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This Trader Is On The Brink Of Losing Money, Will Selling WBTC On Aave V2 Help?

A trader on Aave, a decentralized liquidity protocol operating on multiple platforms, including Ethereum and OP Mainnet, has begun selling wrapped Bitcoin (WBTC) to repay outstanding debt, records on October 13 reveal. WBTC is a tokenized version of Bitcoin issued on Ethereum that allows holders to engage in decentralized finance (DeFi) activities.

Trader Selling WBTC To Repay Debt On Aave v2

According to Lookonchain data, the unidentified trader marked with address “0x47ab” borrowed roughly $8 million worth of multiple stablecoins, including USDC, USDT, and DAI, Maker’s stablecoin, on Aave v2 after depositing various assets, including WBTC, Maker (MKR), and Ethereum (ETH) worth approximately $11 million.

When writing, the health factor of borrowed assets stands at 1.09, teetering close to liquidation. According to Aave’s documents, the health factor is a metric that compares the safety of collateral and borrowed loans to the underlying value. Technically, the higher it is, the safer the funds are from liquidation. If the health factor exceeds $1, deposited collateral will be liquidated to borrow outstanding loans. 

Health factor on Aave v2| Source: DeBank

Aave is a popular decentralized finance (DeFi) protocol where token holders can choose to supply liquidity and earn passive income. At the same time, users can deposit collateral and borrow overcollateralized loans, which they can repay at any time, provided the health factor is around 1. Since loans are overcollateralized, the collateral is usually higher than the borrowed amount.

Volatile Bitcoin Prices To Blame?

As it is, the trader, Lookonchain shows, has started selling WBTC to repay outstanding debt. A big chunk of what the trader supplied is in WBTC, standing at 366.56 WBTC, worth roughly $9.1 million at spot rates. 

Selling WBTC to repay Aave V2 loan| Source: Lookonchain on X

However, considering market prices have fluctuated recently, the contraction has impacted the health factor, increasing the risk of collateral liquidation. To counter this, the trader sold 3 WBTC for roughly $80,000. 

WBTC price on Binance| Source: WBTCUSDT on Binance, TradingView

The address still owes Aave V2 approximately $8.08 million, mostly in USDT, at around $5 million. There are $3 million of USDC and around $368,000 of DAI. It is unclear whether the trader will seek to borrow more, especially if Bitcoin prices increase.

The address remains long on MKR, the governance token of the MakerDAO protocol; Uniswap’s UNI; Chainlink’s LINK; and Ethereum. Besides WBTC, the trader’s second-largest holding is in ETH, while the smallest is MKR. Ironically, MKR has been one of the top-performing assets, rallying by over 160% in H2 2023 alone. The token peaked at $1,600 in early October before cooling off to spot rates.

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Poolin Reward Tokens Plummet In Response To China Bitcoin Mining Exodus

Following China’s bitcoin mining crackdowns, Poolin has suspended rewards for its tokenized hashrate contracts.

The wBTC and wETH rewards are on pause until “less than 60 days”, as per a blog post from Poolin.

Poolin Pauses Rewards For pBTC35A And pETH18C

Poolin’s tokenized hashrate contracts, pBTC35A and pETH18C, have all their wBTC and wETH rewards suspended until less than 60 days.

The reason behind the move is China’s ongoing crackdown on mining farms, which has forced miners around the country to migrate elsewhere.

The 60-days timeframe correlates to the migration time needed to move mining farms out of China.

As a consequence of the rewards payout suspension, holders are pulling out of the contracts in hordes.

Related Reading | Bitcoin Hash Rate Goes On Death Spiral Post China’s Crackdown On Miners

Here is how the pETH token price and volume chart looks like right now:

pETH price rapidly goes down | Source: Compass Mining Memo

The chart shows that pETH price has rapidly corrected following the announcement.

Similarly for pBTC, the below chart highlights the trend in its price and volume:

pBTC plummets following rewards suspension | Source: Compass Mining Memo

Two other notable takeaways from the graphs are that pETH hit a single-day $2 million turnover in volume for the first time ever, but pBTC only hit a monthly high.

