Record Amount of Bitcoin Continue to be Locked on Ethereum, At a Faster Pace than Being Mined
The largest digital asset is still stuck around $11,800, taking its sweet time to defeat the $12,000 level.
Bitcoin’s lackluster price action, however, doesn’t resonate in the fast-growing world of decentralized finance (DeFi), where the total amount locked at record level is nearing $7 billion.
Interestingly, more and more Bitcoin is being locked on Ethereum. The number of BTC currently on Ethereum has also been printing new highs, much like the other aspects of DeFi.
These Bitcoins on Ethereum are actually held by custodians such as BitGo, who hold the native asset and control the minting of new tokens.
At the time of writing, a total of 45,807 Bitcoin have been locked on Ethereum with WBTC accounting for 30,800 BTC followed by 8,314 by renBTC, as per Btconethereum. Other projects contributing to this are sBTC, HBTC, imBTC, and pBTC. Much of the growth was recorded in the past week or so.
The native tokens of the projects are also enjoying the gains as a result of this growth. Before the REN token corrected in line with Bitcoin and the rest of the market, the DeFi token jumped 225% this month thanks to the increased BTC it tokenized on Ethereum. The same day it experienced a retracement; the number of BTC locked surpassed 10k only to now decline by almost 17%.
REN is also seeing a spike in its number of non-zero addresses, adding about 4,000 new non-zero addresses this month so far.
While all these DeFi protocols saw a jump in the amount of BTC locked this month, TBTC’s went from about 10 BTC to just 0.015 BTC.
The trend of locking Bitcoin on Ethereum accelerated thanks to the Compound Finance governance proposal. Up until then, WBTC wasn’t possible to use as collateral on Compound, only loaned and borrowed, but the proposal approval earlier this year allowed collateral factor on cWBTC set to 40%. This means users on Compound can loan WBTC using 40% of its value as collateral.
Given that Bitcoin is the largest cryptocurrency with a market cap of over $217 billion, it provides the benefit of extra liquidity. Denis Vinokourov of Bequant said,
“While this may be “good” for risk assets, it is not necessarily “good” for Bitcoin itself, as hedging flow in the options and futures space almost acts like an anchor.”
This came into light earlier this summer when “Bitcoin’s front-end skew was persistently bid, even as the futures curve remained deep in contango.”
However, the trend is only growing, not taking a break. While BTC produced every day has reduced 50% to 900 BTC per day after the halving, bitcoin being locked onto Ethereum is surging.
As a matter of fact, now more BTC is being wrapped on the Ethereum blockchain that is currently mined. This further makes BTC “deflationary” and “significantly increases Bitcoin's S2F ratio,” because they are locked and not to cash out to fiat, said trader CL.