LumiBit Sets New Paradigm in Runes Trading: Unifying Markets, Flexible Settlements, and Native Signature

Key Takeaways

• LumiBit provides a seamless Runes trading experience across Bitcoin’s Layer 1 and Layer 2, allowing users to access combined liquidity and execute transactions without switching networks.
• LumiBit supports transactions across both layers, enabling users to freely choose where their assets are settled — either on Layer 1 or Layer 2 — further enhancing trading flexibility.
• Native Signature allows users to use the same Bitcoin address across both layers, simplifying the transaction process and maintaining a consistent user experience.

What is Runes?

On September 26, 2023, Casey Rodarmor introduced a protocol named Runes, designed as an alternative to the BRC-20. This protocol offers a simple, UTXO-based fungible token (FT) system that enhances usability for Bitcoin users. Its UTXO foundation allows easy integration into systems like RGB or the Lightning Network. Data from Cryptokoryo’s RunesPopul Dune Analytics dashboard shows over 2.38 million Runes transactions on the Bitcoin network since its April 20 launch, capturing 68% of all Bitcoin transactions with a peak of 750,000 transactions on April 23.

Features of Runes

• UTXO-Based: Runes balances are held in UTXOs, each capable of holding multiple tokens.
• Transaction and Protocol Data: Outputs containing specific scripts are part of the protocol data, defining the transfer and allocation of Runes.
• Flexibility: Transfers of Runes are defined by interpreting data pushes within transactions, allowing flexible distribution to various outputs.
• Simplicity and Decentralization: The Runes protocol is deliberately straightforward, relying solely on on-chain data without a native token, aligning with Bitcoin’s UTXO model.
• Symbol Allocation: Runes may be associated with symbols, though the protocol does not prevent symbol squatting to maintain simplicity.

Current Challenges in Layer 2 Runes Trading

Just like LumiBit previously discussed with cross-chain inscription transactions, the current Runes market cannot meet the needs for order matching between Layer 2 and Layer 1.
Imagine Alice selling an inscription on the Bitcoin mainnet, while buyer Bob is on a Bitcoin Layer 2 chain. Bob must first transfer his assets back to the Bitcoin mainnet through a cross-chain bridge, a process that can take hours. Only after receiving the assets on the mainnet can he purchase Alice’s inscription. There’s also a risk of Alice’s listing being gone by then. Post-trade, Bob needs to transfer the inscription and assets back to Layer 2, incurring additional hours and cross-chain gas fees. This process is not only cumbersome but also risky due to Bitcoin’s long transaction confirmation times. Alice might need to increase her listing price to prevent selling below market value, while Bob hopes that Alice’s listing remains unclaimed for hours to make a purchase.

Leveraging the unified market built on LumiBit, users will experience a new paradigm in Runes trading. Alice can enjoy additional order liquidity without leaving Layer 1, while Bob can purchase assets from Layer 1 without exiting Layer 2. LumiBit’s ability to implement this unified market relies on two key features: Real-time cross-chain communication and native signatures.

Real-time Cross-Chain Communication

Thanks to LumiBit’s Indexer and Nodes, LumiBit can access the latest status of BTC L1 and relay it to L2 for any on-chain application use. This synchronization facilitates inscription and Runes trading by allowing users to see all transactions from Layer 1 and Layer 2 in the unified market on LumiBit without the need to switch networks. For more details, see the linked resource: https://medium.com/@LumiBitL2/lumibits-asynchronous-structure-ushers-in-a-new-paradigm-for-inscription-trading-6c8527d1d1a0

Native Signature

Native Signature allows users to interact using the same wallet and address on both Layer 1 and Layer 2. This ensures a unified Bitcoin address for interactions on either layer, enhancing the user experience on Layer 2 by eliminating any sense of disjointedness. Additionally, because the addresses for Layer 1 and Layer 2 are consistent, order listings and matchings can occur on either layer, and assets can be transferred seamlessly between networks after transaction settlement, unifying liquidity across both layers. For more details, see the linked resource: https://medium.com/@LumiBitL2/lumibits-native-signature-solution-02be666e1819

The New Paradigm of Runes Trading in LumiBit

LumiBit’s unified market enables Runes trading on Layer 2. Users can choose between settling transactions on Layer 2 or Layer 1.

The process involves

1. Listing: Alice, using a Layer 1 wallet, lists Runes for sale on the BTC mainnet, signs PSBT, and LumiBit automatically synchronizes this listing to its nodes.
2. Order Sync: Alice’s listing is displayed in the market alongside other Layer 2 and Layer 1 orders, enabling users to purchase from either layer.
3. Take Order: Bob, a Layer 2 user, sees Alice’s listing on the LumiBit market, places an order on LumiBit, and selects the type of token for payment.
4. Match Order: After Bob completes payment on LumiBit, the order goes into matching. If the match is successful, Bob’s payment is held in escrow, and Alice’s asset availability is verified.
5. Confirmation: Once Alice’s assets are verified, her Runes are sent through a custodial wallet to the cross-chain bridge, initiating the cross-chain process. Simultaneously, Bob’s Layer 2 assets are converted to Bitcoin and sent through the cross-chain bridge.
6. Settlement: Alice receives the assets paid by Bob in her Layer 1 wallet, while Bob receives the Rune assets in his Layer 2 wallet. Both Alice and Bob have the option to send settlement assets to either Layer 1 or Layer 2.

Enhanced Trading Experience

1. Unified User Experience: LumiBit simplifies the transaction process through real-time cross-chain communication and native signature mechanisms, allowing users to manage all necessary steps through a single wallet.
2. Diverse Payment Options: Supports multiple token payments, offering Layer 2 and Layer 1 users more flexible payment methods, which increases liquidity in the Rune market.
3. Reduced Transaction Costs: Significantly reduces the steps in cross-chain transactions, thereby greatly lowering the opportunity costs and friction associated with trading.

Future Outlook

Thanks to features like Native Signature, LumiBit’s unified market is poised to support listings for any Bitcoin-native asset, facilitating liquidity interchange between Layer 1 and Layer 2. Beyond runes and BRC20 assets, LumiBit’s market will continue to embrace any new assets natively issued on Bitcoin Layer 1.

LumiBit’s unique unified address experience also allows it to support liquidity for other L2s and EVM chains. Imagine a unified market where a single Bitcoin address can buy/sell assets across other BTC L2s and EVM chains — not only serving Bitcoin Layer 1 users who wish to acquire assets from other chains but also enhancing liquidity access for other chains through Bitcoin, positioning LumiBit as a bridge between BTC and other chains, and as Bitcoin’s Layer 0, fostering mutual benefits across blockchain networks. This is just the beginning of LumiBit’s potential — a small step for LumiBit, but a giant leap for the Bitcoin ecosystem.