The other high turnovers in pBTC volume were in the months of April and May. The first one corresponds to the coal mine flooding incident in Xinjiang that cut power supply to Bitcoin miners, while the second one was caused by the 21% difficulty adjustment.

The Poolin team plans to pack and transport their mining rigs to another location within 60 days, after which rewards are expected to resume normally.

Related Reading | Institutional Bitcoin Selloff Leaves Retail With Bloody Aftermath

It should be noted that while wBTC and wETH rewards are paused, Poolin is still offering rewards in the Mars token.

Mars is the platform’s native governance token, holders of which can usually vote on decisions relating to the platform.

However, for the decision of cutting out wBTC and wETH rewards, no Mars holder was able to vote. Poolin went forth with the initiative by themselves.

Bitcoin Price

Right now, Bitcoin is priced around $34k, up 2% in the past week, but down 7% in the last 30 days.

China’s latest mining crackdowns are also responsible for BTC’s latest crash. As BTC miners were also forced to shutdown their farms, and migrate elsewhere.

Here is a chart showing the trend in its price:

Bitcoin price chart

BTC seems to have stagnated around this point | Source: BTCUSD on TradingView

It’s hard to say where the price will be heading next. There is a possibility BTC is entering a bear market as a never-before wrong signal has been triggered.

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Nearly 1% Of Bitcoin Supply Is Now Wrapped In Ethereum

As wrapped Bitcoin approaches 189,000 BTC, the leading form of BTC on Ethereum now makes up for nearly 1% of the total supply of the cryptocurrency.

The total supply of WBTC was only around 4,000 coins last June, and today it is 47 times that. The gigantic growth has made the token the most popular form of Bitcoin on the Ethereum blockchain.

WBTC touches the 1% mark | Source: Arcane Research

Overall, around 240,000 BTC has been tokenized into Ethereum protocols, of which 80% of the supply comprises of WBTC.

Why The Need For WBTC?

Tokenized BTC is becoming increasingly popular because the Bitcoin blockchain lacks some functionality that Ethereum does not.

As the Ethereum DeFi ecosystem is highly lucrative, it’s not surprising that investors are looking to get their hands on some of those yields.

WBTC isn’t the only BTC token on Ethereum. HBTC and RENBTC are some of the other examples. However, only WBTC is noticing such massive growth.

Below is a chart that visualizes the difference between WBTC and other tokens:

WBTC runs away from the rest | Source: Dune Analytics

As is clear from the chart, the competition of the token is largely stagnant, and drastically lesser in circulation, making up for only 20% of the total BTC supply on Ethereum.

Related Reading | Privacy Protection: The Future of DeFi

BadgerDAO

BadgerDAO is a decentralized autonomous organization that aims to build the products and infrastructure necessary to bring Bitcoin as collateral to other blockchains.

BadgerDAO has played an important part in Wrapped Bitcoin’s rise above its competition. The platform currently has $632 million in tokens locked in.

There are 13 vaults (called “setts”) in total on the website where you can deposit your tokens. A lot of these setts are liquidity pairs of WBTC and some other token. As a natural consequence, not all the value is locked under the wrapped token.

Nonetheless, there is a WBTC-only sett that is powered by Yearn Finance. The vault is now the biggest one on the platform with about $200 million tokens deposited.

Badger offers quite low price-to-earning ratio | Source: BadgerDAO

The above chart is from a BadgerDAO report that shows that they have one of the lowest price-to-earning ratios when compared to other DeFI businesses.

Related Reading | Top 10 DeFi Projects in Q2 2021

Bitcoin Price

In the past 30 days, the value of the cryptocurrency has dropped by 14%.

However, the general trend seems to have changed towards up in this past week of June so far. Below is a chart showing the variation in the cryptocurrency’s value:

BTC seems to be on a slight upward trend | Source: BTCUSD on TradingView

As per a Voyager Digital survey, 87% of the respondents plan to buy more cryptocurrency in the coming months. 7 out of 10 respondents also believe market sentiment is bullish in the next three months.

However, other investors like Rich Bernstein feel that we are looking at a bearish market.