In brief

  • Lots of Bitcoin has made its way to Ethereum.
  • Over half a billion dollars, just over 0.3% of Bitcoin's entire supply, has been tokenized on Ethereum just this year.
  • This Bitcoin is swapped for ETH-based Bitcoin and used in various DeFi applications.

Research published by cryptocurrency data firm Messari today shows that more than half a billion dollars worth of Bitcoin, or 0.3% of its total supply, has been sent to Ethereum this year. The reason? This summer’s indomitable rise of decentralized finance, or DeFi. 

“With only 0.3% of all bitcoin on Ethereum and DeFi booming, the opportunity for decentralized bridges between the two chains is hard to ignore,” tweeteth Messari. 

Messari’s talking about DeFi, crypto’s hot new thing that boomeranged the crypto market out of its coronavirus shutdown. DeFi refers to things like non-custodial loans platforms—think of them like automated banks—and tokens that track stocks. Just over $9 billion is locked up in its smart contracts today, according to DeFi Pulse, an increase of $8 billion (yes, basically all of it) in under three months.

The vast majority of the DeFi industry lives on Ethereum. Messari’s point, which it expounded upon in a blog post, is that Bitcoiners are moving their funds into Ethereum to join in the fun. 

That’s because you can’t just...use Bitcoin on Ethereum-based DeFi protocols. To participate, Bitcoiners must first lock their Bitcoin into smart contracts that give them Ethereum-based tokens that represent that Bitcoin, ready for them to fritter away on various DeFi protocols. 

A couple services exist. Silicon Valley prime brokerage firm BitGo’s offering, WrappedBTC, launched last January. That’s a custodial service, meaning that you’ll have to entrust BitGo with your money. There’s $456 million in its smart contracts, per metrics site Coin Gecko.

DeFi-native protocols exist but they are very new—getting blockchains to work with one another in a non-custodial manner is still a huge challenge in the industry. 

DeFi firm Keep has a ETH-based Bitcoin, tBTC. But that went offline just days after it launched in May 2020 after a bug was found in its code. On August 17, the team said that an audit was completed about two weeks ago and that it should come out in the next couple of weeks.

Ren’s protocol, however, is live. To date it has “facilitated more than $380 million in volume between chains,” said Messari’s Ryan Watkins in his post. 

Still, 0.3% of Bitcoin is about $664 million, according to today’s prices. But Bitcoin’s entire market cap is $221 billion. DeFi’s hot, but not that hot.

Disclaimer

The views and opinions expressed by the author are for informational purposes only and do not constitute financial, investment, or other advice.