Franklin Templeton: Runes Protocol to Help Bitcoin Catch Up with Ethereum and Solana

Franklin Templeton investment firm believes Runes has the potential to expand the Bitcoin ecosystem, thereby catching up with the market-leading ecosystems of Ethereum and Solana.

Franklin Templeton: Runes Protocol to Help Bitcoin Catch Up with Ethereum and Solana. Image: CCN

Runes Protocol is a protocol for issuing fungible tokens on the Bitcoin network created by Casey Rodarmor, the creator of the well-known Ordinals protocol.

"The digital asset market for Bitcoin is currently much smaller compared to ETH and SOL. However, with the introduction of a more efficient token standard like Runes, Bitcoin will narrow the market cap gap with the other two ecosystems," the firm stated in a report posted on X (Twitter) on April 15.

Runes – Bitcoin’s new Fungible Token Standard pic.twitter.com/0VmlFbyKPc— Franklin Templeton Digital Assets (@FTI_DA) April 15, 2024

Franklin Templeton emphasized that the launch of Runes Protocol will bring many improvements, including no UTXOs, independence from off-chain data, no additional token costs, enhanced privacy, and compatibility with the Bitcoin Lightning Network.

Runes is not the only digital asset drawing attention from Franklin Templeton. Earlier this month, the company noted that the Ordinals protocol has been instrumental in driving the "BTC Renaissance." Ordinals tokens, including NodeMonkes, Runestone, Bitcoin Puppets, Ordinal Maxi Biz, and Bitmap, have a combined market cap nearing $1.11 billion.

"Bitcoin Ordinals have seen a surge in trading volume in recent months, reflected in the increased market cap since December 2023 - surpassing ETH in trading volume," the investment firm reported.

"The innovation and development in Bitcoin have seen strong resurgence over the past year. This growth is largely attributed to Bitcoin NFTs, or Ordinals, along with the emergence of replaceable tokens like BRC-20, Runes, various Bitcoin Layer 2 solutions, and other original Bitcoin DeFi," Franklin Templeton concluded.

While acknowledging the role of the BRC-20 token standard for Bitcoin, Franklin Templeton noted that the process of burning and minting tokens under this standard generates a large number of UTXOs (Unspent Transaction Outputs).

UTXOs represent the token balance a user holds after each transaction. Unlike Ethereum, where users can transfer individual tokens, Bitcoin aggregates tokens in each transaction, and any unused tokens become outputs returned to the wallet, reused in subsequent transactions.

UTXOs contribute to Bitcoin's network bloat and transaction fees, as these transactions simply hold funds in user wallets. Unused amounts are recycled for future transactions.

Franklin Templeton Digital Assets' report was released following the launch of the EZBC Bitcoin ETF in January 2024. However, capital inflows into the fund were less than promising, as of April 15.

Statistics of capital inflows into Bitcoin ETFs. Source: Farside Investors (April 16, 2024)

Runes Protocol is set to launch on April 20, coinciding with the Bitcoin halving event. BTC prices have declined over 12% in the past 7 days, down to $61,800 at the time of writing.

4-hour chart of the BTC/USDT pair on Binance at 05:30 PM on April 16, 2024

During the approaching Bitcoin event, BRC-20 tokens have also been significantly affected in recent weeks. The first BRC-20 token, ORDI, dropped 40% in the past 7 days, to $41 at the time of writing. Previously, ORDI had surged over 720% in December 2023.

4-hour chart of the ORDI/USDT pair on Binance at 05:30 PM on April 16, 2024

According to blockchain data compiled by LunarCrush, the decline in BRC-20 tokens is linked to Runes. Joe Vezzani, Co-Founder and CEO of LunarCrush, shared with Decrypt: "Users are more optimistic about Runes than BRC-20."

Last week, Magic Eden CEO Z Yin expressed optimism that integrating Runes will strengthen the Bitcoin ecosystem.

Ordinals, Rewards, Runes.

The Future of BTC is on Magic Eden. pic.twitter.com/5QZ4wTzQMI— Magic Eden 🪄 (@MagicEden) March 29, 2024

"We believe that Runes will propel the Bitcoin ecosystem further, opening up a new wave of builders and digital assets previously only found on other Layer 1 platforms. Integrating Runes into the Ordinals market has been a prudent decision, helping us reach a $1 billion volume in 2024," Magic Eden stated.