Can Bitcoin be boosted by DeFi?

[Karl_BC]

Hi everybody

Commonly known as “DeFi”, decentralized finance has become a rather hot topic in the cryptocurrency world this year. Having financial services move to a decentralized platform is seen by many to be an exceptional cryptocurrency use case, especially for Ethereum.

Recently, Cointelegraph reported that more than US$1 in Bitcoins (BTC), almost 100,000 BTC, has now been tokenized for DeFi on the Ethereum network. This is said to be equal to DeFi’s entire total value locked (TVL)  less than four months ago this year.

With the rise of DeFi, this brings us to ask: is it really benefiting Bitcoin? Let’s start by taking a look at what DeFi is.

What is DeFi - decentralized finance?

Previously known as “open finance”, DeFi is said to be inspired by blockchain’s own decentralization - where no person or authority is able to control it; instead, transactions are verified by a network of computers.

DeFi, similar to blockchain, cuts out the middlemen from financial transactions, allowing for advantages such as faster transaction speeds and lower fees. It leverages on blockchain to expand its use, allowing more complex financial use cases to happen rather than just a simple value transfer. In fact, most of it is even built on top of Ethereum (ETH) - the second-largest cryptocurrency platform after Bitcoin.

Why the Ethereum network? Because of the ease of building different types of decentralized applications (dApps) that go beyond simple transactions - something which Vitalik Buterin, the creator of Ethereum, already highlighted in the original Ethereum white paper published in 2013.

How Bitcoin can be boosted by DeFi

Since May 2020, Bitcoin’s price has been hovering around the range of US$8,500 to US$10,000+. DeFi tokens, on the other hand, has surpassed Bitcoin massively, as seen on CoinMarketCap - many of the best performing cryptocurrencies seem to be DeFi-focused.

What’s interesting to note is that the more DeFi tokens gain upward momentum, the more Bitcoin could possibly be boosted when DeFi undergoes a correction; which could happen with Ethereum 2.0 that will look at the scalability of the Ethereum platform.

Kelvin Koh, a partner at Spartan Group - an advisory firm and crypto fund, supports this. In a tweet he shared on June 9, 2020, he observed that there will be a point in time when the valuations of “smaller altcoins (esp DeFi ones)” begin to “look frothy”, and that’s when “capital will flow back” to BTC.



A pseudonymous Bitcoin trader also supports this. They predicted that when the DeFi bubble “comes crashing down”, one can expect to see Bitcoin getting a small boost.




 
DeFi tokens, Altcoins and Bitcoin

Both observations above take into account the fact that altcoins trade against BTC, ETH or other stable coins, rather than fiat currencies. Therefore, should traders want to manifest their altcoin profits, they’ll have to acquire Bitcoin, Ethereum or a stable coin.

As of the first week of October 2020, the current total market cap of DeFi tokens already stands at US$15.1 billion, according to DeFi Market Cap.
Should these DeFi tokens retrace, even by just a little bit, this could mean more than just “a small pump” (as the pseudonymous Bitcoin trader says) of money going into Bitcoin and Ethereum. Yes, we’re talking millions of dollars here!

Bitcoin tokenization

Indeed, it has been reported more than US$1 billion in Bitcoin, or almost 100,000 BTC, has now been tokenized for DeFi.
What makes this even more buzzworthy is that more than half of this was migrated in a 30-day period from mid-August to mid-September 2020. Furthermore, DeFi Pulse has found that these BTC were tokenized with the use of other protocols rather than the Lightning Network that was created to enable faster BTC transactions.

Bitcoin and WBTC

A large majority of BTC that’s been tokenized on DeFi and locked in the Ethereum network is in the form of Wrapped Bitcoins (WBTC). Data analysis provider Skew, a data analysis provider, has found that the total value of BTC in WBTC was US$353 million as of August 28, 2020.

So… is DeFi benefiting Bitcoin?

For now, it seems so, especially with the trend of DeFi rising since the middle of 2020. But as they say... who knows what the future holds? With Forbes observing that DeFi’s sustainability remains to be seen, it may be possible that Bitcoin will not benefit from DeFi in time to come. We’ll have to wait and see what Ethereum 2.0 has in store for DeFi and subsequently, how it may benefit Bitcoin.

You are welcome to share your thoughts.

Thanks
Karl

[damsix]

The purpose of this thread is to advance in the Bitcoin system, after DeFi came up with the platform Ethereum is mostly producing.

I don't think Bitcoin core could be created for something like DeFi because Bitcoin is clearly a different coin and not the type that supports DeFi.
As for WBTC, which was created in accordance with the original BTC which has the Ethereum network, it can be combined with the DeFi project but this will be difficult because Bitcoin is better traded, not invested in the form of DeFi.

[TomPluz]

What is sure for now is that DeFi is not hurting Bitcoin but is in fact boosting it. We can see the data and the facts for this assumption. I am sure that as soon as DeFi will be waning and only a few players will stay for good -- when the smoke will clear, as they say -- it will still be Bitcoin that is so stable and which people can depend on. DeFi is definitely not an enemy of Bitcoin but a good friend along the way. Bitcoin is very much participating with the growth of DeFi as it is not exclusive to Ethereum network.

[juv3ntus1]

Yes,many people are buying btc to convert in wbtc to be use in defi,in this way they have the opportunity to own btc and make some monthly income by depozit to platform who allow users to borrow cryptocurency.

[EAA-ALLAH]

Yes,many people are buying btc to convert in wbtc to be use in defi,in this way they have the opportunity to own btc and make some monthly income by depozit to platform who allow users to borrow cryptocurency.

Yes bitcoin is the blockchain based coin and Wbtc (Wrapped bitcoin) is DeFi based project. So many people converting bitcoin into Wbtc to get huge amounts of profits and benifits.