What is Interoperability and Why is it Important?

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Interoperability happens when two or more systems can communicate and exchange value. The best way to understand interoperability is to see the early success stories of it in action. 

Today there’s about $1T in BTC liquidity and meanwhile, DeFi’s Total Value Locked is still just over $40 billion. Developers have been working to enable users to unlock that $1T in Bitcoin value to be used in DeFi applications. So one of the most exciting developments in DeFi in 2020 has been around the tokenization of BTC.

When BTC is represented 1:1 on Ethereum, we call that tokenizing or wrapping BTC. There’s over $9 billion now in BTC tokenized on Ethereum, with the most popular representations of BTC being WBTC, renBTC, sBTC (synthetic BTC from the Synthetix team) and the newly introduced tBTC (trustless BTC). These innovations of BTC-pegged tokens have caused a 100X explosion from 1100 BTC to 170,000 Bitcoins tokenized on Ethereum.

The key takeaway is the year 2020 was a turning point for the long-held debate over interoperability: the nation of DeFi clearly demands it! Interoperability has enabled users to take value stored in Bitcoin and put it to work in a world of new and exciting decentralized finance applications on Ethereum.

In the future we’ll probably see similar demands as DeFi development grows beyond the confines of Ethereum so that users can move between a melting pot of digital assets and applications across many blockchains. For now, the explosion of Bitcoin tokenization on Ethereum is the best proof that when you enable interoperability, DeFi users will move their value to wherever they can put their money to work and that leads to more growth.

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