Demand for Wrapped Bitcoin (WBTC) has been growing tremendously in the last few weeks, with more than 23,100 WBTC ($274 million) currently in circulation.

According to data from FlipsideCrypto, a digital asset data provider, more than half of the WBTC was minted in the past month as the decentralized finance sector saw record growth.

Net wBTC supply since launch. Source: Flipside Crypto

Launched in 2019, WBTC is an ERC-20 token that is pegged to the price of Bitcoin (BTC). It allows users to seemingly transfer Bitcoin to the Ethereum network and interact with smart contracts.

To get WBTC, users must go to an authorized merchant who will hold the user’s BTC and exchange it for WBTC tokens. Merchants can mint and burn WBTC tokens as needed.

The growing demand for WBTC shows that Bitcoin users are looking for high-yield options to hold Bitcoin. According to a recent report by Genesis, a digital currency prime broker, institutional clients are also showing similar interest.

While there is growing interest in WBTC, its growth is also inflated by the yield farming phenomenon, as more than half of all WBTC in circulation is currently locked in DeFi lending protocol Compound.

Yield farmers value privacy

WBTC is by far the most popular Bitcoin-backed token used on the Ethereum network, but it is also a centralized option that requires users to go through a Know Your Customer procedure and to use a third-party custodian service. For some potential users, this raises privacy and censorship concerns.

While institutional interest around DeFi has been growing and even central banks are beginning to get involved, many users are individuals who may want to stay anonymous while using WBTC.

As such, the demand for renBTC, a decentralized and anonymous alternative to Wrapped Bitcoin, has been surging as well.

WBTC and renBTC net supply since launch. Source: Flipside Crypto

RenBTC is similar to wBTC but it features trustless storage for the Bitcoin being locked. This allows users to fully own their asset and remain anonymous in the process.

While not all DeFi protocols accept renBTC, this token can also be exchanged for WBTC and used to access DeFi protocols like Compound that only accept the latter.

According to Flipside Crypto, 19% of all new addresses using WBTC in August bought it through renBTC. This shows that privacy can indeed be a driving factor for more growth in the DeFi sector.

Purchase amount for first acquisition of BTC on Ethereum. Source: Flipside Crypto

DeFi’s potential seems limitless, but can Ethereum support the growth?

As DeFi continues to grow, new security issues are arising. Not only have several DeFi protocols been subject to hacks and malfunctions, but the growth of yield farming itself could have consequences to the tokens involved with each platform.

For example, currently, more than 50% of all DAI is locked in Compound, which can disrupt its peg with the dollar. In the case of WBTC, more than half of its supply is locked in Compound as well. The continuance of this trend could easily bring liquidity issues for the tokens at hand.

Even more concerning is the fact that the Ethereum network is becoming increasingly bogged down by network congestion and high fees.

While it seems that the future for DeFi and all its related parts is limitless, the nascent sector requires a strong foundation to stand on.

At the moment, the cornerstone is the Ethereum network, but the question is: Can it sustain the growing number of smart contracts and demands being placed upon it?