Tokenized BTC On Ethereum Plunges 44% in 1 Year, What Happened?

In response to knowledge from Dune Analytics on July 24, the quantity of Wrapped Bitcoin (wBTC), an artificial type of Bitcoin, circulating on Ethereum has fallen by 44% since Could 2022. In July 2023, wBTC circulating on Ethereum stood at roughly 158,000 BTC, a pointy decline from 282,000 BTC recorded in Could 2022.

Apparently, on-chain information additionally confirmed that the quantity of wBTC minted and circulated in Ethereum, primarily for decentralized finance (DeFi) functions, continued to rise within the first 5 months of 2022. It peaked in Could 2022 amid a market-wide contraction of crypto costs that noticed Bitcoin cool off from 2021 peaks of over $69,000.

BTC On Ethereum Falls

Bitcoin holders usually tokenize their cash, changing them into ERC-20 tokens in Ethereum to take part in numerous DeFi actions. These engagements could embody staking to extend returns, yield farming to maximise returns, lending, and borrowing to obtain USDT or DAI and different cash via platforms like MakerDAO.

Among the many widespread tokenized Bitcoin are wBTC, renBTC, tBTC, and others. Nonetheless, as of July 24, a major share of tokenized Bitcoin in Ethereum was wBTC, with over 158,000 tokens circulating. Customers additionally selected different platforms to mint hBTC and renBTC.

The decline in tokenized Bitcoin highlights the overall state of DeFi in Ethereum and different platforms, together with BNB Chain, Avalanche, and Polygon. As of July, there was a marked decline in DeFi exercise over the previous 12 months from the variety of belongings locked in numerous protocols throughout the ecosystem.

DeFi Exercise Decimated By Bears

DeFiLlama knowledge on July 24 reveals that the full worth locked (TVL), an indicator of demand, has contracted from over $177 billion registered in November 2021 to lower than $50 billion. Even so, whereas DeFi TVL has remained under $50 billion in 2023, most DeFi exercise nonetheless revolves round Ethereum, highlighting its dominant place within the DeFi house. Knowledge reveals that Ethereum’s share of the full TVL is over $24 billion, a greater than 50% share.

The drop in DeFi exercise could be primarily attributed to the crypto winter of 2022, a interval of bearish market sentiment and diminished total crypto market exercise, which compelled most asset costs to decrease. Among the many cash adversely affected by bears was ETH, the native foreign money of Ethereum, which fell from round $4,800 to as little as $1,100.

Throughout this time, tokens of high DeFi protocols, together with Uniswap, posted deep losses. After peaking at round $45, UNI, the governance token of Uniswap, crashed to as little as $3 within the final bearish cycle.

Past the consequences of falling crypto costs in 2022, the comparatively excessive charges in Ethereum have additionally impacted DeFi exercise. Trackers on July 24 present that sending a easy ETH transaction attracts a $1.86 price. In the meantime, the identical transaction prices cents in competing protocols like Polygon or Avalanche. Presently, a easy switch by way of Polygon zkEVM, for example, is $0.09.

Function picture from Canva, chart from TradingView