According to data from Dune Analytics on July 24, the amount of Wrapped Bitcoin (wBTC), a synthetic form of Bitcoin, circulating on Ethereum has fallen by 44% since May 2022. In July 2023, wBTC circulating on Ethereum stood at approximately 158,000 BTC, a sharp decline from 282,000 BTC recorded in May 2022.

Interestingly, on-chain records also showed that the amount of wBTC minted and circulated in Ethereum, primarily for decentralized finance (DeFi) purposes, continued to rise in the first five months of 2022. It peaked in May 2022 amid a market-wide contraction of crypto prices that saw Bitcoin cool off from 2021 peaks of over $69,000.

BTC On Ethereum Falls

Bitcoin holders often tokenize their coins, converting them into ERC-20 tokens in Ethereum to participate in various DeFi activities. These engagements may include staking to increase returns, yield farming to maximize returns, lending, and borrowing to receive USDT or DAI and other coins through platforms like MakerDAO.

Among the popular tokenized Bitcoin are wBTC, renBTC, tBTC, and others. However, as of July 24, a significant percentage of tokenized Bitcoin in Ethereum was wBTC, with over 158,000 tokens circulating. Users also chose other platforms to mint hBTC and renBTC.

The decline in tokenized Bitcoin highlights the general state of DeFi in Ethereum and other platforms, including BNB Chain, Avalanche, and Polygon. As of July, there has been a marked decline in DeFi activity over the past year from the number of assets locked in various protocols across the ecosystem.

DeFi Activity Decimated By Bears

DeFiLlama data on July 24 shows that the total value locked (TVL), an indicator of demand, has contracted from over $177 billion registered in November 2021 to less than $50 billion. Even so, while DeFi TVL has remained below $50 billion in 2023, most DeFi activity still revolves around Ethereum, highlighting its dominant position in the DeFi space. Data shows that Ethereum’s share of the total TVL is over $24 billion, a more than 50% share.

The drop in DeFi activity can be primarily attributed to the crypto winter of 2022, a period of bearish market sentiment and reduced overall crypto market activity, which forced most asset prices to lower. Among the coins adversely affected by bears was ETH, the native currency of Ethereum, which fell from around $4,800 to as low as $1,100.

During this time, tokens of top DeFi protocols, including Uniswap, posted deep losses. After peaking at around $45, UNI, the governance token of Uniswap, crashed to as low as $3 in the last bearish cycle.

Beyond the effects of falling crypto prices in 2022, the relatively high fees in Ethereum have also impacted DeFi activity. Trackers on July 24 show that sending a simple ETH transaction attracts a $1.86 fee. Meanwhile, the same transaction costs cents in competing protocols like Polygon or Avalanche. Presently, a simple transfer via Polygon zkEVM, for instance, is $0.09.