Let’s say you’re a longtime Bitcoiner with some BTC laying around that you’d be willing to experiment with.
‘If that sounds like you, then maybe you’ve also heard about Ethereum’s rising decentralized finance ecosystem and how you can put your BTC to work in DeFi in various ways, though you don’t know where to start.
If you fit the bill here, then look no further. Here’s a brief primer on Ethereum’s most popular BTC token to date, the BitGo-backed WBTC project, and a range of ways you can put this token to productive use around DeFi.
The ERC-20 BTC Boom Has Begun
- 1 The ERC-20 BTC Boom Has Begun
- 2 DeFi: the New Frontier
- 3 Idea #1 – Borrow Against Your WBTC
- 4 Idea #2 – Lend Your WBTC
- 5 Idea #3 – Provide Liquidity to Protocols
- 6 Idea #4 – Stake Your WBTC LP Tokens for Yield Farming
- 7 Idea #5 – Support Decentralized WBTC Options
- 8 Idea #6 – Mint a DeFi Index like BTC++
- 9 Idea #7 – Shop for NFTs on OpenSea
- 10 Idea #8 – Cash Out on Coinbase
As the leading smart contract platform, Ethereum is great for tokenizing just about anything. That said, Ethereum’s ERC-20 token standard can be used to easily represent and make tradable atop Ethereum assets that are otherwise external to Ethereum, like bitcoin.
As such, we’ve seen a tokenization boom around BTC over the course of 2020 as Bitcoin and Ethereum have shined amid the cryptoeconomy turning decisively bullish for the first time in years.
For instance, according to the tracker site btconethereum.com there are currently +145,000 BTC tokenized on Ethereum, of which the vast majority — over 117,000 right now — are tokenized through the WBTC project.
To put WBTC’s rapid growth this year into perspective, check out the graph below and note how WBTC only surpassed its 20,000th unit milestone in August. That means the number of WBTC that have been minted has surged some 500% in just a matter of weeks!
And this flurry of activity is overwhelmingly circling around one thing, currently: Ethereum DeFi.
DeFi: the New Frontier
The DeFi ecosystem offers new ways of participating in finance, and all in decentralized fashion. These realities have made Defi catch fire within the wide cryptoeconomy this year.
Indeed, back in January DeFi projects had less than $1 billion worth of assets under management. Today and not even one full year later, the space is just shy of $15 billion AUM.
This DeFi boom has resulted from promising projects maturing, new projects arriving, and the blossoming of multiple distinct sectors, e.g. decentralized borrowing, decentralized lending, decentralized derivatives, and beyond.
In this environment, WBTC has surged in popularity as folks discovered new ways to put their bitcoin to work. Accordingly, let’s dive in and explore some of these top use cases and see if any pique your interest!
Idea #1 – Borrow Against Your WBTC
One of the most practical things you can do with your WBTC right now is permissionlessly borrow against it in lending protocols like Maker and Compound, with no paperwork or brick-and-mortar appointments required!
To illustrate why this utility is powerful I’ve previously used a hypothetical scenario around Bitcoin Pizza Day hero Laszlo Hanyecz, who infamously missed out on millions by buying two pizzas for 10,000 BTC in 2010. If Maker or Compound were around then, Hanyecz could’ve borrowed stablecoins against his WBTC to spend the stablecoins (and steadily repay the debt) on pizza instead of spending any WBTC, which might comparatively appreciate significantly in value going forward unlike USD-pegged tokens.
Simply put, then, if you want immediate liquidity and purchasing power without having to sacrifice your potentially lucrative BTC holdings, borrowing against WBTC in DeFi is certainly an interesting avenue to consider. You can even use your borrowings to go long by buying more WBTC!
Idea #2 – Lend Your WBTC
On the flip side of the DeFi borrowing equation is lending.
That means you can lend your WBTC out to other DeFi users, though admittedly the returns aren’t so great right now. Keep that in mind!
But if you’re purely interested in ways you can productively use your WBTC, then lending it is certainly one avenue to consider. Protocols like Aave and Compound are contenders here.
Idea #3 – Provide Liquidity to Protocols
Another cryptonative avenue that you can earn on your WBTC through is liquidity providing (LPing).
Let’s consider the top trading protocols presently, which are Uniswap and SushiSwap . These protocols’ WBTC pools are popular pools at the moment, considering how you can serve as an LP an earn significant trading fees through either avenues.
For example, the largest DeFi farm right now per total value locked (TVL) is SushiSwap’s WBTC/ETH pool. Rewards will rise and fall for this farm, but its 20% yearly returns at the moment are pretty sexy. Expect to see similarly attractive LP campaigns in the years ahead.
Idea #4 – Stake Your WBTC LP Tokens for Yield Farming
Let’s say you’re down with LPing but you don’t know what to do next. It’s time to check out staking then!
The process is straightforward: find a yield farm you’re down to LP for, and then participate in the farms you like by staking your LP tokens in any of the supported farms.
As for finding farms, I recommend the CoinGecko farming dashboard. This suite will help you easily find WBTC farming opportunities, at which point you can jump in as you please.
Idea #5 – Support Decentralized WBTC Options
Another option you can consider is providing WBTC liquidity to Ethereum-based derivatives projects like Hegic.
If you zoom in, Hegic is a decentralized protocol that lets you easily take out DeFi insurance policies on whatever whim you like. Since the DeFi derivatives scene is so young, the idea is that you serve as a WBTC LP and earn accordingly. But there are plenty of risks since the project is so young, so act accordingly.
Idea #6 – Mint a DeFi Index like BTC++
One of the biggest victories in DeFi this year has been around DeFi indexes, with several of the biggest ones of note centering around PieDAO’s recent offerings.
Accordingly, it’s totally straightforward for WBTC holders to want to mint their WBTC into a wider DeFi index offering, as such offerings are generally conservative currently.
Just keep in mind that there are certain fees in play that you’ll be charged if you want to slot into this conservative farm. If you’re down with these fees, then the future of Ethereum might be for you! Farm on, but farm smartly!
Idea #7 – Shop for NFTs on OpenSea
One of the premier NFT marketplaces right now is OpenSea, a general NFT marketplace that allows WBTC buys.
As such, if you’re so inclined OpenSea recently just activated WBTC buys and sells. This means for participating stores you can buy products, both physical and digital and more, and all in the form of NFTs. Be sure to check them out for the best deals possible!+
Idea #8 – Cash Out on Coinbase
Let’s say you have a stash of WBTC, and you’re ready to cash out. Coinbase is your friend here!
What I mean to say is that if you have some WBTC that you want to cash out for some fiat, then WBTC to USD is a very easy operation on Coinbase (or Gemini, or any firm that can facilitate crypto-to-fiat transactions).
Accordingly, you can hold onto your WBTC or cash it out as you will. The choice is up to you, but there’s always the chance of holding on until BTC is possibly worth much more!