47,000 BTC are locked in Ethereum, and the speed at which BTC flows into Ethereum has exceeded the mining speed

“Bitcoin is being tokenized on the Ethereum network faster than it can be mined.”

According to the latest data, the number of new Bitcoins on the Ethereum network, Wrapped Bitcoin (WBTC), has exceeded 6,785 BTC last week, while 5,738 BTC were mined on the Bitcoin network last week. According to defipulse data, there are currently more than 47,000 Bitcoins anchored on the Ethereum chain, of which WBTC and renBTC rank first and second, with 26,609 WBTC and 9,925 renBTC.

The growth rate of Bitcoin tokenization indicates that the demand for using Bitcoin in Ethereum-based DeFi applications is continuing to surge. Kyle Davies, co-founder of Three Arrows Capital, said that WBTC continues to maintain strong growth as the demand for Bitcoin in DeFi surges. Su Zhu, co-founder of Three Arrows Capital, predicts that within a year, WBTC will become a "first-class asset" in the decentralized financial ecosystem, just like USDC and USDT now.

Currently, Bitcoin's block reward is 6.25 BTC per block, which means that about 900 Bitcoins are mined every day, based on an average of one block every 10 minutes. As of now, a total of about 26,000 BTC are locked in WBTC, giving it a market value of more than $300 million.

The two main advantages of locking BTC into WBTC are that they can be used in the wider DeFi space and traded with other ERC20 tokens on DEXs such as Uniswap. The second and more plausible reason why we are seeing such explosive growth is that they are being used in “liquidity mining” to earn interest on their BTC. Pools such as Curve’s sBTC or WBTC Balancer pools allow users to earn very lucrative interest rates.

FTX CEO Sam Bankman-Fried confirmed that both their exchange and OTC desk are seeing a significant influx of new funds.

Critics: The massive influx of BTC into DeFi is not a good thing

Critics are not happy with this latest development because the existence of WBTC goes against the spirit of Bitcoin. When users exchange BTC and WBTC, users must go through BitGo. BitGo is a digital asset trust company and security company based in Palo Alto, California, so this introduces a central point of failure, which goes against the core values ​​of DeFi. It should also be noted that when you deposit BTC into BitGo, users must go through KYC and AML along with your BTC. This blocks many people who would otherwise use their system.

Many critics also point out that while the influx of Bitcoin is good for the Ethereum ecosystem, it could have a negative impact on the Bitcoin blockchain. This is because with each halving, the block reward is cut in half, and miners are increasingly reliant on transaction fees. The current block reward is 6.25 BTC, and at some point in 2024, the block reward will be reduced to 3.125 BTC. This means that if a large portion of BTC is locked in sidechains such as WBTC, renBTC, and pBTC, there will be a lack of Bitcoin circulation in the Bitcoin blockchain, and therefore, miners will not be able to earn the transaction fees they should have earned.

Competition for Bitcoin intensifies

Although WBTC is currently the largest player in tokenized BTC, it is not the only one. Ren Protocol is catching up quickly with its own Bitcoin token - renBTC, which currently has a market cap of nearly $75 million. Many people are now supporting renBTC because they believe that renBTC is a better alternative to WBTC as it is more decentralized, does not rely on any central custodian, and does not require its users to perform mandatory KYC/AML procedures.

“Ren: RenVM processed over $19.1 million in value, the highest daily volume to date, as over 1,600 Bitcoins were moved to Ethereum.”

Faced with fierce market competition, Bitcoin’s own second-layer sidechain, the Lightning Network, has not attracted much attention, with only $12 million in total value locked (TVL). In comparison, WBTC’s market cap is +$300 million, and even renBTC’s market cap is nearly $75 million.

As the returns from DeFi attract more and more Bitcoin holders, more and more people will lock their Bitcoins into the Ethereum network. Although doing so obviously carries great risks, many people are willing to take this "risk" for high returns.