Tokenised BTCs in DeFi: How Can You Benefit from It?

Introduction

In the previous year, we have seen some initiatives to bring Bitcoin over Ethereum in order to strengthen the DeFi ecosystem, by adding a new type of collateral. This is a good point, in order to thrive, the DeFi ecosystem has to rely on new types of collateral.

It improves the mechanism of financing: lending and borrowing are more efficient thanks to a higher quantity of collateral available to borrow/lend so the price paid will be lower as well (lower interest).

It also decreases the overall risk of the whole system, even if Bitcoin and Ethereum are still highly correlated and permits the increase of the DeFi ecosystem size, thanks to BTC market cap, which is much bigger than ETH.

In traditional finance, financing works like this: If you need short term cash and you have assets (real estate, securities such as shares, bonds, etc.), you do a repurchase agreement (Repo) with a counterparty, which provides the cash you need, in exchange of a collateral as guarantee. A Repo is basically an exchange of cash and securities (collateral). And multi collaterals are often used as it lowers the risk associated to the transaction.

Improve the financing part of the DeFi ecosystem is paramount. This is the foundation for a sound DeFi and multi collaterals is a step in the right direction.

Bringing Bitcoin to DeFi is the first step in that movement. We will certainly see other collaterals such as stablecoins (already happened with USDC for DAI), commodities (Gold comes to mind) and real estate, when the ecosystem is ready.

So far, here are the major tokenised BTC initiatives.

The Tokenised BTCs

WBTC

It is the Wrapped BTC-ERC20 backed: this is a centralised attempt to bring Bitcoin to Ethereum initiated by Kyber and BitGo, it involves KYC and AML to mint. It is not a huge success so far. In one year, only $7 million has been locked into it, compared to current Bitcoin market cap of $126B.

tBTC

It is the decentralised BTC-backed ERC20 collateralised by ETH: it is an interesting initiative. As for WBTC, you can deposit BTC into the system and you will be able to mint tBTC without KYC in a trustless way. There is no centralised entity in charge of holding your original BTC. It is fully decentralised.

renBTC

It is the decentralised BTC-backed ERC20 by the Ren Darknodes: this is the same as tBTC in a way that it is decentralised but instead of being collateralised by ETH, it is backed by the Darknodes’ network.


Now the question is: how can you benefit from this new trend in the DeFi ecosystem?

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Thanks for reading

Secret Salsa