is more like a rational correction to excessive financialization.

BTC remains the most important store of value in the crypto world, but it will never and should never become the next ETH.

Recognizing this may be a sign that the entire industry is maturing.