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Bitcoin being tokenized on the Ethereum network will mean an increased activity in the Ether system, which has lately been related to high transaction fees.
Cryptocurrency analytics firm Messari has estimated that approximately $500 million worth of Bitcoin (BTC) has been tokenized on the Ethereum network for use in decentralized finance (DeFi) protocols year to date.
This reciprocates to around 0.3% of all circulating Bitcoins, hence leaving a huge gap of unexplored territory.
Messari on Bitcoin Tokenization
“$500M worth of #Bitcoin has been ported over to Ethereum in 2020. With only 0.3% of all bitcoin on Ethereum and DeFi booming, the opportunity for decentralized bridges between the two chains is hard to ignore,” Messari explained through a tweet.
The DeFi ecosystem has not only boomed in the past few months but also thrived to be the top industry’s project. According to DeFi pulse, a total of $9.47 billion has been locked in the DeFi ecosystem at the time of publication.
Bitcoin being tokenized on the Ethereum network will mean an increased activity in the Ether system, which has lately been clogged with high transaction fees.
With less than 1% already tokenized, whereby the current bitcoin market capitalization stands at around $214.10 billion, the DeFi protocol running on Ethereum to tokenize BTC is set to greatly benefit from it.
Data from Defi Pulse indicates that popular Bitcoin tokenization protocols, WrappedBTC (WBTC), and RenVM are the ninth and 10th largest DeFi projects by locked funds, with $456 million and $227 million respectively.
RenVM is dubbed as a product of Ren, whereby it was released in May 2020 to provide interoperability for decentralized finance (DeFi). As a result, it would allow anyone to seamlessly bridge digital assets to and from the DeFi ecosystem.
Basically, once you remmitt your bitcoin to RenVM, it holds them, and in turns, it mints the Bitcoin as an ERC20 (renBTC) on Ethereum with 1:1 ratio. This ensures the renBTC is always backed by the same amount of BTC.
On the other hand, WBTC is seen as an ERC20 token that is backed 1:1 by bitcoin. It was created to bring the huge liquidity of the Bitcoin network to the Ethereum network. To keep the system transparent, users can verify that WBTC is fully-backed via on-chain proof of reserves.
The DeFi ecosystem has flipped huge profits from many token holders in the past few months. However, some notable industrial players including Binance CEO thinks most DeFi projects are a mare bubble that is swelling by the day and perhaps likely to explode on the unsuspecting retailers.