How WBTC is driving DeFi growth

Markets Jun 8, 2020

The DeFi movement has been steadily growing over the past several years. Uniswap, Compound, Maker, and dYdX have all been experimenting in the reinvention of global finance. In the past month, however, DeFi may have found its next major driver of growth: Wrapped Bitcoin, or WBTC.

For anyone keeping an eye on this developing story, you will know that May has been monumental for BTC growth on the Ethereum blockchain. Trading volume is growing, market cap has gone parabolic (in BTC terms), and an increasing number of major DeFi platforms support the asset. Let’s explore.

Source: DeFi Pulse

WBTC Approved As Collateral On MakerDAO

On MakerDAO, the leader of the DeFi movement and protocol behind the stablecoin Dai, the main benefit of multi-collateral Dai (MCD) over single collateral Dai (SCD) is collateral diversity. A diversity of uncorrelated collateral assets protects the CDP holder against unexpected market volatility in ETH. At launch, Maker only supported ETH and BAT, two highly correlated assets, and then added USDC in March.

Requests to add Bitcoin to DeFi’s leading protocol have floated around for months, but started gaining steam after the flash crash of Ether on March 12. The primary hurdle to WBTC adoption in Maker was the availability of a stable and reliable issuance and redemption platform, which CoinList developed and opened for business in February. On May 3rd, WBTC was approved as a new collateral asset on the MakerDAO protocol following an executive vote.

Exposure to Bitcoin is massive for MakerDAO, giving their borrowers access to the largest crypto by market cap for further issuance of Dai-based loans and dramatically increasing the protocol’s resilience to ETH-related price shocks. The number of WBTC has tripled since the cross-chain currency was added as a collateral option to MakerDAO, with 68% of all WBTC locked in CDP’s.

Interestingly, the amount of Ether locked in Maker loans also decreased by 8% between May 10th and May 13th, further signaling that many existing loan holders may have been eager to add WBTC as a way to diversify their collateral for existing loans. The inflows show a massive increase in WBTC interest to unlock decentralized liquidity from the Bitcoin blockchain.

MakerDAO Receives 2,500 BTC Collateral In 2 Days

Less than 2 weeks after WBTC was approved as collateral on Maker, a crypto whale minted $24M of WBTC via CoinList, thereby tripling WBTC supply. They then used the vast majority of that money to borrow Dai using WBTC as collateral through a Maker CDP, leading WBTC to become the second most popular collateral type on Maker.

This marked the first large-scale minting of MakerDAO’s Dai stablecoin using a Bitcoin synthetic, signaling strong user demand for inter-blockchain asset support on Maker.

Source: DeFi Pulse

From Maker to Compound and Beyond

On a macro level, the fact that the vast majority of newly minted WBTC is locked within Maker is a great signal that lending opportunities on DeFi are starting to reach the ears of Bitcoin whales, a welcoming development for the entire DeFi landscape.

Other DeFi lending platforms are following suit. On Compound and Aave, users can already earn interest on their WBTC without relying on a centralized lender. Given the growing volume and adoption of WBTC, it is only a matter of time before Compound, whose team is actively exploring this topic, accepts WBTC as collateral.

There has also been a significant increase in trading volumes on decentralized exchanges including Kyber and Uniswap. Total ETH/WBTC and WBTC/ETH trading volumes on Uniswap grew by 51% in the first 20 days of May. On Kyber, the most traded pairs DAI/WBTC and WBTC/DAI already generated $700k higher trading volumes than ETH/WBTC and WBTC/ETH.

Minting WBTC Straight From Your CoinList Wallet

WBTC has demonstrated to be an excellent bridge from Bitcoin to DeFi. At CoinList, we allow our users to instantly convert BTC for WBTC, and vise-versa, directly via your wallet. It is the only platform where users are guaranteed the 1:1 peg: no bid/offer to cross, and no uncertainty over how many BTC you will get when unwrapping your WBTC. Just a small conversion fee. Since launching the service in February, CoinList has minted more than 75% of the total WBTC supply in existence and traded 20% of the ADV (average daily volume).

Instantly wrap your Bitcoin and unlock decentralized finance from your CoinList wallet —

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