Stretched thin? Wrapped Bitcoin assets can encourage the supply crisis

November 21, 2020 Coin Payment

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In a blog post on Friday, Binance reintroduced BTCB to the world, a wrapped Bitcoin asset intended to bring liquidity from the world’s largest cryptocurrency, BTC, to the Binance Smart Chain’s DeFi (decentralized finance) ecosystem.

However, hodlers may be encouraging renewed interest in BTCB for a different reason – every Bitcoin stuck on BSC can contribute to a looming BTC supply crisis.

First announced last year, Binance initially saw Bitcoin wrapped purely as a vehicle for traders to gain cross-chain asset exposure without leaving BSC. Since then, however, the usefulness of wrapped Bitcoin has exploded due to the premature maturation of the DeFi ecosystem.

For example, WBTC – a Bitcoin token wrapped on Ethereum – has enjoyed tremendous success since its launch in January 2019: it currently ranks as the # 14 cryptocurrency by market capitalization and has found significant adoption in protocols such as Aave and Uniswap. whose contracts both rank among the top 10 holders of WBTC.

In their blog, Binance noted that similar adoption may be possible for BTCB. Wrapped Bitcoin could be used to mint stablecoins with native BSC protocols such as QIAN and Venus; as a guarantee for loan protocols such as CREAM; and in yield farming and liquidity mining protocols such as Beefy, Bakery and Pancake.

According to what Binance calls a “Proof of Assets” page, there are currently over 9,600 Bitcoins on BSC – worth over $ 181 million. However, the blog post specifies that only 2,000 are circulating.

Other smart contract-enabled chains intend to exacerbate the growing scarcity. Solana’s cross-chain Wormhole project will turn ERC-20 tokens into SPL tokens, including WBTC, and likewise, Interlay is using the support of a grant from the Web3 Foundation to build a trustless bridge that brings wrapped Bitcoin to Polkadot. Interlay will launch in early 2021.

Especially if the success of wrapped and cross-chain Bitcoin assets continues to grow, institutions looking to recoup BTC supply may face growing shortages. Aaron Wright, the co-founder of OpenLaw, pointed to such a possible future in a Tweet: