Crypto-Mastermind summary:

  • The amount of BTC-tokens on the Ethereum-blockchain has increased to over 73,800. In August alone, the number of tokens tripled.

  • A large proportion of the BTC-tokens are used for DeFi. Platforms such as Compound, Aave, Uniswap and Balancer show a continuous increase in wBTC.

  • Tokenized Bitcoin enable the BTC-network to be linked to the Ethereum-blockchain. Thus, services that are not normally available, such as dApps or smart-contracts, can also be used with Bitcoin. The tokens are covered with real BTC.

While the DeFi-market is booming, Bitcoin tokenization is also becoming increasingly popular. The amount of Bitcoin used as tokens in the Ethereum-network had risen to over 73,800 by the time this article was published. At current exchange rates, this is approximately $738 million. This means that almost 0.4% of the available Bitcoin is on the Ethereum-blockchain. The growing supply of synthetic Bitcoin now accounts for nearly 2% of the total Ethereum market cap.

Huge increase of BTC-tokens on lending platforms and DEX

With a 64.5% share, wBTC (Wrapped BTC) is the current market leader in the Bitcoin-token sector. This is immediately followed by renBTC with a 23% share. Further projects are hBTC, sBTC, imBTC and pBTC.

In August this year alone, the number of BTC-tokens in the DeFi sector tripled. And the trend seems to rise further. Most tokens were accumulated in August by Alameda Research, which was co-founded by FTX Exchange CEO Sam Bankman-Fried. The company reportedly has owned over 14,600 wBTC.

Also the lending and borrowing platforms Compound and Aave experienced a massive increase in wBTC volume. And so did the decentralized Exchanges Uniswap and Balancer. As can be seen, most of the tokens are used in the DeFi area. Trade and credits that are granted on a decentralized basis seem to be very attractive.

The world’s largest crypto exchange Binance has also jumped on the movement and lists wBTC. Managing Director Changpeng Zhao comments as follows:

„I think DeFi is a very innovative area and I think that is really good. At the beginning, the people at DeFi were mainly thinking about crypto saving and crypto lending, but now they are adding that it automatically makes their money available and thus also provides liquidity. The higher the liquidity, the better people can trade. The automatic market makers are a great, simple invention that will definitely remain with us.“

According to the CEO, the company is also working on its own DeFi- and AMM-projects. In August, partnerships with major industry players such as Compound-Finance and Kava-Labs were already established.


How does it work?

The principle behind tokenization is actually relatively simple. A technical mechanism is used to lock the respective Bitcoin on the main blockchain. Based on these blocked coins, a corresponding number of tokens are generated on the Ethereum blockchain, for example. The ERC-20 BTC-tokens in this case can then be used directly e.g. in Compound, Gnosis or Dharma.

Users can thus perform transactions in the Ethereum-network, that are actually done on Bitcoin. This enables services, which are not normally available on the Bitcoin-network, such as dApps or smart-contracts. The token allows Bitcoin owners to keep it and at the same time use DeFi applications such as Compound. But the security and main function of Bitcoin is retained.

This process can be reversed at any time by means of a clearing key. This means that the tokens can be „destroyed“, which then unlocks the original BTC. The token is thus covered by real Bitcoin, but brings more liquidity into the system by linking the networks.

The demand for BTC-tokens currently seems to be growing exponentially. New all-time highs for tokens are being reached continuously. The DeFi boom apparently also puts Bitcoin under its spell.

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