Coinbase’s cbBTC: A Potential Game-Changer for Solana DeFi

Bitcoin on the Blockchain: A Crucial Functionality

Bitcoin (BTC) remains a benchmark asset for trading, lending, and borrowing on centralized crypto exchanges. However, bringing this crucial financial functionality to decentralized finance (DeFi) on other blockchains requires extra effort. Essentially, someone must issue a token backed by and pegged to bitcoin on the chain.

The Lack of Bitcoin Representation on Solana

Nearly two years ago, FTX’s collapse blew a bitcoin-sized hole in Solana-based decentralized finance that hadn’t truly been filled – possibly until now. SoBTC, the last standard-bearer for trading bitcoin on Solana, mysteriously died with the fraudulent exchange in November 2022. This left the chain’s entire DeFi ecosystem without a widely recognized standard for trading bitcoin on Solana.

The Importance of cbBTC

Launched by Coinbase on Thursday, cbBTC is a token that lets traders swap in and out of bitcoin-backed tokens by sending them between the exchange and their Solana wallets. The ease of entry and exit has contributors at many Solana-based protocols hopeful that cbBTC can become a gold standard that ripples across the entire ecosystem.

A Potential Solution to Solana’s Bitcoin Problem

According to InfraRay, a contributor to popular Solana-based decentralized exchange Raydium, "Coinbase’s native issuance of cbBTC on Solana reduces the risk surface by half. We could see a surge of BTC liquidity on-chain, which could increase usage in many different DeFi protocols." Tom, an InfraRay contributor, added, "It’s early, but the hope is that robust liquidity for cbBTC could get some of those flywheels going."

A New Era for Solana DeFi?

Coinbase’s introduction of cbBTC has sparked hopes that it will spur more DeFi activity on Solana. Nearly two years ago, FTX’s collapse left a gap in the chain’s decentralized finance ecosystem. With cbBTC, Coinbase is trying to fill this role and make bitcoin available to traders on Solana.

Comparison with Other Bitcoin Tokens

Other companies have failed at creating a widely recognized standard for trading bitcoin on Solana. 21.co has less than $1.5 million worth of its 21BTC circulating in Solana DeFi, while Threshold’s tBTC hasn’t done much better. In contrast, Coinbase has nearly $10 million worth of cbBTC ready to deploy into Solana DeFi.

Kamino and the Potential for cbBTC

According to Kamino co-founder Marius Ciubotariu, "I think and hope it’s gonna be big. There’s no reason for most BTC DeFi stuff to happen on Ethereum." Coinbase has already deployed $500,000 of cbBTC in trading pools on Meteora and Orca and in a reserve on trading protocol Kamino.

Coinbase’s Strategy: Expanding Support to Solana

Coinbase hasn’t historically participated in Solana DeFi. CbBTC is its first token issued natively on the Solana blockchain. The exchange is much more involved in the Ethereum world, particularly via its own layer-2 network, Base.

The Decision Behind Launching cbBTC

A company spokesperson said, "Unlocking BTC utility for our customers across the on-chain economy is at the heart of our decision to launch cbBTC. Expanding support to Solana and potentially other chains gives our customers more options and aligns with our overall strategy of bringing billions of users on-chain."

The Impact of cbBTC on Trading Fees

Coinbase-to-Base bitcoin transfers are free; Coinbase-to-Solana bitcoin transfers cost 40 cents. However, this small fee might be worth it if cbBTC can become a widely recognized standard for trading bitcoin on Solana.

A Bright Future for Solana DeFi?

The introduction of cbBTC has sparked hopes that it will spur more DeFi activity on Solana. With nearly $10 million worth of cbBTC ready to deploy into the chain’s decentralized finance ecosystem, it remains to be seen whether Coinbase’s new token will become a gold standard for trading bitcoin on Solana.

Conclusion

Coinbase’s introduction of cbBTC has the potential to bring much-needed functionality to Solana DeFi. With its ease of entry and exit, contributors at many Solana-based protocols are hopeful that cbBTC can become a widely recognized standard for trading bitcoin on the chain. Only time will tell if Coinbase’s new token will succeed where others have failed.

References

• InfraRay contributor
• Tom (InfraRay contributor)
• Kamino co-founder Marius Ciubotariu
• Coinbase spokesperson
• Blockchain data