xBTC is in the news today after it announced its integration with Chainlink to launch a new product type that will use Chainlink oracles to dictate a token’s economics. This integration will create a spot price for a data point that has never before had a spot price – Bitcoin Market Cap Dominance (BMCD).
That’s not all, however, as reportedly, the integration is also the most direct connection that can exist between an oracle and an ERC-20 token. This is because Chainlink’s price oracles will determine the fluctuating supply of the token.
When Chainlink feeds the current BMCD to xBTC’s smart contract, it will affect the economy of the xBTC token once a day through a rebase which is basically a change in the supply of a token.
According to the press release in question, there will be two types of rebases,
Positive Rebase: If xBTC’s spot price is above BMCD, more supply will be added to the market to push the price down to BMCD
Negative Rebase: If xBTC’s spot price is below BMCD, supply is taken from the market to push the price up to BMCD
Here, xBTC is seen as a synthetic dominance hedge against Bitcoin. As Bitcoin Market Cap Dominance (BMCD) falls, positive rebases will be expected to happen in more significant quantities and frequency.
If only there was a way to trade Bitcoin market cap dominance, would be nice if that way was open market and decentralized too, if only…. https://t.co/X7V0aC4ZAS
— xBTC (@XBTC_Official) November 14, 2020
Simply puy, it is essentially a synthetic derivative that is easily accessible and wrapped into one ERC-20 token.
Chainlink, which is looking for new ways to bring value additions with oracles and tokens in DeFi, sees this as the beginning of these types of integrations that reimagine integration from oracles into tokens.
Its recent partnership with Synthetix to launch a first of its kind Oil Derivative Token is another example of its innovation for products in DeFi.
As the crypto-market evolves, there are some real use cases for derivative products such as these.
Do you see what we see? $xBTC‘s use-case is about to become very evident! $xBTC #Bitcoin #DeFi pic.twitter.com/FYtK3gA8LC
— xBTC (@XBTC_Official) November 7, 2020
In fact, the attached chart shared by xBTC highlights how this product can be quite relevant in this market, with traders being able to take a position to predict where BMCD will go and make a bet for or against every single altcoin outpacing Bitcoin.
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