Runes Mint Guide

Runes is Bitcoin’s new fungible token standard by the Bitcoin Ordinals core devs that will start after the fourth Bitcoin halving. I cover the two key runes mint schemes: fixed supply and block-locked supply

1) Fixed supply

Same manner as the BRC-20 protocol. I show the mechanism in equations (1) to (3):

Equ. (1)

In the etching transaction, the issuer specifies the total supply and the maximum number of tokens per mint transaction (max_mint). Dividing the total supply by the maximum mint number gives you the number of mint transactions to mint out the runes token (n_mint)

Equ. (2)

Dividing the expected market capitalization of the runes token (E[mcap]) by the number of required mint transactions (n_mint) provides the expected token value per mint transaction (E[value_mint]). In an efficient market, the expected token value per mint transaction should equal the cost to mint (E[fee_mint]) such a batch of rune tokens.

Equ. (3)

The expected price per token (E[p]) equals the expected token value per mint transaction (E[value_mint]) divided by the maximum number of tokens per mint transaction (max_mint).

🔸Example 1 (high fees)

Consider an expected market capitalization of $1 billion. There is a total supply of 1 billion tokens and a maximum mint number of 1,000. The number of mint transactions equals 1 million and the expected fee per mint is $1,000. The expected price per rune token is $1. It will take three and a half days to mint out such a token if you assume 2,000 mint transactions per block

🔸Example 2 (moderate fees)

Assume all numbers as above but with a total supply of 100 billion rune tokens. The number of mint transactions equals 100 million, the expected fee per mint goes down to $10, while the expected token price is $0.01. It will take around a year to mint out such a token if you assume 2,000 mint transactions per block.

2) Block-locked supply

You can also specify a certain block until users can mint a rune token. This adds another layer of complexity because we need to estimate the total supply as well.

Equ. (4) is the key difference compared to the fixed supply scheme:

The expected number of mint transactions to mint out the rune tokens (E[n_mint]) is given by the number of blocks the rune token can be minted (n_blocks) multiplied by the expected number of mint transactions per block (E[n_mint_block]). The other two equations are as above.

🔸Example

Consider 5,000 blocks (34 days) until the mint closes. The expected number of mint transactions per block equals 2,000. Hence, the expected number of transactions to mint out the total supply is 10 million. Considering an expected market capitalization of $1 billion, the expected value per mint transaction and the expected fee are $100. The expected price per rune token is $0.1

Transaction fees play an even more important role in the block-locked model:

• Lower fees would increase the number of mint transactions
• The increased supply would dilute the existing supply and decrease the price
• The opposite applies (higher fees, fewer mints, increased price)

Conclusions

The fee levels will skyrocket depending on the chosen parameters, and runes minting may not be a retail market. Retail may be forced to pick up runes on secondary markets if fees prohibit minting and transacting on L1. Pre-rune ordinal projects (like Runestone) are another way to join the rune ecosystem early