The main advantage of locking BTC into WBTC is that it can be used to unlock a suite of passive income opportunities and attractive interest rates on various DeFi protocols. Since Compound’s massive launch only two months ago, old and new DeFi protocols alike have rushed to release new governance tokens, economic models, and liquidity mining schemes all designed to capture the swelling demand for Yield in DeFi.
As we observe the growth of DeFi, we are witnessing an ever-expanding trend of users being able to partake in the upside of a protocol’s growth. It feels like every week there is a new yield-farming opportunity on a new protocol driving demand for more and more WBTC.
The Hunt for Yield: Liquidity Mining on Curve
To illustrate, let’s take a look at what’s taking place on curve.fi, otherwise known as Curve. Curve is the latest major project to deploy a protocol with a governance token and liquidity mining incentives.
At its core, Curve is an exchange liquidity pool on Ethereum designed for extremely efficient stablecoin trading. Curve actually has seven different liquidity pools: five stablecoin pools and two WBTC pools:
Although Curve had already gained significant traction prior to the launch of its DAO and governance token, its usage skyrocketed after the deployment of its DAO and native token, CRV. In true DeFi form, CRV was launched by an anonymous developer who could access the public github repo. The developer spent 19.9 ETH (~$8k) in order to deploy the smart contracts, and after a review by the Curve team, the protocol change was accepted and CRV was launched.
Like all things DeFi, the main user incentive for participating in such pools is that anyone can deposit their assets into one of these pools and earn fee payouts denominated in the protocol’s native token. In the case of Curve, that token is CRV. As you can see from the screenshot above, yields including CRV payouts, skyrocketed up above 100% APY on various pools.
The fees are paid out proportionately to the amount of assets users commit to the platform, creating a positive reflective loop for user capital on the platform and token price. Just like the case with COMP, the higher the token price, the higher the annualized APY, the more enticing the opportunity.
The Curve Ren pool, for example (highlighted above), which holds WBTC and renBTC, offers an APY of 9.45% at the time of writing. Earning an interest rate of 9% + 34.79% in CRV on your WBTC beats any bank’s savings account, and presents an opportunity that anyone holding significant amounts of BTC is bound to consider.
As yields spike, demand for WBTC skyrockets
Bitcoin holders are swapping for WBTC to earn lucrative yields like those found on Curve across an ever-increasing number of DeFi protocols.
With more than half of the total WBTC in circulation minted in just the past month, bitcoin is currently being tokenized faster than it is being mined.
According to data from analyst Zack Voell, there were 6,785 bitcoins wrapped into WBTC last week, while only 5,738 new bitcoins were mined.
WBTC’s month-to-month growth has been staggering. Tokenized bitcoin supply has grown by more than 60% in July and more than 100% so far in August. Over $420,000,000 of bitcoin have been tokenized on Ethereum, with WBTC accounting for the vast majority of that growth at $365,200,000, or 30,800 bitcoins wrapped.
While this only scratches the surface of the total bitcoin market cap, bitcoin is now an undeniable part of DeFi, and WBTC is the leading onramp.
Understanding Risks and Rewards
The rewards that users are getting on Curve and other protocols come primarily from trading fees. Every time a trade occurs on Curve, liquidity providers split a small fee among themselves. These fees are dependent on volume.
Since there is no central authority that determines these rates, they are determined simply by supply and demand, where crypto’s dramatic volatility can yield to outsized returns when compared to traditional markets.
As a liquidity provider to Curve, you can see high APY on days with high volume and volatility, and low APY on days with low volume. Since users are exposed to risks associated with all the tokens in a given pool (not just the one they deposited), one way that some users choose to mitigate this risk is by providing liquidity to multiple pools rather than just one. To learn more about how to farm yield with stablecoins on Curve, check out this video by DeFi Dad.
Yield Farming Attracting Institutional Interest
While yield farming is largely driven by retail interest, institutions are apparently getting into the game. According to a recent report by Genesis, a digital currency prime broker, institutional clients are also showing significant interest in liquidity mining on DeFi protocols like Curve:
“It’s not surprising DeFi yield farming has impacted our lending business, particularly on the demand side. The demand to borrow assets which have the most advantageous fee structures increases when the market is hot and rapidly decreases once the market is onto the next asset. At the start, we saw interest in BAT and REP skyrocket after those Compound markets were paying hefty fees. Over time, we have seen the demand normalize primarily to stablecoins like USDT, USDC, and DAI as they are easier to source and still highly profitable to farm.”
With new and exciting DeFi protocols like Curve launching each month, there are plenty of opportunities for bitcoin holders to earn significant yield in DeFi through WBTC.
This blog post is being distributed by Amalgamated Token Services Inc., dba “CoinList,” or one of its subsidiaries. This blog post and use of the CoinList website is subject to certain disclosures, restrictions and risks, available here.