Half a Billion Bitcoin Tokenized on Ethereum, is it Propping Up Price? – Trustnodes

Half a Billion Bitcoin Tokenized on Ethereum, is it Propping Up Price?


Tokenized bitcoin on ethereum, August 2020

Bitcoins are moving to the ethereum network at an accelerating speed with some half a billion dollars worth of 44,000 BTC running on the smart contracts platform.

That’s up some 10x since just June in bitcoin amounts with about 5,000 BTC running on eth on the 17th of June 2020, while now it’s closing in to 50,000.

The huge acceleration in bitcoin tokenization is in great part due to the rise of defi which holds some $6.25 billion worth of crypto assets on dapps.

Maker, Aave and Curve have all surpassed $1 billion in locked assets for each, with Synthetix, Compound and Yearn not far off from that $1 billion line.

Top defi projects, August 2020
Top defi projects, August 2020

The attraction of the many offerings that are now provided on defi includes significant interest rates that come both from speculative new tokens which are given as some sort of bonus, but also from facilitating market activity.

Curve for example stabilizes sUSD, a dollar pegged token from synthetix which is sort of at the foundation of the whole project.

Then you have arbitraging, both in regards to brokers like Uniswap as well as in regards to more traditional exchanges like iDEX.

That and other market making activities provide the basis of demand for the assets that are locked in these dapps.

So giving some ground to these interest rates which are of course far higher than simple bank savings accounts.

Thus those that want to hold BTC but also want to allow others to trustlessly use it for interest, are tokenizing their coins with risks here obviously in regards to any potential hack or bug.

That could affect the price if they were otherwise tempted to maybe sell it as this could take supply out in numerous ways.

Laziness being one of them. If someone is going to go through this whole process of locking up their coins, you’d think it would take quite a bit for them to return back to the bitcoin blockchain.

More substantially, instead of selling they could dollerize it on Maker by minting 30% or 40% of the wBTC in DAI while still holding the full bitcoin.

That would have the risk of price going against you, but you’d still have the dai and the current price of bitcoin in full.

That dai has to be paid back eventually or they sell the equivalent amount of coins if the collateralization ratio drops below 150%, making this basically a way of cashing out while not quite cashing out.

Nowadays instead of buying a deprecating car with that dai you can send that to other defi dapps to earn interest or you can turn it into some other crypto with many potential lego land designs that can put your assets to use.

That itself you’d think logically should affect price positively, but in addition new money may be attracted because there aren’t many asset classes and the returns here can be decent.

Such new money naturally has its own preferences with bitcoin remaining the dominant coin because it is the most decentralized one, and thus it may well be the case some new money is buying bitcoin to tokenize it to defi on eth.

As a native token you’d think eth would be more preferred as it would not have the additional tokenization risks, but then eth doesn’t have the stabilization dapp of the Ren Curve Pool.

So this connection benefits both as the ethereum network gains more utility by having the bitcoin choice, while bitcoiners can now both chat trash and defi on eth land.