Coinbase Brings Bitcoin to Solana, Spurring High Hopes for DeFi Surge

As a seasoned crypto investor with over a decade of experience in the volatile and ever-evolving digital asset market, I’ve witnessed my fair share of ups and downs, triumphs, and failures. The recent introduction of cbBTC on Solana by Coinbase has piqued my interest, as it could potentially revolutionize the DeFi landscape on this promising blockchain platform.

Approximately two years ago, the fall of FTX created what could be compared to a giant void in Solana-based decentralized finance, a gap yet to be fully addressed – until potentially the present moment.

On centralized cryptocurrency platforms, Bitcoin (BTC) serves as a standard for trading, lending, and borrowing. However, it requires additional work to transfer that essential financial functionality from Bitcoin to Decentralized Finance (DeFi) on other blockchains. In simpler terms, someone needs to create a token that is connected to and holds the value of bitcoin on the specific chain.

Coinbase, a major player in the crypto world, is aiming to serve as a key intermediary for Solana (SOL) with cbBCT. This new tool, unveiled on Thursday, enables traders to quickly convert to and from the bitcoin-backed token simply by transferring it between their Solana wallets and the exchange. The simplicity of this process has sparked optimism among contributors of various Solana-based protocols, as they believe cbBTC could establish a benchmark that positively impacts the entire ecosystem.

As a crypto investor, I find myself buoyed by the optimistic words of a prominent figure within Solanaland. They’ve expressed “significantly increased expectations” for Coinbase’s cbBTC, believing it to be particularly promising given the current surge in Bitcoin’s value. This bullish sentiment is heightened by the fact that Bitcoin, the global cryptocurrency leader, has been skyrocketing to unprecedented new highs following Donald Trump’s election.

Since the passing of SoBTC, the popular representative for Solana DeFi that was somewhat analogous to Bitcoin, no straightforward replacement has emerged. Many believe that SoBTC, a wrapped bitcoin token, was managed by FTX. Unfortunately, it met its end alongside the fraudulent exchange in November 2022.

In the absence of SoBTC as a widely recognized standard for trading bitcoin on Solana, the entire Decentralized Finance (DeFi) ecosystem on the chain found itself lacking a competitive edge compared to Ethereum DeFi. This is because Ethereum has had its own trading solutions for quite some time, even receiving additional ones like the one from Coinbase. Notably, these Ethereum-based solutions can be accessed by Solana protocols through bridging.

According to InfraRay, a key contributor to the well-known Solana-based decentralized exchange Raydium, Coinbase’s own issuance of cbBTC on Solana significantly “cuts the risk in half.

Tom mentioned that there might be an influx of Bitcoin (BTC) liquidity on the blockchain, which could potentially boost its usage across various DeFi (Decentralized Finance) platforms. Furthermore, he expressed optimism that substantial BTC liquidity for cbBTC could help set some key mechanisms in motion.

If Coinbase manages to convert cbBTC into a substitute for Bitcoin within the Solana standard, it may only be successful in doing so. Other companies have previously attempted this feat but ultimately failed. At present, 21.co has less than $1.5 million of its 21BTC circulating in Solana DeFi, and Threshold’s tBTC has not shown much progress either.

Compared to other platforms, Coinbase holds approximately $10 million in cbBTC that can be used within Solana DeFi, as per blockchain data. Furthermore, an extra $500,000 of cbBTC is currently circulating in trading pools on Meteora and Orca and serving as a reserve for the trading protocol Kamino.

According to Marius Ciubotariu, the co-founder of Kamino, he believes and anticipates that it’s going to be substantial. He also stated that there is typically no need for Bitcoin decentralized finance (DeFi) activities to occur on Ethereum.

As a researcher, I find it noteworthy to mention that Coinbase hasn’t traditionally delved into DeFi on the Solana blockchain. However, the landscape has now shifted with the introduction of their first native token, CbBTC, which resides on the Solana network. While Coinbase has been deeply engaged in the Ethereum ecosystem, notably through its layer-2 solution, Base, this move signifies a broader exploration of the Solana blockchain’s potential.

Our primary motivation for introducing cbBTC is to enable its use by our customers within the digital economy. By also supporting platforms like Solana, and possibly others in the future, we’re expanding the choices for our customers and staying true to our goal of integrating billions of users into the blockchain world,” the company representative explained.

In September, Coinbase introduced cbBTC on the Blockchain (Base) and Ethereum platforms, hinting at future support for additional chains. However, traders moving bitcoin to Base from Coinbase enjoy a slight advantage over those transferring to Solana, as transactions from Coinbase to Base are fee-free, whereas transactions to Solana cost approximately 40 cents.