Tokenized BTC on Ethereum

JUN 15, 2020 • 3 Min Read

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As of today, 5,446 tokenized BTC exist on Ethereum, across various types, worth approximately $51m. Tokenizing Bitcoin on Ethereum has generated a lot of buzz in recent weeks with the advent of new cross-chain variations like renBTC and tBTC, in addition to the inclusion of WBTC as accepted collateral for Maker. There are even new products like BTC++ from PieDAO, which essentially is an index token comprised of imBTC, pBTC, sBTC and WBTC at equal weightings, for the holder who wants to hedge their risk that any single variation might fail.

While these tokens can certainly be useful, it’s important to keep in mind that each has its own trade-offs regarding trust and security. These tokens are basically collateralized “IOUs”. In certain situations, like with WBTC, a holder needs to trust a federated group of entities and BitGo, a centralized custodian. In other situations, like with renBTC, a holder needs to trust that a decentralized, cross-chain network remains secure and well incentivized. These tokens will only maintain their price pegs to BTC if their underlying collateral is kept safe and the process to redeem is not overly burdensome.

While its clear we’ve seen significant growth YTD in aggregate, ~73% of total tokenized Bitcoin on Ethereum is from WBTC, as shown in the chart below. This is in contrast to newer, more decentralized variations like renBTC and tBTC. Given their early stage, however, this makes sense. It will take time for users to trust the security of their supporting infrastructure before we see large amounts of value held within them. A friend of mine recently said “Of course I trust WBTC more than renBTC right now”. I replied “Let me know when that sentiment changes”.

Due to its dominance, let’s focus in on WBTC. This tokenized version of BTC has existed the longest, with its launch dating back to early 2019. Despite this long track record though, much of its growth has occurred recently over the past month. Why? As seen in the chart below, the spike in WBTC supply coincided with the decision by the Maker community to accept it as collateral. Out of a total supply of 4031 WBTC, ~67% of it is being borrowed against in Maker CDPs. While there are a variety of merchants who can facilitate an increase to the WBTC supply, as seen in the chart at the bottom, the vast majority has been purchased through CoinList.

Source: Nansen

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