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Key metrics, development, use and adoption
While interoperability between blockchains continues to be an issue, wrapped Bitcoin (WBTC) continues to grow and to establish its presence in the Ethereum network. Three years since its launch, WBTC has managed to outpace its competitors, capturing the increasing demand for yield generating strategies on BTC.
In January 2019 BitGo, Kyber Network and the Republican Protocol (Ren Project) published the WBTC whitepaper and thereafter launched Bitcoin’s first tokenized version on the Ethereum network. Due to the fundamental differences in blockchain’s algorithms, communication between Bitcoin and Etherum’ blockchain is non-existent. This project allowed institutions to lock their BTC and in return receive an ERC-20 token version pegged to BTC’s value. This widens the possibilities of Bitcoin use on the DeFi ecosystem and as consequence has gained tremendous value and demand.
WBTC’s Growth in Key Metrics
Bitcoin Supply in DeFi insight displays the amount of Bitcoin tokenized and represented as an ERC-20 token on Ethereum. Each tokenized Bitcoin is backed 1-to-1 by Bitcoin either through a custodian or in a trustless way depending on the token. The left axis of the indicator below displays the percentage of BTC circulating supply on Ethereum and on the right side it displays the equivalent dollar value tokenized and locked in DeFi protocols.
Source: IntoTheBlock DeFi Insights
IntoTheBlock currently considers WBTC, renBTC and BTC++ in this indicator, but is working to add support to other tokenized Bitcoin alternatives. BTC on the Ethereum network has received significant adoption, currently 0.93% of BTC total supply is locked and represented in an ERC-20 standard form. WBTC stands as the main propeller of this adoption, with its market capitalization recently surpassing the $15 billion mark in November 2021. It’s then followed by HBTC and RENBTC in market capitalization, currently being $1.6 billion and $470 million respectively.
In the indicator below, the historical market capitalization of WBTC, HBTC and RENBTC can be seen. This one allows us to gauge the different adoption by users of the BTC ERC-20 tokenized forms.
Source: IntoTheBlock & CoinGecko
WBTC has prevailed on the process of tokenizing BTC, so far it has been the main booster of Bitcoin adoption on the Ethereum Blockchain. Each tokenized BTC has some core differences that influences its adoption on the network. The main ones being, firstly the user trust on the custodian, this one is important since the custodian is the one locking the actual asset on the Bitcoin blockchain hence its from what the value is derived from. Secondly, the level of decentralization in the process of converting BTC into a tokenized ERC-20, the more decentralized the process is, the less power the custodian has over the locked assets. Finally the level of adoption it has on the DeFi network is also important, since it extends the use cases options.
In order to provide a view of both user engagement and growth, IntoTheBlock subtracts those addresses that have no balance from the total number of addresses in the network to arrive at those addresses that actually have a balance.
Source: IntoTheBlock’s WBTC Metrics
The indicator depicts a clear growth on the number of addresses with a balance of WBTC, currently being 37.87k addresses. This growth signals the continued adoption of WBTC on the DeFi ecosystem. In a long-term horizon, the total number of addresses with a balance is indicative of the interest in holding and investing in a given crypto-asset. In general, an increase in the number of addresses with a balance is positive as it signals a more robust and growing user base.
In addition, it’s also important to consider that while the total number of addresses with a balance does not exactly match the number of holders, it offers a valuable approximation to the amount of people holding a crypto-asset. There are cases where one user may have multiple addresses for safety reasons, but also scenarios where one address may hold multiple users’ funds as it is the case with centralized exchanges.
Furthermore, tracking the variation over time of the balance of coins that each group has been holding gives significant insight. These groups are divided between Hodlers, Cruisers and Traders, depending on how much time they have been holding their coins.
Source: IntoTheBlock’s WBTC Metrics
Hodlers stand for the group of addresses that have had the token for over a one year period. The indicator shows the value of coins relative to each individual group since its historic inception. This helps to keep track of the trading behaviors and adoption of the token within each different group.
