More than USD 1.35 billion worth of Bitcoin, equivalent to about 77% of the total assets, is in DeFi protocols. That is possible through creating Bitcoin-based tokens on side networks like RSK, Stacks, and DeFiChain.
Since early 2021, the number of Bitcoin (BTC) tokens locked in decentralized finance (DeFi) protocols has tripled. That stands out as Ethereum (ETH) and other networks providing facilities to develop smart contracts have always dominated that field.
However, the Bitcoin network and its sidechains are gaining ground in that arena. According to data from defillama.com, the total value locked (TVL) in the Bitcoin side networks RSK, Stacks and DeFiChain exceeds USD 1.35 billion.
That minor portion of the funds deposited in DeFi reached USD 234 billion in December, three times higher than in early 2021.
To further delve into that statistic, most of the funds are in decentralized exchanges, according to CoinGecko. Besides, DeFiChain is the sidechain with the largest TVL, about 77% of the total assets.
How to use Bitcoin in DeFi
A tokenized version of Bitcoin on side networks allows the introduction of the crypto asset into the world of DeFi. Those Bitcoin emulations monitor the cryptocurrency in real time, always maintaining parity with its market price.
It is necessary to block a deposit of Bitcoin in the sidechain to obtain the token in exchange. After that, it is possible to reverse that process to recover the locked BTC and destroy the issued tokens.
There are also tokenized bitcoins on other networks like Ethereum and the BNB Chain. Concerning Ethereum, the Wrapped Bitcoin (WBTC) token wraps units of the pioneering cryptocurrency to use covertly.
That and other similar methods allow using Bitcoin as if it were another ERC-20 token native to the Ethereum network. Data from btconthereum.com indicate that there is USD 15.408 million deposited for creating 335,249 tokenized bitcoins on Ethereum.
Bitcoin is trading at around USD 45,996 and has accumulated a 0.4% in the last 24 hours. Its daily trading volume is above USD 27.32 billion, and its market capitalization is about USD 874.10 billion, according to CoinGecko.
The Current Outlook in DeFi Protocols
DeFi protocols offer services like decentralized exchanges, stablecoins, loans, oracles, and derivatives trading. They are different from traditional finance in that they rely on automated methods through smart contracts run on distributed networks.
There is more diversification in decentralized finance, as Ethereum is gradually losing the dominance it used to have in that field. Other networks like Terra, BNB Chain, and Avalanche are positioning themselves better to compete with it.
Various competitors have threatened to take part in the market that Ethereum always had. Despite the bearish trend of the Bitcoin network in January, most failed to meet the expectations raised.
Bitcoin can take advantage of the information on what works and what does not, taking other chains as a reference. In that way, the growth achieved since 2021 will continue to strengthen.
By Alexander Salazar
