Finance Redefined: the Bitcoin price special at $20,000, December 9-1618. December 2020
Bitcoin DeFi, Bitcoin in Ethereum: We explore the ways DeFi and Bitcoin are intertwined.
Finance Redefined is Cointelegraph’s DeFi-focused newsletter, sent to subscribers every Wednesday.
Today, the world of crypto currency is celebrating Bitcoin’s new all-time high – we did it, guys! We’re back at $20,000 after three grueling years.
Bitcoin is a “convex bet”, says the CEO of an institution with a 600 million dollar exposure at BTC
So, for this reason, this will be a newsletter with the theme of Bitcoin. How does Immediate Bitcoin scam relate to DeFi? Well, for one thing, the total value locked in DeFi has a delta of about 0.2 with respect to the price of Bitcoin. This means that for every 1% that the price of BTC goes up or down, the total blocked value changes by 0.2%.
BTC and Wrapped BTC locked in DeFi, according to Defipulse.
Most of that relationship is due to the peculiar accounting choice of considering BitGo’s Wrapped BTC as its own asset in DeFi, while counting all instances where WBTC is used in DeFi protocols. From a “natural” value of USD 535 million, Bitcoin’s contribution to the total blocked value jumps to USD 2.9 billion, a pretty significant discrepancy, right?
The founder of Compound Finance says that CeFi will eventually adopt DeFi
But beyond the use of Bitcoin in Ethereum, there’s also the phenomenon of Bitcoin in DeFi. Now, the thing is that none of these are really “Bitcoin” in DeFi, because Bitcoin simply doesn’t allow you to create the complex intelligent contracts needed to implement the real DeFi. The only project I know of of that kind is Atomic Loans. You offer Bitcoin as native collateral, but all the smart contracts are in Ethereum and your loan is disbursed there.
Bitcoin DeFi exists in RSK and Liquid, two Bitcoin “side chains”, independent block chains that use Bitcoin as their native currency. RSK also uses combined mining to validate its own string, resulting in a much closer link to the main string.
RSK launches a Bitcoin trustless bridge called Powpeg
The problem is, of course, that since Bitcoin doesn’t have smart contracts, the way for BTC to reach those “DeFi” side chains is usually through custody and centralization. But recently we saw RSK push a solution that makes the bridge effectively DeFi-free, so I’m starting to warm up to seeing it as two sides of the same Bitcoin.
The Bitcoin summary in DeFi
RSK has definitely been active at the head of DeFi. This week, Sovryn launched a full range of products for DeFi at RSK. It is a combination of several basic components, including a loan protocol and an automated market maker exchange, or AMM. Like bZX’s Fulcrum, the combined range makes it easier to enter leveraged positions in Bitcoin without taking the manual steps you would have to take in, say, Compound.
Bitcoin pricing allows DeFi, Ethereum and altcoins to go up in price
Among the most interesting protocols in RSK we have TEX, a kind of mix between an AMM and an exchange order book. The mechanism is complex, but basically it settles orders every few minutes based on an average of all the limited orders sent. The exchange was launched by Dollar on Chain, the RSK Maker analog with some additional features.
On the side of Liquid, the side chain developed by Blockstream, there is less variety, although there is another interesting twist on the decentralized exchanges called TDEX. It uses atomic exchanges to make trades and allows complete control over the settlement price, unlike MMAs, where the price of the trade is not really known until the order is executed.
Bitcoin tokenized in Ethereum
The most popular type of Bitcoin in Ethereum is Wrapped Bitcoin, as I mentioned. Simply, BitGo (and supposedly other partners) take custody of Bitcoin that’s connected to Ethereum, and then they coin the corresponding WBTC tokens. Very similar to Tether or other centralized stablecoins, it feels like an output.
Protect and serve? The dilemma of reissuing lost or blocked DeFi tokens
For a tokenized Bitcoin to be relevant, we must solve this annoying problem of relying on custodians to connect it to new chains.