From the beginning of 2021 to today, bitcoins (quotation BTC in real time) locked in decentralized finance (DeFi) protocols have tripled their value. The figure is surprising because this is an industry that has always been dominated by Ethereum and, more recently, by other networks that provide more facilities for the development of smart contracts.
However, the Bitcoin network and its sidechains are gaining momentum in this sector. Data from the information portal defillama.com shows that the value locked up in Bitcoin's RSK, Stacks and DeFiChain sidechains exceeds $ 1,35 billion.
While this is a minor portion of the total funds deposited in DeFi, which reached $ 2021 billion at the end of 234, it is a threefold increase compared to the beginning of 2021. This can be seen in the following graph produced by CoinGecko in February of this year, based on information provided by defillama.com:
To delve even further into this statistic, CoinGecko specifies that most of the funds are held on decentralized exchanges. Additionally, of all side chains and tier two solutions, DeFiChain has the highest FVL, with approximately 77% of total assets.
How to use bitcoin on DeFi
To introduce bitcoin to the world of DeFi, a tokenized version of the cryptocurrency is used on sidechains, for example RSK. These bitcoin "emulations" follow the price of the cryptocurrency in real time, that is, they always maintain parity with its market price.
For the creation of these tokenized bitcoins, what is done is to block a deposit of the cryptocurrency on the sidechain to get the token in return. Subsequently, this process can be reversed, in order to recover the blocked BTCs and destroy the issued tokens.
Some of the DeFi platforms on Bitcoin's side networks are Stacks, Money on Chain, Tropykus, and Sovryn, among others.
There are also bitcoins tokenized on other networks, for example Ethereum or the BNB chain. In the case of Ethereum, the Wrapped Bitcoin Token (WBTC) "wraps" a unit of the cryptocurrency created by Satoshi Nakamoto so that it can be used "covertly".
With this and other similar methods of creating related tokens, bitcoin can be used as if it were any other ERC-20 token native to the Ethereum network. Currently, there is $ 15,408 million deposited for the creation of 335.249 tokenized bitcoins on Ethereum, according to btconthereum.com.
The current landscape in DeFi
Decentralized finance protocols offer services such as decentralized exchanges, stablecoins, loans, oracles, and derivatives trading. The difference with traditional finance is that they rely on automated methods through smart contracts and run on distributed networks.
The world of decentralized finance is becoming more and more diverse. As Crypto-currency reported in January, Ethereum is slowly losing its dominance in the field. Other networks such as Terra, BNB Chain (formerly Binance Smart Chain) and Avalanche are increasingly positioning themselves to compete.
The benefit to Bitcoin, the CoinGecko report notes, is that it can take advantage of available information about what works and what doesn't based on what has happened on other chains. Thus, the growth achieved during 2021 and part of 2022 is likely to continue to consolidate.