The market capitalization of Wrapped Bitcoin (wBTC) has surpassed $1 billion, according to data from Skew. This shows the strong growth of the decentralized finance (DeFi) market in 2020, as well as wBTC’s dominance over other tokenized crypto assets.
wBTC is an ERC 20 token on the Ethereum blockchain that represents the value of Bitcoin. It was launched in January 2019 by key DeFi players, including BitGo, Compound, MakerDAO, and Kyber.
In January 2020, the market cap of wBTC was hovering around $4 million. As of October 18, the market cap of wBTC now stands above $1.19 billion.
As of October 13, wBTC accounts for nearly 15% of the aggregated market cap of all DeFi tokens on Ethereum, demonstrating “explosive growth.”
What is Behind the Rising Demand for Wrapped Bitcoin?
The demand for wBTC primarily comes from its compatibility with DeFi protocols on Ethereum. Since Bitcoin cannot be directly sent to the Ethereum blockchain, Bitcoin users have to convert BTC to wBTC to gain access to DeFi services running on Ethereum.
When Bitcoin gets to Ethereum in the form of wBTC, users can then use wBTC on Ethereum and DeFi protocols. When BTC gets converted to wBTC, it then gets deposited to the BitGo Trust, one of the major companies that contributed to creating Wrapped Bitcoin. wBTC is held safely in BitGo’s custody until it is unwrapped back to Bitcoin.
wBTC is typically used to provide liquidity to decentralized exchanges (DEXes), which provide yield to wBTC holders in return. Although there are risks, wBTC allows users to earn stable yields with their BTC holdings.
The increasing demand for wBTC indicates that there are a growing number of investors entering the DeFi market, likely compelled by the promise of using their BTC holdings to generate returns.
According to numerous reports, it is not just the retail market that saw a spike in interest towards DeFi as a way to earn a yield from existing assets.In its second-quarter report, Genesis Trading, a cryptocurrency firm that caters to institutional investors, said it saw significant interest in crypto asset yield. The company wrote:
“A major theme in Q2 was the demand for yield on crypto assets. Yield drives markets in crypto and in other asset classes, but the last three months seemed specifically yield-centric. Maybe it was due to the lower volatility, or perhaps due to the exponentially growing infrastructure and product creativity, but we saw a massive pickup in interest this quarter in many forms.”
There are many tokenized versions of Bitcoin on Ethereum that can be used with DeFi, by both retail and institutional investors. Other than wBTC, tBTC, sBTC, rBTC, pBTC, imBTC, and hBTC are other options. ButwBTC has emerged as the market leader, accounting for 73% of the tokenized Bitcoin on Ethereum.
Why is wBTC so Dominant?
Three factors are likely behind the dominance of wBTC over other tokenized crypto assets. First, wBTC has long been the top tokenized Bitcoin, and it thus has a strong network effect. Second, top exchanges have started to support wBTC. Third, it is widely used across decentralized exchanges.
On October 19, Coinbase Pro, a top cryptocurrency exchange in the U.S., officially announced support for wBTC. That means traders on Coinbase can easily trade between Bitcoin and wBTC, improving liquidity and accessibility.
With the support from major exchanges, more wBTC has started to flow into decentralized exchanges to provide liquidity. Hayden Adams, the creator of Uniswap, said 0.15% of all BTC in existence is on Uniswap. He stated:
“A bit less insane, but if anyone was wondering the Bitcoin numbers ~29,000 #BTC (wrapped) - about 0.15% of all BTC in existence - is currently sitting in Uniswap protocol.”
The confluence of the support from major exchanges, the overall growth of DeFi, the rising usage on decentralized exchanges, and its network effect are all likely behind wBTC’s dominance in the tokenized crypto asset space.