Tokenized Bitcoin on Ethereum Now Tops $1.1 B: Here's Why

Taking the form of wrapped or tokenized bitcoin, the digital asset takes the best of both blockchains - bitcoin's price value and brand along with Ethereum's programmability - into one highly in-demand token.

Overall, investors have made tokenized bitcoin one of the largest assets on DeFi with nearly 107,000 BTC worth some $1.1 billion minted from seven issuers, mostly lured in by high rates of return on lending when compared to other options such as BlockFi.

What bitcoin on Ethereum does is simple: It provides liquidity for growing decentralized exchanges, such as Uniswap.

Tokenized bitcoin allows investors to bring large amounts of value over to the Ethereum network and its young DEX market in a few clicks.

Three major models exist: a centralized firm like BitGo; a smart contract system with collateral, such as tBTC; or a complete, synthetic-asset backing employed by sBTC.BitGo's Wrapped Bitcoin is the breakout star of the last few months with some $808.5 million in circulation, according to Etherscan.

It's centralized, meaning deposited bitcoin is held by BitGo.

A few features make this possible, such as the bitcoin depositors being able to choose who holds their bitcoin and a 150% security bond pledged by the custodians on the off-chance they run to the hills with the deposits.

It works in a similar manner to tBTC's node network by having the Ren Virtual Machine, RenVM, act as a trustless agent between the Bitcoin and Ethereum blockchains.

Each sBTC is not backed by BTC, but 800% of a BTC's value in SNX, the token for minting synthetic assets on the Synthetix DEX. An example of how wrapped bitcoin works.

FTX allows users to swap between BTC and WBTC. When users swap bitcoin for wrapped bitcoin, FTX pulls from Alameda's pool of BTC/WBTC. Users may send BTC to FTX and receive WBTC. When Alameda's pool of WBTC is exhausted, they replenish it directly with BitGo.