Bloomberg: Anchor coins drive Bitcoin’s rally

Original title: "Bitcoin Rally Gets Added Boost From "Wrapped" Crypto Tokens"

Original author: Olga Kharif

Original translation: 0x13, BlockBeats

As bitcoin surged to its highest level in nearly three years, it received some unexpected support from fans of its biggest rival.

Decentralized finance (DeFi) advocates, who strive to let people borrow and lend without intermediaries, are using bitcoin as collateral on the Ethereum blockchain. In transactions using WBTC, users put coins into popular applications such as Compound, which has brought returns that even exceed bitcoin's nearly 90% gains this year.

To obtain WBTC, investors deposit Bitcoin with custodian BitGo, which stores Bitcoin in a central repository for investment in DeFi applications. About 0.6% of all issued Bitcoins have been "anchored" in this way, and two years later, that number could reach 10%, according to Chen Fang, chief product officer at BitGo, which helped launch the product in early 2019 as part of a coalition of crypto companies.

"WBTC means that more funds are flowing from the DeFi craze to BTC," said Sam Bankman-Fried, CEO of Alameda Research, one of the largest WBTC traders. "It also means that BTC may still have a place in a DeFi-centric future." Many enthusiastic crypto enthusiasts believe that DeFi applications will eventually replace centralized intermediaries such as banks.

Sam Bankman-Fried said Alameda Research provided 26 WBTC in July and more than 28,400 WBTC by September. On October 15, the digital asset exchange Coinbase Pro launched WBTC, making it easier for people to get it.

WBTC Market Cap (in USD)

"DeFi turns Bitcoin into the best collateral in the world," said Bill Noble, chief technical analyst at crypto research firm Token Metrics. "Now you can do other things with your Bitcoin besides selling it."

According to CoinMarketCap, WBTC’s market value has surged from $12.5 million in early June to about $1.5 billion. During this period, the price of Bitcoin has risen by about 35%, according to data compiled by Bloomberg.

Nic Carter, co-founder of research firm Coin Metrics, said the growing popularity of WBTC and similar currencies could eventually affect the security of the Bitcoin network.

Miners who ensure the security of the network can be paid by posting transactions to the Bitcoin digital ledger. Nic Carter believes that if more and more Bitcoin exists there and WBTC is issued and used on the Ethereum network, Bitcoin miners will earn less fees. This may prompt some of them to switch to support Ethereum or other networks.

WBTC also has a lot of risks. If a centralized depository like BitGo is hacked or loses funds, “you’re stuck with that monopoly money,” Noble said. What’s more, regulators may not support pegged coins, which he said are not as easy to track in transactions as Bitcoin.

BitGo’s Chen Fang defended the depository’s safeguards and services, saying they were “built to eliminate single points of failure and ensure an independent market structure.”

“Bitcoin is a highly regulated blockchain,” Noble said. “Everyone knows what’s going on on the chain. This wrapped coin reduces regulatory transparency. That’s a risk that needs to be considered.”