The “pumping” of Bitcoin liquidity into DeFi protocols, exchange products, and custodial services is a “vampire attack” on the network and threatens its security, according to a researcher nicknamed Duo Nine.
"Bitcoin is in trouble. If nothing changes soon, the situation will not be pleasant. I am not talking about the halving schedule or block rewards, this is much more serious," the expert said.
He noted that the network security is provided by miners, whose share of commissions in income should grow over time. However, trends are developing in the ecosystem of the first cryptocurrency that lead to a drop in real on-chain activity.
One of the trends Duo Nine named "wrapped" bitcoins, which are becoming increasingly widespread in the decentralized finance sector. At the same time, the native coins that provide these tokens actually remain immovable in their own network, and liquidity and fees flow into DeFi projects on Ethereum and other blockchains.
"BitGo has wBTC, Coinbase has cbBTC. Kraken launched kBTC, and Threshold launched tBTC. Do you think this will just stop? What will happen in 10 years?" the researcher asked.
The problem in question concerns spot Bitcoin ETFs that were approved in the US at the beginning of the year. Eleven exchange structures have accumulated a total of more than $20 billion in the first cryptocurrency.
All of these coins sit idle with custodians as traders buy and sell ETF tokens, and the value is “exported and abstracted from the native network.”
The same aspect applies to the storage of bitcoins accumulated by corporations like MicroStrategy in their reserves.
According to Duo Nine, the presence of third-party custodians in these schemes threatens to lose the benefits of digital gold as trustless money.
“BlackRock, Coinbase, wBTC or cbBTC are selling you an IOU that literally means ‘I owe you’ and giving you a worthless token in return,” the expert noted.
To keep the network secure, he recommended storing bitcoins yourself and using the blockchain as much as possible, including “edge cases” like Ordinals or Runes.
Duo Nine acknowledged that the problems he identified do not pose an immediate threat to the network; block rewards will be able to support miners' income for the next two decades.
In the comments, the researcher was retorted that it is more about the threat of storing cryptocurrency with third-party custodians. The attractiveness of coin mining is regulated for the most part by the mining difficulty mechanism.
Regarding the decline in on-chain activity, users noted that in the described scenario, “native bitcoins” will become more scarce, which will lead to an increase in price.
"Interesting! But can't tools like Runes and Ordinals evolve to the point where DeFi, DePIN, and other features can run natively on L1? Taproot was a big step, and now OP_CAT will give the network an even bigger boost if approved," wrote the Tanssi Network developers.
Duo Nine agreed, acknowledging that "in 10 years or so the problems will resolve themselves" as Bitcoin becomes accepted and blockchain usage expands.
Let us recall that MicroStrategy founder Michael Saylor spoke in support of independent storage of cryptocurrencies. Before that, the entrepreneur, contrary to his previous opinion, recommended using large banks as custodians.
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