wBTC are tokens that represent the ownership of a bitcoin on a network other than Bitcoin like Ethereum or layers 2 like Base. They allow BTC holders to put them to work in decentralized finance (DeFi). Zoom on this type of token.
THE Wrapped Bitcoin (WBTC), which can be translated into French as “ Bitcoin Wrapped » refers to the compatible version of the Bitcoin (BTC) with the standard of ERC-20 tokens. To do this, the WBTC is therefore an ERC-20 token which will always follow the price of Bitcoin.
Why does WBTC exist?
Bitcoin as such is not compatible with the ERC-20 standard and cannot be exchanged directly against other ERC-20 tokens in a decentralized manner without the mediation of a trusted third party or through complex technical devices.
BitGo, Kyber Network, Ren (formerly Republic Protocol), and other community partners then jointly launched Wrapped Bitcoin on October 26, 2018 to address this problem.
The WBTC's main missions are:bring high liquidity feature of Bitcoin (BTC) to the decentralized ecosystem and improve all the decentralized applications (dApps).
In most cases limited to ERC-20 tokens, most decentralized exchanges struggle with low trading volume and low liquidity. With Wrapped BTC, traders can benefit from increased liquidity and participation by allowing Bitcoin enthusiasts to be integrated into the ecosystem as well.
The blockchain Ethereum (ETH) processing transactions faster than the Bitcoin blockchain, Bitcoin holders can use this solution to limit waiting times. Using WBTC, transferring bitcoins between platforms is indeed much faster.
WBTC transfers between users have no direct costwith the exception of network fees that vary depending on the solutions used. The various network intermediaries can in fact set the fees they wish:
- Childcare costs: collected by the depositary at the time a trader forges or
burns the wrapped tokens. - Fees for merchants: charged by the merchant who exchanges the wrapped WBTC with Bitcoin.
The Wrapped Bitcoin logo
How does WBTC work?
Kyber Network and Ren have provided an initial amount of WBTC tokens from their own bitcoin supply in order to guarantee initial liquidity and make WBTC immediately available to exchanges and users.
In short, one WBTC token will always match the price of one Bitcoin. Users can exchange their BTC for one WBTC through an authorized merchant such as Kyber Network, 0x Or MakerDAO. To do this, users must go through the provider's KYC process. The provider will then provide the Bitcoin to BitGo, the sole custodian, who will then forge an equal amount of WBTC which will then be distributed to the initial requester.
WBTC in danger?
The most important consideration of this initiative is transparency. The proof of WBTC provision is recorded on the blockchain, which allows control the ratio of 1:1 existing between the forged WBTC tokens and the bitcoins stored by the custodian.
When WBTC token holders exchange their tokens for bitcoins, the tokens are burned. Merchants are then able to recover the original BTC by doing the opposite, which will cause the WBTC tokens to be burned.
The forging and dissolution of tokens are in turn recorded and verifiable on the blockchain. Transaction history and technical details about Wrapped Bitcoin are available at Etherscan.io.
Since its inception, Wrapped Bitcoin However, it attracts far fewer crowds than its twin.THE Wrapped Ethereum (WETH). The latter is much more used by the community as well as by exchanges and decentralized applications. It works in a slightly different way and its interest is theoretically higher than that of WBTC.
📚 Read on the same subject: what is wrapped ETH (WETH) ?
While WBTC was born to bring greater liquidity to decentralized applications, we went from 596 WBTC in January 2020 to over 150,000 WBTC in circulation in September 2024. WBTC in circulation represents more than $8.8 billion at the time of writing this article.
The number of intermediaries needed to obtain it and the existence of other much more user-friendly could be the causes of this low adoption of WBTC by the community.
Coinbase launches its wrapped bitcointhe cbBTC
On September 12, 2024, Coinbase announced the launch of its wrapped bitcoin, cbBTC, on Base and Ethereum.
cbBTC is onchain.
cbBTC is an ERC20 token that is backed 1:1 by Bitcoin (BTC) held by Coinbase.
This means millions of BTC holders can now securely access DeFi apps on @base and Ethereum ecosystems—with more chains coming soon.
Here's what you need to know ↓ pic.twitter.com/nF8mF3JGms
— Coinbase 🛡️ (@coinbase) September 12, 2024
1 cbBTC is an ERC20 token that is backed by 1 BTC held by Coinbase. cbBTC is already usable on dozens of decentralized finance platforms such as Curve, Aave, Morpho or Compound.
Some criticisms have nevertheless emerged pointing out thatit is possible for Coinbase to freeze cbBTC or blacklist certain addresseswhich is not the case for BitGo for WBTC.
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As the Publishing Director of Cryptoast, I discovered Bitcoin and blockchain technology in 2017. Since then, I have accumulated a vast knowledge of Web3 and I strive to share high-quality content to democratize this sector to the general public. Thanks to a dedicated and passionate team, Cryptoast has become an essential reference, providing in-depth analyses and relevant information for all enthusiasts and curious people in the world of cryptocurrencies and Web3.
Clement Wardzala
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