With Bitcoin After prices fell last month, crypto traders have increasingly tokenized the cryptocurrency into synthetic versions compatible with the Ethereum blockchain, where they can be deposited for additional income.
The number of bitcoins locked on the Ethereum blockchain over wrapped bitcoins, a decentralized financial protocol (DeFi) used to convert BTC to ERC-20 tokens, has soared to a record 189,000 BTC, according to the weekly note published Tuesday by Arcane Research. The number has quadrupled in the past 12 months to a record 1% of the circulating Bitcoin supply of 18.73 million.
The trend shows how some savvy crypto traders have moved to saving or maintaining returns, even as Bitcoin’s price fell 35% in the last month.
“Bitcoin’s lackluster performance and growing interest in Ethereum-based exchange-traded products have done little to derail the long-running trend of banning Bitcoin on the Ethereum network,” Denis Vinokurov, research director at Synergia Capital, told CoinDesk. “It shows that the chase-for-yield trading is far from exhausting and also underscores the growing comfort and feeling of security that wrapping Bitcoin is a safe way to generate returns on assets, be it in the Retail or more professional market participants. “
Each packaged Bitcoin token is covered by one Bitcoin, so the prices for the tokens should theoretically be roughly the same. The protocol essentially enables Bitcoin holders to tokenize (block) their coins on Ethereum for a corresponding number of WBTC tokens that can be used on the DeFi platforms.
“The motivation for tokenizing Bitcoin on Ethereum is to enable functions that are not natively supported by the Bitcoin blockchain, such as: B. Compatibility with the Ethereum DeFi ecosystem, ”noted Arcane Research.
WBTC holders often lend these tokens to DeFi protocols in exchange for market interest rates. For example, the DeFi giant Aave currently pays an APY of 1.21% on WBTC deposits. These WBTC tokens also serve as collateral for securing crypto-covered loans, are used to generate income from “yield farming” or booked as a margin on decentralized derivatives exchanges.
The holders have also tokenized Bitcoin through other locations such as Huobi BTC (HBTC) and renBTC. However, WBTC leads the field by a wide margin.
“A total of 240,000 BTC have now been tokenized in Ethereum protocols,” said Arcane Research. “WBTC remains the most popular option for tokenized BTC and accounts for 80% of all BTC active in Ethereum.”