Less than two years after FTX’s collapse rattled Solana’s decentralized finance (DeFi) ecosystem, Coinbase is filling in part of the gap with cbBTC, a bitcoin-backed token aimed at bringing liquidity and functionality back. Introduced this week as the Solana-based cbBTC, traders and DeFi on the blockchain get a bitcoin (BTC) stand-in that could signal a turning point in the blockchain’s financial ecosystem.
Designed to serve as the largest cryptocurrency offering a core asset for trading, Bitcoin lending and borrowing, centralized exchanges were built around this collar application. Yet, bringing the same functionality to decentralized platforms requires blockchain-compatible tokens tied to Bitcoin. Wrapped BTC (WBTC) and other trusted options have been around on Ethereum for some time, while for Solana, that has yet to be achieved since the demise of soBTC last year.
Revitalizing Solana DeFi: How cbBTC Brings Back Bitcoin Liquidity
When the exchange collapsed, soBTC, widely believed to be in the hands of FTX, disappeared. Solana DeFi now lacked a widely accepted bitcoin standard, and remained behind Ethereum which had seamless BTC liquidity. To fill this gap, the exchange is introducing cbBTC, an easy way for traders to swap bitcoin between Coinbase and Solana wallets. The optimism comes from both its simplicity as well as Coinbase’s reputation.
With the help of InfraRay, a contributor to Solana based decentralized exchange Raydium, the CbBTC could be a game changer. It lowers the risk for moving assets over the bridge from Ethereum and brings more liquidity into the Solana DeFi ecosystem. cbBTC has already been integrated into trading pools and reserves on Meteora, Orca and Kamino.
Blockchain data reveals Coinbase has granted Solana’s DeFi protocols nearly $10 million in cbBTC, with $500,000 in circulation in liquidity pools and reserves. Marius Ciubotariu, chief executive of Kamino, is optimistic.
“I think and hope it’s gonna be big,” said Kamino co-founder Marius Ciubotariu. “There’s no reason for most BTC DeFi stuff to happen on Ethereum.”
cbBTC brings new hope, but Coinbase has challenges to become the default bitcoin token on Solana. The competition includes solutions 21BTC and tBTC from Threshold, both with less than $1.5 million in circulation in Solana’s DeFi ecosystem.
Coinbase’s Focus on Ethereum: A Challenge for Expanding into Solana
Coinbase’s historic focus on Ethereum can be seen as a hurdle, too. Earlier this year, the exchange launched its own layer 2 network, Base, which has been wholly involved in Ethereum-based DeFi. 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 flagship step was Coinbase’s first native token issuance on a blockchain when it launched CbBTC on Base and Ethereum in September and then this week on Solana. Another reason may be that transaction costs could also affect adoption. Coinbase to Base bitcoin transfers are completely free, Coinbase to Solana transfers cost 40 cents. While this is a small difference it may influence the user preference in competitive markets.
However, cbBTC seventy can solve problems with liquidity, risk reduction in Solana DeFi, and provide native cbBTC issuance protection. The presence of more liquidity could then mean more usage and innovation, Tom (a Solana based protocol contributor) notes. “We’re still in the early days, but cbBTC resilient liquidity could bring a flywheel to the ecosystem.”
There is this renewed momentum that’s at the right place. Bitcoin marches higher as markets and global fervour reach new highs. its cbBTC aligns with such trends and opens the door for Solana DeFi to comeback to its feet and newcomers to join the party.
Conclusion
The launch of cbBTC on Coinbase could be the transformative moment that kicks off Solana’s DeFi ecosystem and closes the gap in bitcoin liquidity left by FTX’s collapse. If cbBTC succeeds as Solana’s bitcoin standard, this may drive liquidity, reduce the risk of bridging, and bring new opportunities and growth for other Solana DeFi platforms.
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