The number of Bitcoins locked on Ethereum stands as a proxy to the usage of Bitcoin in DeFi protocols. Tokenized Bitcoin can be used in multiple ways on Ethereum from using it as collateral in loans to earning yield on top of it. Therefore, the amount of Bitcoin on Ethereum shows support and adoption from Bitcoin holders of the DeFi ecosystem.
In this case having a continued increase on the balance of addresses with a holding period greater than one year, represents that investors are comfortable holding a wrapped version of an asset for prolonged periods of time. This signals a continuous increase of demand and adoption for wrapped version tokens.
Finally, the balance of tokens in a selected bracket allows us to gauge the total volume (in dollar or crypto terms) held by addresses. This indicator gives a good estimation of the distribution of balances in addresses across the network.
Source: IntoTheBlock’s WBTC Metrics
The indicator shows the balance in addresses that are holding over 10k WBTC. Currently having a total of 163.19k WBTC or 60.16 percent of WBTC total supply. The most interesting part is that this translates into only 8 addresses. This could signal into a very high and risky concentration.
Diving deeper it can be seen that 3 out of the 8 addresses belong to lending protocols, these onesbeing Aave, Compound, and Maker. This high concentration of deposits on lending protocols reveals the existent demand for investors to leverage their positions and take further advantage of their assets.
Other 3 out of the 8 addresses belong to blockchain bridges, these ones’ being the Avalanche, Fantom and Polygon bridge. This consolidation on bridges allows us to measure and take into perspective the increasing demand for WBTC in other emerging blockchains. In this case users probably bridge in order to get involved with new existing investing opportunities. The remaining 2 addresses in the group, one is identified as belonging to Nexo and the other to an unidentified address which seems to be a personal account. In the end the highest personal level of concentration belongs to this unidentified address, which has managed to obtain around 5 percent of WBTC’s current supply.
First Mover Advantage Despite Centralization
One of the biggest critics in WBTC structure is the need to trust the custodian, in this case Bitgo, with the users underlying assets. This one contradicts the decentralized blockchain ecosystem status. In addition KYC pass is obligatory for the token minters. Due to some existing infrastructure limitations this process is still unable to achieve full decentralization. Alternative more decentralized processes exist, like it’s the case with renBTC and tBTC. Having a more decentralized process comes with its disadvantages, for minting both of these ERC-20 BTC alternative versions additional tokens, besides the BTC, are required to be staked.
With the launch of WBTC, the token gained first mover advantage, plus the centralized process allows any deposit size and fast unlock of the funds. This combination attracted institutional investors into the DeFi ecosystem and propelled WBTC market capitalization into the tens of billions.
In terms of security Bitgo, conducts audits regularly and undergoes a proof of reserve transaction on the Bitcoin Blockchain, which allows for users to verify the reserves value. The mint and burning of the WBTC token are tracked and verifiable to the public and this process is governed by the wBTC DAO, which is made up of 17 members that have access to the multi-signature contract.
Analyzing Network Growth & Activity
With the development of DeFi and its continued growth, Ethereum network activity rose and with it its usage fees. The indicator below compares the total amount paid in fees to use the blockchain on a given week between the Bitcoin and Ethereum blockchain.
DeFi new yield bearing strategies and opportunities propelled Ethereum’s activity to highs never seen before. Being Bitcoin one of the most relevant cryptocurrencies on the market the need for an Ethereum alternative grew. With Ethereum’s increasing usability and Bitcoin’s relevance in the market, WBTC plays a major role in the connection and interoperability between the blockchains.
WBTC development, use and adoption serves as proof of the increased need for interoperability between blockchains. Its release helped boost DeFi’s growth and in exchange gave Bitcoin holders the opportunity to access different sources of yield generating strategies non existent in the Bitcoin Blockchain. WBTC success serves as a sign that increased interoperability in the crypto ecosystem is still needed. This will allow users to be able to access the most new developments and opportunities across the market.
The views and opinions expressed in this article are solely those of the authors and do not reflect the views of Bitcoin Insider. Every investment and trading move involves risk - this is especially true for cryptocurrencies given their volatility. We strongly advise our readers to conduct their own research when making a decision.