The Rise and Challenges of Pegging BTC in the Ethereum Ecosystem

Bitcoin and Ethereum, as the two giants in the cryptocurrency field, have long been distinguished by their monetary attributes. Bitcoin is typically regarded as a foundational currency, referred to as "digital gold" or "the anchor of the crypto world"; whereas Ethereum is more inclined towards being an application-based currency, with practitioners often focusing on its "monetary applications" at a higher level, such as over-collateralizing ETH to generate "derivative currencies".

However, the thriving DeFi seems to have broken this delicate division of labor, even allowing Ethereum to somewhat overshadow its monetary role. The ERC-20 format Bitcoin, namely "anchored BTC", has rapidly expanded in the past few months, especially in the just-passed July, where its issuance surged by about 70%. Data shows that as of August 5, the total issuance of anchored BTC in the Ethereum ecosystem has reached 20,472, close to 1% of the total Bitcoin supply, accounting for 0.59% of the total market value of ETH.

From the internal structure anchored to BTC, wBTC occupies an absolute majority with a share of 75.8%, while Ren BTC and sBTC rank second and third with shares of 11.2% and 4.89% respectively. These three BTC anchors perform exceptionally well in terms of total addresses, active address ratio, and large transfers.

It is worth noting that the growth of renBTC in July was particularly significant, with a 111% increase in the total number of addresses within 30 days. During the same period, the average active address ratio of both wBTC and renBTC exceeded 5%, higher than the ETH level at the same time, and comparable to USDt-erc20. This reflects, to some extent, the role of pegged BTC as an important activator in the Ethereum ecosystem.

Behind the explosive growth of BTC, there are two key factors: the opening of staking by leading lending projects and the frenzy of liquidity mining. In May, the DeFi leader MakerDAO proposed adding wBTC as collateral for generating DAI, greatly increasing the potential of DAI. Soon after, the important centralized lending platform NEXO replaced a large amount of BTC with wBTC and staked it through the Maker protocol, further enhancing the activity of wBTC.

On the other hand, the "liquidity mining" craze, initiated by Compound and promoted on platforms like Curve, Synthetix, and REN, has driven the growth of almost the entire BTC pegged sector. Data shows that after the launch of the related liquidity incentive pools, on-chain metrics for wBTC, renBTC, and sBTC have significantly increased, with metrics such as transaction count, amount, and active address count surging nearly 10 times in the short term.

However, the growth of BTC-pegged assets also faces significant bottlenecks. First, there is insufficient scalability, with the DeFi sector accounting for only 1.5% of the overall cryptocurrency market capitalization, while BTC-pegged assets represent about 0.5% of DeFi. Secondly, the process from generation to transfer and then to yield farming remains complex, carrying risks that hinder many users from participating. Additionally, BTC-pegged assets have early signs of centralization, with the average whale holding rate among the top three BTC-pegged assets reaching 92%, which may affect their application in broader scenarios.

Some believe that anchoring the development of BTC may lead to a decrease in on-chain transactions for Bitcoin, affecting miner revenues and thus weakening network security. However, others argue that this is a win-win situation for both Bitcoin and Ethereum, as it can enhance the distribution and practical utility of Bitcoin while also boosting economic activity and liquidity in the Ethereum network.

In the past 7 days, the number of active addresses and transaction volume mainly pegged to BTC has shown signs of fatigue, even displaying a downward trend. As the enthusiasm for liquidity incentive mining gradually wanes, it remains to be seen whether this asset class, which once surged at lightning speed, can continue to progress steadily.