First Mover: Tron's Play for WBTC Shows Competition to Relieve Ethereum Congestion

Competition builds in market for tokenized bitcoin, used to get extra profit off holdings of the cryptocurrency recently denigrated as a "pet rock."

By Bradley Keoun, Omkar Godbole

Sep 25, 2020 at 1:08 p.m. UTC

Updated Sep 14, 2021 at 10:00 a.m. UTC

MOSHED-2020-9-25-8-0-24 — Bitcoin has been likened to a "pet rock," but tokenization allows it to be deposited for interest in DeFi applications on the Ethereum blockchain - and now Tron too.

Bradley Keoun

Omkar Godbole

Compared with the traditional financial system, the cryptocurrency industry is evolving fast. Technologists are experimenting with the vast-reaching potential of blockchain. And regulation is typically immature, inconsistent and unevenly applied across international borders, allowing entrepreneurs to move fast and break things, as it were.

But there's also no shortage of competition. The latest example comes from CoinDesk's Ian Allison, who reported Thursday that Tron, the three-year-old blockchain headed by Justin Sun (the crypto executive who paid $4.5 million to have a meal with Warren Buffett), has entered into a strategic alliance with custody specialist BitGo to accommodate wrapped bitcoin (WBTC) tokens.

Wrapped bitcoin is a tokenized version of the largest cryptocurrency, reformatted so it can move easily on a non-Bitcoin blockchain. It's become popular among users of the Ethereum blockchain partly because traders can deposit the tokens in various decentralized finance or "DeFi" applications to receive juicy interest rates. Bitcoin doesn't pay interest or dividends, a fact that sometimes draws comparisons to a "pet rock." So DeFi is one of the main places that holders of bitcoin can go to make money off their holdings, aside from the usual speculative price gains.

As documented recently by CoinDesk's Will Foxley and Zack Voell, tokenized versions of bitcoin, including WBTC, now total more than $1.1 billion. Just Thursday, the cryptocurrency fund Three Arrows minted some 2,316 WBTC tokens, the largest-ever single issuance, for use on the Ethereum blockchain, Voell reported. Later in the day, Sam Bankman-Fried, CEO of the crypto fund Alameda, tweeted an Ethererum blockchain data scan suggesting that a new transaction had occurred to break that record.

The past few months' explosion in DeFi, with the debut of automated trading platforms like Uniswap and copycat SushiSwap, has jammed the Ethereum network with congestion, driving up transaction fee rates and prompting rival blockchains to offer competing venues for developing new applications.

Now Tron apparently wants a piece of the thriving DeFi business. “Our new strategic alliance with Tron creates even greater opportunities for users to expand to other chains and tokenize their BTC," BitGo CEO Mike Belshe said in a statement. That means "transacting at a lower cost and faster speed.”

There is so much more development and activity taking place on Ethereum that DeFi traders are unlikely to decamp en masse to Tron. But it's good for the industry that they have the option.

Bitcoin Watch

Bitcoin's 5% gain on Thursday confirmed its biggest single-day percentage gain since July 27.

While the recovery from weekly lows near $10,200 has been impressive, the immediate bias remains neutral. That's because the cryptocurrency has yet to violate the three-week trading range of $10,000 to $11,000.

A big move could happen soon, since the one-month implied volatility has declined to 44%, the lowest level in nearly two years, according to data source Skew. In the past, an implied volatility of 50% or below has consistently paved the way for violent price action.

The gauge is now closing on the record low of 35% seen just ahead of the big crash from $6,000 to $4,500 seen in the second half of November 2018.

- Omkar Godbole

Token Watch

Ether (ETH): Traders might be using options market to hedge price risks of ether locked in DeFi liquidity pools.

Bitcoin (BTC): Options open interest hits record $2.1B with notional value of $1B set to expire Friday, potentially triggering volatility.

Wrapped Bitcoin (WBTC): Three Arrows Capital mints 2,316 of the Ethereum-ready tokens, single largest issuance.

Avalanche (AVAX): Tokens in smart-contract platform (and Ethereum competitor) shoot up to $4 each, providing fast paper profit for investors who bought in just two months ago at 85 cents each in a $42M fundraise, Messari says.

Uniswap (UNI): Users claim 78% of existing UNI supply in first week, though Glassnode Insights op-ed argues that transition toward token-based governance via the UNI token falls far short of true decentralization.