There are around USD 8.5 million worth of tokenized bitcoins on Ethereum platforms. There are at least four forms of tokenized bitcoins on the Ethereum network.

The decentralized finance (DeFi) ecosystem is increasingly growing on Ethereum. The number of tokens with the support of Bitcoin that traders use on their platforms is doing so too. There is already a total of 169,991 tokenized bitcoins (about USD 8.5 billion) on the Ethereum network.

Data from analytics firm Arcane Research and the Bitstamp exchange indicate that this figure represents an increase of 3.175% since June 2020. Since then, there were just over 5,000 tokenized bitcoins on the Ethereum blockchain until a few days ago.

Those figures appear in the report “Banking on Bitcoin: The State of Bitcoin as Collateral.” There, the firm delves into the use of the pioneering cryptocurrency as collateral in loans, derivatives trading, and the DeFi ecosystem.

According to the researchers, users are increasingly interested in using their bitcoins as collateral, rather than spending or selling them. For that reason, the amount of bitcoins deposited on platforms that use that support for the “vast DeFi ecosystem” has grown significantly.

Analysts say that there is not only the possibility for users to use their bitcoins without selling them directly. They conclude that the growth of this industry “has incentivized users to tokenize their bitcoins on Ethereum”. In this way, they will be able to “use them as collateral in the wide range of services that the different DeFi platforms offer.”

Different Types of “Bitcoins” Are at the Service of DeFi

There is currently a great diversity of platforms that offer DeFi services on Ethereum. Furthermore, the ways of handling Bitcoin as collateral vary, always with the support of tokens under the ERC-20 standard.

Arcane Research mentions four types of Bitcoin collateral in Ethereum DeFi: custodial, hybrid, synthetic, and decentralized. Three of them have the direct support of Bitcoin, but the basic difference lies in the way to protect them.

Most of the bitcoins in the DeFi ecosystem belong to the category of third-party custody-supported tokens. According to the research, 70% of the bitcoins in DeFi belong to WBTC (wrapped BTC).

“Using Bitcoin as collateral in DeFi is less straightforward than in centralized loans.” However, most of the supply of WBTC is currently running on DeFi lending platforms, according to the study. The Compound, MakerDAO, and Aave protocols dominate this market, with almost 50% of WBTC deposited on their platforms.

There is a growing trend of Bitcoin users choosing to use their funds as collateral, without spending or selling them. The Arcane Research report estimates that there are already more than 400,000 BTC pledged on centralized loan platforms.

The total number of bitcoins serving the DeFi ecosystem and their percentage growth show the relevance of the pioneering cryptocurrency. It is no surprise that the first cryptocurrency maintains the dominance of more than 60% of the cryptocurrency market capitalization. That is despite the growing number of this type of assets, of which there are more than 8,000 to date.

By Alexander Salazar

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