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In the letter
- The amount of Bitcoin stuck on Ethereum rose from nearly zero to $ 2 billion from June to October.
- Now, that number is starting to decline.
- The rise in Bitcoin’s price may have something to do with this, as DeFi incentives are drying up.
The amount of Bitcoin stuck in Ethereum is on the decline as traders withdraw their Bitcoin from Ethereum’s DeFi smart contracts and sell it on the open market.
Over the past 12 days, the amount of Bitcoin on Ethereum has fallen from 153,591 on November 20 to 147,350 today, a drop of 6,421, or about $ 120 million, just as Bitcoin began its upward journey to surpass its previous one. highest price of all time.
Bitcoin reaches Ethereum through a synthetic representation. Buy a Bitcoin, put it in a decentralized finance smart contract and bing! An Ethereum token appears which represents that Bitcoin.
The number of Bitcoins on Ethereum increased this year when Ethereum’s decentralized finance boom went into full swing in July; traders could earn profitable returns from investing in decentralized lending protocols and exchanges.
This was interesting for Bitcoin HODLers who wanted to use their inactive encryption. The phenomenon, known as “wrapped Bitcoin”, has taken off.
But then, last month, the number of Bitcoins locked up in Ethereum began to decline. Take wBTC, or Wrapped Bitcoin, the largest, with around 80% of the market share: on June 1st, there were 4,000 Wrapped Bitcoins, or around $ 38 million. That figure peaked at 124,260 Bitcoin on November 9, or $ 1.9 billion. But since then, it has dropped to 119,893 Bitcoin. The value of that Bitcoin rose, to $ 2.3 billion, but the number of Bitcoins fell by 4,367 Bitcoins.
Two things happened that could have caused the drop.
First, the price of Bitcoin has gone up like a rocket. Bitcoin went from around $ 10,500 in early October to nearly $ 20,000 this week. Bitcoin HODLers, who have invested in DeFi smart contracts in anticipation of BTC’s big break, may have cashed in to sell Bitcoin on the open market.
Second, the DeFi rewards have been running out for months. In their heyday, between late June and October, some DeFi protocols offered yields of up to 1000% annually. However, the market collapsed as the penny fell and the only way for DeFi protocols to support the market was to mint an increasing number of tokens to satisfy the desires of profit-hungry customers.
“DeFi’s bull run has been driven by the yield farming craze, however, as these cash-mining incentives have declined, so too has trading activity on DeFi protocols, which is why traders have less. demand for tokenized assets such as WBTC, “Charlie Humberstone, a product manager at CryptoCompare, said Decrypt.
It will be interesting to see DeFi’s next trick to keep its customers.
Disclaimer
The views and opinions expressed by the author are for informational purposes only and do not constitute financial, investment or other advice.
