MakerDAO is now allowing users to bring their Bitcoin to the Ethereum blockchain.
Wrapped Bitcoin—an ERC-20 token that is backed on a 1:1 basis with BTC—is now being accepted as collateral for crypto loans.
It’s a significant development, not least because the crypto community has lamented the lack of a bridge between BTC and ETH for some time.
Back in March, Ethereum co-founder Vitalik Buterin had called for a decentralized exchange to be established so swaps could take place with ease.
“It’s embarrassing that we still can’t easily move between the two largest crypto ecosystems trustlessly,” he tweeted at the time.
A fiddly process
A milestone though it may be, the process of “wrapping” Bitcoin isn’t as straightforward as exchanging dollars for pounds.
Users first have to create an account on CoinList, go through Know Your Customer checks, “wrap” their BTC so it becomes an ERC-20 token, and then send it to a compatible crypto wallet.
This wallet can then be connected to Oasis, where the WBTC can be placed into a vault. After a brief lie down, borrowers can then take out a loan in DAI, a stablecoin that is pegged to the U.S. dollar.
An ‘exciting’ development
WBTC’s approval was secured after holders of the MKR governance token took part in an executive vote on Sunday, May 3.
It is the fourth collateral asset to be accepted through the Maker Protocol, alongside Ether, Basic Attention Tokens and USDC.
“WBTC will help bring greater liquidity to the Ethereum and decentralized finance (DeFi) ecosystems, and to decentralized exchanges (DEXs,)” the Maker Foundation said in an announcement.
Early on Monday morning, figures from DAI Stats showed that nearly 76,780 DAI had been minted using WBTC as collateral, with 25.8 WBTC locked into vaults.
Although it’s early days, just 0.06% of DAI has been minted using WBTC. BAT, which was added as a collateral asset in November 2019, is only 0.39%. About 12% of DAI is minted using USDC, impressive given how the stablecoin only started being accepted as a method for backing loans back in March. The lion’s share of DAI—87.4%—is minted using ETH.
According to DeFi Pulse, $825 million in value is currently locked in decentralized finance protocols. Enthusiasts will be hoping that Wrapped Bitcoin’s arrival will help bring a substantial amount of new capital into the marketplace. However, it is worth noting that WBTC currently has a circulating supply of just 1,125—a tiny fraction of the total Bitcoins in existence. At present, the token is ranked at No. 323 on CoinMarketCap with a total capitalization of under $10 million.
One day before wBTC was voted in by MakerDAO governance token holders, Thesis CEO Matt Luongo formally proposed that the Maker Foundation add tBTC as collateral on the MakerDAO lending platform.
As project lead of tBTC, Luongo said it is a superior Bitcoin-to-Ethereum bridge token, as it dispenses with centralized third-party custodian like wBTC, as well as custodial federations like Liquid.
In the Aug. 16, 2019, twitter thread announcing tBTC, Luongo said that while “Liquid and WBCT are pragmatic approaches,” he added that they are fundamentally “broken, exposing users to risks of censorship and theft of funds. These aren’t acceptable tradeoffs, and they’ve kept us from better scaling and building with Bitcoin.”
Instead, tBTC creates a randomly selected custodial federation for each bitcoin deposited. It does this through the Keep Network, an Ethereum privacy layer. Luongo is project lead of Keep, which is backed by Andreessen Horowitz, Polychain Capital, and Draper Associates, among others.
The Maker Foundation is still smarting over the fateful events of “Black Thursday” in March, when a sudden crypto crash led to mass liquidations of collateral, with bundles of ETH sold off for zero-dollar bids.
A class action lawsuit was filed in April that seeks $28 million. Disgruntled investors who lost out on Black Thursday claim that, although Maker said “certain measures were in place to prevent significant investor loss,” the foundation “misrepresented the actual risks they faced.”
In any case, the Maker Foundation doesn’t envisage being around for too much longer. At the start of April, proposals were unveiled that would enable the “completely pointless” organization to dissolve over the next few years.
Founder Rune Christensen said it was time for the Maker ecosystem to become truly decentralized and self-sustaining—adding that the foundation had become increasingly irrelevant because the MakerDAO community can largely handle everything on its own.