With the launch of tBTC and other networks, BTC is coming to Decentralized Finance in the next 6 months. Hard, programmable money will be attractive for Bitcoin holders. What impact will it have on the Bitcoin, Ethereum and crypto ecosystems at large?
Bitcoin's hard money properties make it fantastic as collateral. Also, the total market cap of Bitcoin could bring a huge flow of value into Ethereum. Many Bitcoiners will bring their Bitcoins across to make use of programmability and increase their profits.
A naive analysis would suggest that BTC will increase in price as a result of this development. Greater utility for bitcoins should increase demand for both BTC itself and a tokenized form. At the same time, available bitcoins should be harder to get. Individuals will prefer to keep them locked and generating passive returns.
BTC holders will also have access to decentralized industries like—
New opportunities may emerge for BTC holders. When making a BTC deposit into tBTC, depositors receive a Deposit Owner Token. Could these be monetizable? Or used as a bond?
Networks like tBTC also represent opportunities for Bitcoin developers. tBTC Signers take custody of bitcoins on behalf of Depositors. This could be an interesting opportunity for developers familiar with Bitcoin. They can earn signing fees in BTC outside of a KYC environment.
Bitcoin has a far greater market cap than Ethereum. An order of magnitude greater. Its hard money features make it fantastic as collateral. So an ERC-20 version of it might become the go-to collateral vehicle for DeFi.
This wouldn't be an instant change. But as developers plot out new collateral mechanisms, TBTC should become one of the first tokens supported.
The amount of collateral locked in Ethereum DeFi does not directly affect the price of ETH.
Why is this? It seems counter-intuitive at first. Well, let's analyse Ethereum like a business. What service does Ethereum provide? Smart contract execution. As demand for smart contract execution goes up, so should the price of ETH.
We can deduce that collateral lockup doesn't increase smart contract execution. So if we lock up large amounts of BTC on Ethereum, it won't increase the price of ETH?
Not directly. But my suspicion is that it will boost the price indirectly. Such a big inflow of value will boost lending and liquidity. These in turn will increase the funds available for other applications. Demand for smart contract execution will go up and so will ETH price.
How could BTC on Ethereum impact the race for smart contract supremacy? Will it help the platform keep its dominance?
Difficult to say! One thing is for sure, though. If these cross-chain bridges work, BTC is coming to all the smart contract platforms. This means it isn't a long-term advantage to Ethereum.
I expect this change to breathe new life into many projects. That includes established projects like Maker as well as emerging ones.
BTC coming to Ethereum feels a bit like a garden which has had very light rain falling on it for the past few years. Then 💥 it starts to rain more heavily. A new spring. Imagine what that does for the growth of the plants and wildlife? So many more pockets for shelter and nutrition. The rain in this metaphor is value flowing through Ethereum. The increase in rain is BTC's behemoth market cap moving over the tBTC bridge.
How can we track to verify if this has happened? Amount of TBTC minted is an obvious measure. So is the amount of liquidity. But we'll need to rely on gut instinct to know for sure. I'll be looking for projects which have been on the edge of taking to off to do so. I am looking for middleware protocols like oracle and query protocols etc.
I also expect to see networks buckling under pressure they haven't seen before. As established networks see increased usage how will they do? What will happen to their security and performance? What new issues will emerging networks encounter? Expect new degrees of value flow to test these platforms.
The effect of TBTC on the Ethereum network isn't limited to a one-off impact though. tBTC opens up a new channel of value flow for as long as these networks are live. So as we turn into a new bull phase of the market cycle, we can expect much more of the new BTC value to flow through into Ethereum. As time goes on we'll see a multiplication of the impact that we see in the first few months of launch.
One project in particular that is set to benefit from tBTC is the Keep Network. tBTC uses Keep for several services. Those include a random beacon for selecting signers to custody BTC as a group. tBTC and Keep are set to launch at similar times. Could Keep be launching alongside its killer app? A cornerstone of the crypto ecosystem? If tBTC works, Keep could see significant value reflected in its market cap.
Bitcoin is the gateway to crypto. It's the easiest cryptoasset to move into from fiat. BTC also has the most to liquidity across all other pairs.
DeFi'd BTC has a much stronger appeal than vanilla BTC. How much easier will it be to convince non-crypto holders now? Instead of "you'll get rich!" or "it's non-state money, man" it's "earn interest with nice UX" and "get an instant loan". TBTC could help bring in a meaningful new wave of adopters.
I'm curious to see what happens when Bitcoin and Ethereum become more entwined. Will BTC/ETH maximalist tensions subside? tBTC may be a cultural bridge as much as a technological one.
The big argument between different tribes has been because they seen one another as a threat. BTC may prove itself a better form of collateral but this will benefit the Ethereum ecosystem. This should clarify to members of both networks that they're not in competition and that the 2 networks make one another stronger. Looking forward to see how this plays out!
Rebase recently launched full coverage of the tBTC network.
Do you have thoughts on the impact tBTC could have? Or just want to stay up-to-date with what we're upto?