Everyone Wants to DeFi, Soaring WBTC, USDC Rates Rise

Good morning defiers! Today's newsletter is full of charts:

  • Everyone wants to DeFi, but so far they just aren’t

  • Demand to borrow Circle’s stablecoin USDC is rising

  • DAI is slipping below its peg as supply increases

  • Wrapped Bitcoin (WBTC) supply shot up


Everyone Wants to DeFi!

“DeFi is for Bitcoin too,” writes journalist Kyle Torpey, “DeFi Coming to Cosmos,”sits at the top of a recent Medium blog post, while crypto exchange Huobi plans to launch its “DeFi chain,” and who can ever forget the sight of this at Consensus this year.

Decentralized finance has been largely an Ethereum phenomenon, which started gaining traction when borrowers generated an exponential amount of collateralized loans on MakerDAO at the end of last year, and other projects offering financial services mushroomed.

Still, just because DeFi started with Ethereum, (though, of course, the very first DeFi application was Bitcoin as peer-to-peer money), it doesn’t mean that it can’t grow elsewhere. So far though, it just hasn’t.

This chart includes projects in Kevin Ong’s Awesome Decentralized Finance list, Defi Pulse and Defi Review. It’s very likely I’m still missing a few projects, but doubt the picture would change much.

The reasons why Ethereum is taking up so much of DeFi are well known.

1) The platform is Turing complete, which means it can run pretty much any computer program. This makes its applications more vulnerable to hacks and bugs, but it also allows the flexility required for complicated financial structures. Bitcoin’s smart contracts are limited to the few functions in its scripting language and its UTXO accounting model also decreases flexibility. 2) It’s one of the most decentralized chains, with similar node count to Bitcoin. This is important in financial applications as users aren’t likely to transact in a chain whose validators can collude. 3) Importantly, it has the largest developer community.

But that doesn’t guarantee much and history is full of examples where the early leader eventually falls behind. In addition to the existing chains trying to do DeFi, there are dozens of teams building Ethereum killers that will do that as well. Increased competition will only help push the space forward.

Demand to Borrow USDC is Rising

Yay, more DeFi data! LoanScan yesterday released reference rates for lending and borrowing on DAI, ETH and USDC.

The first thing I notice is that rates for Circle’s dollar-backed USDC are climbing. It points to increasing demand to borrow USDC.

“Most traders do not have a strong preference whether a stablecoin is censorship resistant or not,” said Vitaly Bahachuk, LoanScan and Bloqboard co-founder. “They just want to trade liquid markets.”

USDC liquidity on decentralized exchanges is increasing after dYdX launched ETH/USDC trading pair, Bahachuk said. That’s causing demand for USDC to increase and interest rates to rise. Rates are also tending to converge with DAI borrowing costs, which have been slowly decreasing.

DAI Slipping Below Peg

Speaking of DAI, it’s slipping below its $1 peg. MakerDAO’s stablecoin is trading at 98 U.S. cents, while DAI supply increases to the highest since April, when MakerDAO started hiking rates more aggressively. Maybe it will be time to do the same soon.

Demand for the Ethereum-Based Version of Bitcoin Shot Up

Wrapped Bitcoin, the Ethereum token linked to and backed by bitcoin, is becoming more popular.

Total bitcoin exchanged for WBTC jumped by over 60 percent in the past 24 hours to a record 528 bitcoins, or almost $6 million, according to Defi Pulse.

It could be investor demand, but it may also be exchanges loading up on WBTC, in case demand picks up.

“Otherwise if the exchange volume took off and WBTC demand was low, it could break the trades on the platform,” said TokenSoft CEO Mason Borda.

To be sure, the total is still small. About twice as much value is locked in the Lightning Network, though that amount has been sliding, according to DeFi Pulse.


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