(Bloomberg) — As Bitcoin rallied to its highest level in almost three years, it was getting some unlikely support from advocates of its biggest rival.
Fans of decentralized finance, or DeFi applications, which strive to let people lend and borrow without intermediaries, are using Bitcoin as collateral on the Ethereum blockchain. In so-called Wrapped Bitcoin, or WBTC, transactions users are placing the coin into popular apps like Compound that are generating returns even greater than the almost 90% gains posted this year by Bitcoin.
To get WBTC, an investor deposits Bitcoin with custodian BitGo Inc., which keeps them in a central depository as they are used to invest in DeFi apps. About 0.6% of all minted Bitcoin is already “wrapped” this way, and in two years, the amount could reach 10%, according to Chen Fang, chief product officer at BitGo, which helped launch the product in early 2019