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according to data The amount of wrapped Bitcoin (wBTC), a synthetic form of Bitcoin circulating on Ethereum, has dropped 44% since May 2022, according to a July 24 announcement by Dune Analytics. As of July 2023, wBTC in circulation on Ethereum was approximately 158,000 BTC, down sharply from the 282,000 BTC recorded in May 2022.
Interestingly, on-chain records also show that the amount of wBTC minted and circulated on Ethereum, primarily for decentralized finance (DeFi) purposes, continued to grow during the first five months of 2022. It peaked in May 2022 amid a market-wide contraction in cryptocurrency prices, with Bitcoin declining from its 2021 peak above $69,000.
BTC on Ethereum Falls
Bitcoin holders often tokenize and convert their coins into Ethereum ERC-20 tokens to participate in various DeFi activities. These efforts may include staking to increase revenue, yield farming to maximize revenue, lending and borrowing to receive USDT and DAI, and other coins via platforms such as MakerDAO.
Popular tokenized Bitcoins include wBTC, renBTC and tBTC. However, as of July 24th, a significant percentage of Ethereum’s tokenized Bitcoin is wBTC, with over 158,000 tokens in circulation. Users also chose other platforms to mine hBTC and renBTC.
The decline of tokenized Bitcoin highlights the general landscape of DeFi on Ethereum and other platforms such as BNB Chain, Avalanche and Polygon. As of July, DeFi activity has declined noticeably over the past year due to the number of assets locked in various protocols across the ecosystem.
DeFi activity decimated by bears
Defilama data Total value locked (TVL), a measure of demand, has shrunk from more than $177 billion recorded in November 2021 to less than $50 billion, according to July 24 data. Yet, even though the DeFi TVL remains below $50 billion in 2023, most DeFi activity still revolves around Ethereum, highlighting its dominant position in the DeFi space.data show Ethereum’s share of total TVL is over $24 billion, with over 50% share.
The decline in DeFi activity was largely attributed to the crypto winter of 2022, a period of bearish market sentiment and reduced activity across crypto markets, which likely forced most asset prices to fall. Among the coins badly hit by the bear market was Ethereum’s local currency, ETH, which fell from around $4,800 to $1,100.
During this time, tokens of top DeFi protocols, including Uniswap, have recorded heavy losses. Uniswap’s governance token, UNI, peaked around $45 before crashing to $3 in the final bear cycle.
Aside from the impact of cryptocurrency price declines in 2022, Ethereum’s relatively high fees are also impacting DeFi activity. July 24th Tracker show There is a $1.86 fee for sending a simple ETH transaction. Competing protocols such as Polygon and Avalanche, on the other hand, cost the same transaction a few cents. For example, a simple transfer via Polygon zkEVM is currently $0.09.
Featured images from Canva, charts from TradingView
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