The Rise and Challenges of Pegging BTC in the Ethereum Ecosystem

Bitcoin and Ethereum, as the two giants in the cryptocurrency space, have long had differences in their monetary attributes. Bitcoin is typically regarded as a foundational currency, with "digital gold" and "the anchor of the crypto world" being its main positioning. In contrast, Ethereum's monetary attributes lean more towards application-oriented, with practitioners often focusing on high-level "monetary applications," such as over-collateralizing ETH to create "derivative currencies."

However, the recently booming DeFi seems to have broken this subtle division of labor, even allowing Ethereum to trend toward a dominant position in the role of currency: the ERC-20 format of Bitcoin, namely "anchored BTC", has rapidly expanded in the past few months, especially in the just concluded July, where the issuance of anchored BTC surged by about 70%. According to statistics from data platforms, as of August 5, the total issuance of anchored BTC in the Ethereum ecosystem has reached 20,472 coins, approaching 1% of the total Bitcoin supply and accounting for 0.59% of the total market value of ETH.

From the internal composition anchored to BTC, as of August 5, wBTC occupies an absolute majority with a issuance share of 75.8%, while Ren BTC and sBTC rank second and third with shares of 11.2% and 4.89% respectively. Together, these three account for more than 90% of the issuance share, highlighting their important position in the BTC anchoring field.

From on-chain metrics analysis, these three BTC-pegged assets are leading in total address count, active address ratio, and large transactions. In July, the total address count for renBTC saw particularly significant growth, with a 30-day increase of up to 111%; wBTC's total address count increased by about 17% over the same period. In terms of active address ratio, all three BTC-pegged assets outperformed ETH during the same period, comparable to USDt-erc20, with renBTC being the most outstanding, achieving an average active address ratio of 42.78%.

Behind the explosive growth of BTC, there are two key factors driving it. First, in May, MakerDAO included wBTC as collateral for generating DAI through a community proposal. This decision greatly enhanced the development potential of DAI, and the daily active addresses of wBTC doubled in a short period. Secondly, the "liquidity mining" craze initiated by Compound and prevalent on platforms such as Curve, Synthetix, and REN has propelled the development of the entire BTC-pegged sector.

Despite the remarkable growth momentum of pegged BTC, its development still faces numerous challenges and limitations. The primary issue is insufficient scalability, as the development of pegged BTC is closely related to the DeFi ecosystem, which currently only accounts for 1.5% of the total cryptocurrency market value, and pegged BTC's share in DeFi is only about 0.5%. Furthermore, various issuance mechanisms of pegged BTC also somewhat limit its scale expansion.

Secondly, the entire process from generation to transfer and then to participating in yield farming remains relatively complex, with high potential risks, which undoubtedly hinders more users' participation. At the same time, the anchoring of BTC also faces the problem of premature centralization, with the average whale holding rate of major BTC anchors reaching as high as 92%, which is obviously not conducive to the application of related tokens in broader scenarios.

In addition, the anchoring of BTC has also sparked some controversy. Some believe that this trend may lead to a decrease in on-chain transactions of BTC itself, thus affecting miner revenue and network security. However, others hold a different view, believing that anchoring BTC is beneficial for both Bitcoin and Ethereum, as it can expand Bitcoin's applications and value storage status while enhancing the economic activity and liquidity of the Ethereum network.

In the past week, key on-chain indicators anchored to BTC, such as the number of active addresses and transfer volume, have shown signs of fatigue and even a downward trend. Against the backdrop of the gradually fading enthusiasm for liquidity mining, whether this rapidly emerging asset class can continue to develop steadily remains to be observed.