To the surprise of many, bitcoin (BTC) has been a breakout star in Ethereum’s decentralized finance (DeFi) moment. Taking the form of wrapped or tokenized bitcoin, the digital asset takes the best of both blockchains – bitcoin’s price value and brand along with Ethereum’s programmability – into one highly in-demand token.
Last week alone, the supply of BitGo’s wrapped bitcoins (WBTC) topped 76,000 after setting an all-time record of nearly 21,000 wrapped bitcoins minted within one week.
The week before held the previous record of over 12,200 tokens minted in a single week, according to Dune Analytics.
Overall, investors have made tokenized bitcoin one of the largest assets on DeFi with nearly 107,000 BTC worth some $1.1 billion minted from seven issuers, mostly lured in by high rates of return on lending when compared to other options such as BlockFi.
Why use tokenized bitcoin?
What bitcoin on Ethereum does is simple: It provides liquidity for growing decentralized exchanges (DEX), such as Uniswap. Bitcoin’s current market cap is five times larger than the second largest cryptocurrency, ether (ETH), according to The CoinDesk 20. That money can be put to use making more money.
Tokenized bitcoin allows investors to bring large amounts of value over to the Ethereum network and its young DEX market in a few clicks.
DeFi is considered vastly immature when compared to traditional or centralized exchange (CEX) markets. This can be seen in the large price spreads between orders on exchange books between different DeFi markets.
Price differences on markets can be exploited by traders in what is called arbitrage opportunities.
Wrapped bitcoin is often the asset of choice for investors seeking arbitrage. Bitcoin packs a large punch in terms of price value. More money on DeFi trading platforms makes the markets themselves stronger as additional buying and selling options are presented.