Every week, IntoTheBlock brings you an on-chain analysis of top news stories in the crypto space. Leveraging blockchain’s public nature, IntoTheBlock’s machine learning algorithms extract key data that provide a deeper dive into the major developments in the industry.
This week it’s all about the Ethereum ecosystem, and Bitcoin’s role within it. We start by covering the sharp growth in Bitcoin tokenized on Ethereum, specifically through the Ren Protocol’s renBTC. We then dive into the headwinds experienced with Ethreum’s Medalla testnet and its implications on Ethereum 2.0.
Bitcoin on Ethereum Gets Yield Farming Boost
The amount of tokenized Bitcoin on Ethereum has more than doubled in August. While Bitcoin-pegged ERC20s like wrapped Bitcoin (WBTC) have been around since January 2019, it wasn’t until this summer that they started to gain momentum. This growth has been largely as a result of DeFi protocols adopting tokenized versions of Bitcoin and providing users services on top of it.
In May of this year, MakerDAO led the way with the integration of WBTC as collateral, allowing users to mint DAI loans in return for locking their tokenized Bitcoin on their Oasis portal. Later in mid-June, BTC was introduced to yield farming through the partnership between Synthetix, Ren and Curve.
Through this initiative, users providing liquidity to tokenized Bitcoin pools (in the form of WBTC, renBTC or sBTC) were rewarded with SNX and REN tokens, while the Curve team committed to reward liquidity providers with their native CRV token once it got released.
This brings us to Curve’s unexpected CRV early release by an anonymous “chad.” Following confirmation from the Curve team that they adopted the CRV deployed, capital rushed into the Curve protocol. As a result, BTC tokens on Ethereum saw a spike in demand as users rushed to farm CRV with them. In turn, the total supply of Bitcoin locked and tokenized through Ethereum reached new highs approaching the 50,000 Bitcoin mark (over $500 million).
While WBTC is still the tokenized version of Bitcoin with the most BTC locked, renBTC has benefited disproportionately from Curve’s CRV yield farming. This has allowed renBTC to capture a greater market share of the total amount of Bitcoin on Ethereum, growing to over 20% from 10% in June based on data from DeFi Market Cap. This may have to do with Ren’s trustless method of tokenizing Bitcoin — as opposed to WBTC’s custodial approach — which better aligns with the ethos of decentralization in the community.
Following the anticipated, yet unexpectedly early release of CRV, liquidity quickly flowed into Curve as yield farmers seeked to receive liquidity mining rewards. Within a few days, the TVL in Curve surpassed the $1 billion mark, making it only the third protocol to achieve this milestone. While much of this was fueled by stablecoin deposits, tokenized Bitcoin deposits actually grew at a faster rate following the launch.
As can be seen in the graph above, the dollar amount of tokenized Bitcoin locked in Curve quickly grew from $45 million to over $200 million within four days. In other words, the total amount of Bitcoin locked in Ethereum more than quadrupled within four days.
While such parabolic growth may lead one to believe that people are “FOMOing” to farm CRV with their Bitcoin, IntoTheBlock’s data shows that most likely it is only a few whales and institutional investors leading this trend.
IntoTheBlock’s Large Transactions Volume indicator aggregates the total dollar amount transferred in transactions of over $100,000 within a 24-hour period. By filtering out smaller transactions, the Large Transactions Volume metric acts as a proxy to the total amount transacted by whales and large players.
As can be seen in the graph below, the total amount of large transactions volume per day in renBTC was near-zero throughout most of June. This quickly changed following the release of the CRV token.
The large transaction volume seen in renBTC grew from $2.5 million to over $140 million within three days of the CRV launch. While certainly not all of this volume ended up locked in Curve, its native token release evidently acted as a catalyst spurring large players to get into renBTC. This trend can be corroborated by looking at the average balance of a renBTC holder.
With this indicator reaching over $300,000 on August 17, it is safe to say that it wasn’t average crypto traders that led the growth into renBTC. Instead, it is likely that institutional players are stepping into DeFi as yield farming expands beyond “traditional” Ethereum tokens and attracts a new wave of whales.
Overall, while $500 million in Bitcoin locked in Ethereum seems like a very high amount — considering it was at under $10 million at the beginning of the year — this trend may just be getting started. Currently just over 0.25% of Bitcoin’s circulating supply is represented by a tokenized version on Ethereum. As yield farming and other incentive schemes offer a decentralized way for BTC holders to earn on top of their holdings, it is likely that Bitcoin’s journey into DeFi is just getting started.
Ethereum Medalla Testnet Issues Not Expected to Affect ETH 2.0
As the anticipated phase 0 of Ethereum 2.0 approaches, the Ethereum community recently launched its final multi-client testnet, Medalla. The name, which translates to “medal” in Spanish, pays tribute to the original ETH1 testnet Olympic released back in May 2015.
As reported in Decrypt, the Medalla testnet, which has over 26,000 people operating nodes, is an open network implementing the proof of stake upgrade. Multiple teams are running different implementations of Ethereum 2.0 through it, mostly by community members with the Ethereum Foundation, with Ethereum clients only having a minor stake in it. However, after a couple of weeks running, the Medalla testnet faced major issues due to a critical bug.
In short, the issue consisted of nodes not being able to sync with respect to their time. As a result, certain nodes’ times were reporting to validate transactions as much as four hours into the future. Trying to correct this issue, participants in the testnet were asked to restart their nodes to update to the latest version. Unfortunately, this ended up causing everyone trying to sync with the chain without anyone actually being able to do so, basically creating a situation like “finding a needle in a haystack,” as described by Raul Jordan from Prysmatic Labs.
Contrary to what was reported in several articles, though, the Medalla testnet did not stop working, with blocks still being produced and node operators only losing fake money. By working through these issues, participants claimed to have made remarkable progress, leaving them and the testnet in a much more robust state. Since then, the issues have been solved, with the testnet reliably running with over 75% participation from nodes. Most importantly, the mishap experienced is not expected to further delay Phase 0’s vague Q4 target release.
Key on-chain indicators remained strong despite the headwinds faced with the Medalla testnet. In fact, the total number of addresses holding Ethereum surpassed 45 million for the first time on August 20.
This milestone further elevates the number of addresses holding Ethereum from that of Bitcoin. At the time of writing, there are 31.24 million addresses with a Bitcoin balance, meaning that Ethereum is by far the crypto-asset held by most addresses. It is important to consider, though, that one address does not necessarily equate to one user.
Additionally, there has been a continued trend amongst ETH holders withdrawing their tokens out of centralized exchanges. Using IntoTheBlock’s exchanges Net Flows indicator, we can assert that more ETH has been leaving than entering exchanges over the past few months.
Since IntoTheBlock’s Net Flows indicator looks at over 85% of the ETH believed to be held by centralized exchanges, the decrease of over $55 million in exchanges’ reserves over the past 30 days shows a clear trend of users withdrawing their tokens. This trend potentially signals that ETH holders are opting to either use their ETH to pay for gas in order to use decentralized protocols or to hold their ETH long-term in cold storage.
Despite the issues experienced with the Medalla testnet, Ethereum holders keep showing interest and optimism for ETH as evidenced by key on-chain indicators. While this does not guarantee that the initial phase of Ethereum 2.0 will not get delayed, it does highlight the high community support in spite of the technical issues and frequent postponements of the release. Ultimately, it is yet to be seen if they are able to meet the Q4 tentative target, but Ethereum’s bustling community is likely to persist regardless.
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