The story of DeFi in 2020 has been no less than extraordinary and the limelight is now on the world’s largest altcoin, Ethereum. More precisely, the number of Bitcoins “wrapped” and flowing on Ethereum blockchain was now in the focus. So what exactly is ‘Wrapped Bitcoin’? They are ERC-20 token backed 1:1 by BTC.
A majority of trading volume occurs on centralized exchanges with Bitcoin, but WBTC changes that. The ERC 20 format brings Bitcoin’s liquidity to decentralized exchanges [DEX] making it possible to use Bitcoin for token trades, thereby unlocking a wide array of use-cases such as lending, liquidity provision, and decentralized exchange.
The supply of WBTC has been increasing at a staggering rate on Ethereum, the biggest DeFi ecosystem. This was primarily due to the fact that it gave the investors a way to capitalize on their BTC holdings by leveraging the added functionality and versatility provided by the wrapped token.
According to the latest chart by Skew analytics, Wrapped Bitcoins saw a new all-time high market cap after USD value locked under WBTC hit $470 million. Out of which, 97% of WBTC is locked in smart contracts, solidifying its use case as a smart contract-compatible version of BTC, according to Glassnode.
Since $183 million as recorded on 1st August to the press time figure, WBTC’s market cap has increased by over 156% in one month.
Additionally, Bitcoins locked in WBTC were 39,104 at the time of writing, which is astonishingly high as compared to 15,521 at the beginning of the month.
The fact that BitGo holds the keys to mint tokens and the project gives a fair idea that the initiative is centralized to a degree by a chosen custodian.
Despite this, WBTC could be a blessing in disguise. The DeFi mania has spurred a lot of talks and FOMO surrounding the space seems inevitable at the moment. Hence, this could aid in Bitcoin’s potential bull run to its previously set ATH.
BTC is the biggest cryptocurrency. And converting it to an ERC 20 token to make it compatible with the Ethereum blockchain, brings more utility to the table, far more than the Bitcoin blockchain offers.
Hence, there could be a scenario wherein the investors foraying into the market opt for Ethereum, or for that matter, DeFi protocols, rather than choosing Bitcoin itself. At this point, questions regarding the very necessity of the Bitcoin blockchain would crop up, whose value, as Glassnode noted, comes from the 68 TWh of power that goes into securing the network each year. This is something that warrants serious attention.