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Exchange support, the overall development of DeFi, and network effects may be the reasons behind WBTC’s dominant advantage in the field of Bitcoin cross-chain assets.
Original title: ” WBTC market value increased by 27834% during the year, DeFi will grow strongly in 2020 “
Written by: Joseph Young
This article is authorized to reprint from LongHash to Chain Wen
Skew’s data shows that the market value of WBTC (Wrapped Bitcoin) has exceeded $1 billion. This demonstrates the strong growth of the Decentralized Finance (DeFi) market in 2020 and the dominance of WBTC relative to other tokenized crypto assets.
WBTC is an ERC 20 token that reflects the value of Bitcoin on the Ethereum blockchain. In January 2019, key DeFi practitioners including BitGo, Compound, MakerDAO and Kyber launched the token.
In January 2020, the market value of WBTC is still hovering around US$4 million. As of October 18, the market value of WBTC has reached over 1.19 billion US dollars.
As of October 13, WBTC accounted for nearly 15% of the total market value of all DeFi tokens on Ethereum, showing “explosive growth”.
The meaning behind WBTC demand growth
The demand for WBTC mainly comes from the compatibility of the token with the DeFi protocol on Ethereum. Since Bitcoin cannot be sent directly to the Ethereum blockchain, Bitcoin users must convert BTC to WBTC in order to use the DeFi service running on Ethereum.
When Bitcoin flows into Ethereum in the form of WBTC, users can use WBTC on Ethereum and DeFi protocols. When BTC is converted into WBTC, it will be stored in BitGo Trust, which is one of the main companies involved in the creation of WBTC. WBTC will be safely under BitGo custody before being exchanged back to Bitcoin.
WBTC is usually used to provide liquidity to decentralized exchanges (DEX), which in turn provide income to WBTC holders in return. Despite the risks, WBTC allows users to use their BTC to earn stable income.
The increase in demand for WBTC means that more and more investors are entering the DeFi market, most likely to be tempted by the promise of using BTC to generate revenue.
According to multiple reports, it is not just the retail market’s surge in interest in DeFi, which is seen as a means of using existing assets to obtain income. In the second quarter report of Genesis Trading, a cryptocurrency company that serves institutional investors, the company also observed a huge interest in using crypto assets to generate revenue. The company wrote:
“A major issue in the second quarter was the demand for yields on crypto assets. It is true that yields are driving the market for crypto and other asset classes, but the market seems to be particularly profit-centric in the past three months. It is due to lower volatility, or due to exponential growth in infrastructure and product creativity, but since this quarter we have seen a large-scale rebound in interest in many ways.
On the Ethereum blockchain, there are many tokenized Bitcoin assets that can be used by retail investors and institutional investors in DeFi. In addition to WBTC, tBTC, sBTC, rBTC, imBTC and HBTC are also available. But WBTC has gradually become the market leader, accounting for 73% of the tokenized Bitcoin on Ethereum.
Why is WBTC so popular?
There are three possible reasons behind WBTC’s dominant advantage over other tokenized crypto assets. First of all, WBTC has always been a leading tokenized bitcoin asset, so it has a strong network effect. Second, the top exchanges have begun to support WBTC. Finally, it is widely used in decentralized exchanges.
On October 19th, Coinbase Pro, a leading cryptocurrency exchange in the United States, officially announced its support for WBTC. This means that traders on Coinbase can easily trade between Bitcoin and WBTC, improving liquidity and availability.
As major exchanges begin to support WBTC, more and more WBTC is flowing into decentralized exchanges to provide liquidity. According to Hayden Adams, the founder of Uniswap, 0.15% of the total BTC in circulation is on Uniswap. He claimed:
“It may not be that crazy, but think about the number of bitcoins, about 29,000 BTC (tokenized)-about 0.15% of all BTC in existence-are currently on the Uniswap protocol.”
The support of major exchanges, the overall development of DeFi, the increase in the use of decentralized exchanges, and its network effects may be the reasons behind WBTC’s dominant advantage in the field of tokenized encrypted assets.
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