- The core driver of DeFi is its use case, not Bitcoin.
- “BTC is money, DeFi is banks, that’s how people should think about it.”
Bitcoin (BTC) and DeFi both had a great season. After the coronavirus-induced collapse of March, the price of bitcoin rose from USD 3,500 to just over USD 12,000 in August, while the total value locked into DeFi platforms increased from USD 1bn in June to almost USD 12bn in late September.
It’s intriguing to view the accomplishments of bitcoin and DeFi as connected. Given that the supply of wrapped bitcoin has inflated from wBTC 500 to almost wBTC 90,000 in the past 12 months, it would seem that bitcoin hodlers have been encouraging the maturity of DeFi.
Nevertheless, prominent industry analysts said that, while BTC has been a vital player in DeFi’s growth, its significance within the DeFi ecosystem will fade over time. And while some may be motivated to regard Bitcoin and DeFi as interdependent, numerous critics believe that each can survive without the other.
DeFi development backed by Bitcoin
There’s little scepticism that bitcoin — and in particular wrapped bitcoin — has spurred at least a portion of DeFi’s impressive growth over the past few months – USD 1.4bn worth of BTC is locked in DeFi today, or almost 13% of total value locked (TVL) in decentralized finance projects.
As data from Defi Pulse indicates, the demand for wBTC began rising exponentially from the end of June onwards.
And data also indicates, it was around the end of June that TVL into DeFi platforms suddenly began rising more strongly, as ethereum (ETH) locked in DeFi also jumped this past summer.
Industry figures agree that the two trends are connected, even if they have their own opinions on how long the interconnection may continue.
“Yes, I think the use of wBTC pair mining will boost the Defi market to a certain extent,” said crypto advisor and author Anndy Lian.
“According to the data released today (the second day of Uniswap Liquidity Mining), 50% of the miners used the wBTC/ETH pair in the initial mining, and most of them are big whales.”
Analyst and CryptoMondays Partner Lou Kerner suggested that bitcoin will remain an indispensable part of DeFi in the medium term, not least because it still accounts for over half of the total value of all cryptoassets.
“Given its scale, bitcoin will be an increasingly significant asset in DeFi. But over time, as real-world assets are tokenized and enter DeFi, bitcoin relevance will decrease,” he told CNWN.
However, while BTC has played a role in DeFi’s recent growth, ADVFN CEO Clem Chambers doesn’t see it as the main factor.
“Bitcoin will influence DeFi but it is not the core driver. The core driver is the powerful use case,” he said.
Bitcoin boosted by DeFi
Conversely, critics agree that DeFi is promoting BTC, or that it will happen soon. By allowing the chance to earn an additional return on the bitcoin you own, DeFi’s liquidity mining and yield farming is giving BTC seem even more engaging to investors, especially during a period of reduced economic chance.
“DeFi has made BTC even more attractive as an investment,” according to Kerner.
That told, Chambers estimated that most of DeFi’s boost to BTC still awaits us in the future.
“It will [boost bitcoin] but not yet. DeFi is still underground with only the core early adopters’ getting it‘,” he stated.
Apart from magnifying the returns offered by bitcoin, Anndy Liang pointed out that DeFi will also result in more and more bitcoins being locked up, “which will bring another bull market for bitcoin.”
Joint support, not the shared interdependence
While DeFi and bitcoin both help each other in various ways, commentators seem that they don’t believe that each needs the other to persevere.
“Bitcoin crashing would certainly slow the growth of DeFi, but one is not dependent on the other,” said Kerner.
Likewise, if DeFi were to collapse somehow, Interlapse CEO and Co-founder Wayne Chen said that BTC would proceed as before.
“Bitcoin has seen massive growth over the past decade and will certainly continue its momentum,” he told CNWN. “If DeFi collapsed, Bitcoin would still be Bitcoin and continue its growth and adoption.“
On the other hand, some believe that bitcoin crashing would have a severe effect on DeFi since even if parts of the DeFi ecosystem survived, altcoins would strive.
“Most of the ‘value’ coins will go to zero if the price of bitcoin crashed significantly or collapsed,” suggested Lian. “One thing is for sure: no coin (maybe tiny s***coins can) can survive if bitcoin collapses.“
The fate: similar but not critical
As for the more distant future, some experts believe that DeFi and Bitcoin will increasingly operate in parallel, rather than remain interlinked.
“BTC is money, DeFi is banks, that’s how people should think about it. The linkage is parallel not pivotal,” argued Chambers.
Chen claims that it’s in the interests of DeFi and Bitcoin that each maintains a degree of independence from the other in the future.
“Industry professionals will likely try to interrelate DeFi and Bitcoin. However, this needs to be done cautiously so that it doesn’t turn into a complicated financial product which can ultimately confuse the market,” he said.
Anndy Lian isn’t wholly sure that DeFi will be around in several years. However, if it is, he said there’s a chance other cryptoassets could emerge to reduce BTC’s influence on DeFi.
“But personally I do hope to see new players coming into challenge Bitcoin’s supremacy,” he said. “With challenges, there are improvements. This is what’s lacking in today’s crypto space.“