Bloomberg: Stablecoin Surge Lifts Bitcoin

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Bitcoin can be used as collateral on the Ethereum network, and WBTC can be used to invest in Ethereum-based DeFi applications.

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

Original Author: Olga Kharif

Translation: 0x13, BlockBeats

As Bitcoin surged to its highest level in nearly three years, it received some unexpected support from advocates of its biggest competitor.

Advocates of decentralized finance (DeFi), who are working to enable lending without intermediaries, are using Bitcoin as collateral on the Ethereum blockchain. In transactions using Wrapped Bitcoin (WBTC), users are putting coins into popular apps like Compound, resulting in returns that have even exceeded Bitcoin's nearly 90% gains this year.

To obtain WBTC, investors put Bitcoin into custody with the firm BitGo, which holds the Bitcoin in a central vault to invest in DeFi apps. About 0.6% of the Bitcoin supply has been "wrapped" this way, according to Chen Fang, Chief Product Officer at BitGo. This number could rise to 10% in two years, he said. BitGo helped launch the product in early 2019 as part of a crypto industry consortium.

"WBTC means more capital is flowing from DeFi into BTC," said Sam Bankman-Fried, CEO of Alameda Research, one of the largest WBTC traders. "It also means BTC may still have a place in a DeFi-centric future." Many crypto enthusiasts believe that DeFi apps will eventually supplant centralized intermediaries like banks.

Sam Bankman-Fried stated that Alameda Research provided 26 WBTC in July and over 28,400 WBTC by September. On October 15, the digital asset exchange Coinbase Pro listed WBTC, making it more accessible to people.

WBTC Market Cap (USD)

"DeFi has turned Bitcoin into the world's best collateral," said Bill Noble, Chief Technical Analyst at crypto research firm Token Metrics. "Now you can do more with your Bitcoin besides just selling it."

According to CoinMarketCap data, WBTC's market cap has surged from around $12.5 million in early June to about $1.5 billion. Bloomberg data shows that during this period, Bitcoin's price has increased by approximately 35%.

Coin Metrics co-founder Nic Carter stated that the growing popularity of WBTC and similar assets could ultimately affect the security of the Bitcoin network.

Miners that secure the network earn rewards by including transactions in the Bitcoin digital ledger. Carter believes that if more Bitcoin is represented this way, with WBTC issued and used on the Ethereum network, Bitcoin miners could earn fewer fees, potentially leading some to switch their support to Ethereum or other networks.

WBTC also comes with significant risks. If centralized custodians like BitGo are hacked or experience fund losses, "you're stuck with that monopolistic money," Noble said. More importantly, regulatory authorities may not endorse pegged assets, he said, noting that the use of such coins in transactions is not as easily traceable as Bitcoin.

BitGo's Chen Fang defended custodial safeguards and services, calling them "designed to eliminate single points of failure and ensure an independent market structure."

"Bitcoin is a highly regulated blockchain," Noble said, "where everyone knows what happens on-chain. These wrapped coins reduce regulatory transparency. It's a risk to consider."