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Wrapped Bitcoin demand explodes due to DeFi

Photo of: Nathan VDH
by Nathan VDH

The demand for tokenizing Bitcoin on Ethereum does not weaken these last few weeks, with DeFi as the main driver. On the Wrapped BTC (WBTC) protocol alone, the growth of bitcoin tokenization reaches 900% to exceed 1 billion dollars.

The taste for decentralized finance (DeFi) is also affecting bitcoin holders. However, to invest in these tokens, they must first transform their cryptocurrency into tokens compatible with the Ethereum blockchain.

This method consists of tokenizing Bitcoin through specific protocols such as Wrapped BTC (WBTC), the most popular. Over the last two months, the tokenization of Bitcoin has thus broken records.

According to data from DeFi Pulse, the total value of the bitcoins involved has soared 900% to over $1 billion. And this only concerns the Wrapped BTC protocol. Four weeks earlier, the total value of all bitcoins tokenized on Ethereum had already exceeded one billion.

This trend continued in September. In total, BTC’s tokenization now represents a value close to 1.5 billion dollars. WBTC alone would account for about a third of this amount.

The returns offered by DeFi’s projects explain this dynamic. Thus, gradually, the use of bitcoin tokenization has grown. In the first half of 2020, WBTC was still attracting only $36 million with no real utility for its holders.

But this protocol is not the only one to benefit from this trend. RenVM offers similar functionality. Since May, the value of bitcoins in receivership on Ren has also jumped, climbing to over $300 million.

However, this sudden craze could calm down due to the situation in the DeFi market. The volume of transactions has been declining since the end of September. This is also reflected in lower costs for Ethereum.

Indeed, the main DeFi indexes, including Binance’s DeFi Composite Index, fell sharply in October. As Cointelegraph points out, the bubble of decentralized finance continues to deflate.

This trend has been particularly noticeable since October 7. According to various indicators, daily trading volumes of DeFi tokens fell by 30% in total. The most popular protocols (Sushi, UNI and YFI) thus posted heavy losses, from 30 to 50% over one week.