ConsenSys: BTC Tokenization and Yield Farming Drives DeFi Growth

The growing tokenization of Bitcoin and the emergence of yield farming has propelled the growth of the decentralized finance sector over the past three months according to ConsenSys.

The second quarter report into Ethereum-based DeFi emphasizes the significance of the total number of tokenized BTC overtaking the sum of BTC on Bitcoin’s own layer 2 scaling solution, Lightning Network.

Wrapped Bitcoin (WBTC) represents more than two-thirds of the tokenized BTC on Ethereum, but the report notes there has been a recent proliferation of Bitcoin tokenization protocols. Around 3,000 of more than 11,000 BTC on Ethereum was tokenized through renBTC, sBTC, imBTC, and hBTC.

“Cross-chain interoperability is anti-maximalist, but is more likely the future of blockchain,” the report asserts.

Yield Farming drives DeFi adoption

The report also notes the increasing popularity of ‘yield farming’ — the generation of passive returns through systematic lending of crypto assets across various DeFi protocols.

The launch of Compound’s governance token in June was a major catalyst that sparked increased interest in yield farming, with daily active DeFi users and the sum of Ether locked in DeFI protocols surging late in the month.

However, ConsenSys’ data indicates that the popularity of yield farming has failed to attract large numbers of new users from outside of the DeFi sector, with nearly 2,000 ‘super users’ representing a large share of activity in the space.

Major hacks rock DeFi in 2020

The report highlighted major security incidents targeting DeFi platforms Uniswap, Lendf.me, and Bancor. 

On April 18, $340,000 was stolen from Uniswap through a reentrancy attack vector that compromised Tokenlon’s ERC-777 token that underpins its imBTC protocol. 

The following day saw $25 million stolen from Lenf.me after a similar attack, however, the funds were returned after the hacker accidentally leaked their IP address which resulted in subsequent negotiations between the platform and its attacker.

On June 28, Balancer suffered a loss of roughly $450,000 when a hacker exploited an incompatibility between ERC-20 ‘deflationary tokens’ STA and STONK and Balancer’s underlying smart contract.

Collectively, the three attacks resulted in over $26 million being stolen, however, the majority of the funds were returned after the funds stolen from Lendf.me were returned.

“Security incidents are inevitable in emerging technology,” ConsenSys concluded, noting that “the DeFi community continues to develop strategies to hedge against it.”