
Wrapped Bitcoin (WBTC) has one of the biggest market caps in the whole of crypto. But what is it exactly? Is it another fork of Bitcoin? Or is it something more innovative?
Well, let’s take a look at this financial tool that tries to bring the best of both Bitcoin and Ethereum technologies together, and why it provides what Bitcoin is fundamentally incapable of (…still).
Launched in January 2019 by BitGo, Kyber Network, and Ren, WBTC or wrapped BTC is a token on Ethereum (ERC-20) that ‘wraps’ up your Bitcoin and puts it on the Ethereum chain. It is the first ERC-20 token that is pegged on a one-to-one basis with Bitcoin and that wants to bring the liquidity from Bitcoin (which is massive) over to the Ethereum mainnet.
To put it simply, it allows Bitcoin holders to use their BTC in the form of wBTC and use it for DeFi which is the biggest and most built out on Ethereum. It then can be used for:
This review of Wrapped Bitcoin (wBTC) was created for informational purposes. This article is not intended for promotion.
As we know already, Wrapped BTC represents Bitcoin on the Ethereum blockchain, and makes BTC usable within Ethereum’s extensive decentralized finance sector. But how does it work?
Well, the way it works is by pegging the value of WBTC to that of Bitcoin, where essentially, each one is backed by an equivalent amount of BTC. It does this through a minting and burning process.
WBTC has its lifecycle through a minting and burning process, overseen by WBTC’s registered custodians.
So when WBTC is minted, the Bitcoin you send to the custodian is held in reserve, and an equivalent amount of WBTC is created on Ethereum. Conversely, when you want your original BTC back, the WBTC is burned, and the corresponding Bitcoin is released back to you.
Minting in the WBTC framework is initiated by a merchant and performed by a custodian, and burning is exclusively performed by merchant addresses.
Originally, BitGo exclusively managed this custodianship, but recent changes have diversified the custody to include multiple jurisdictions such as the U.S., Singapore, and Hong Kong.
This custodial shift to a joint arrangement involving BiT Global, linked to the controversial figure Justin Sun, the man behind TRON, has sparked concerns within the crypto community about the security and reliability of using WBTC.
The WBTC network provides tools for on-chain validation to ensure transparency and security. Users can visit the WBTC website to view the order book, which shows the amount of WBTC in circulation and the Bitcoin backing it.
Additionally, the website offers a “Proof of Assets” page where the public addresses holding the Bitcoin reserves are listed.
WBTC is wrapped in a centralized manner via custodians and merchants, but those entities use smart contracts to initiate these processes. This method transfers the ownership of Bitcoin to a smart contract and uses synthetic assets to (un)wrap Bitcoin.
The partly centralized method involves entrusting Bitcoin to a central middleman who then issues WBTC in return.
The supply metrics for wBTC—circulating, total, and maximum—are currently at 136,473 tokens, indicating the amount of wBTC currently in existence. However, unlike traditional tokens with a fixed supply, wBTC does not have a predetermined maximum cap. Instead, its supply is dynamically linked to the amount of Bitcoin that is wrapped. As more Bitcoin is converted into wBTC, its supply increases accordingly.
WBTC charges a fee ranging from 0.04% to 0.05% to merchants for minting the tokens. Ultimately, these costs are passed down to the end customer. For example, for every 2,500 Bitcoin minted, the DAO keeps one Bitcoin as a fee.
To mint WBTC, you can start by visiting any of their partner sites such as HTX. Here’s how you can do it:
Here is a simple guide using RocketX Exchange:
Wrapped Bitcoin is another example of finding a way to use Bitcoin in many innovative use cases. It was impossible before to use Bitcoin for decentralized finance. This is because the network of Bitcoin is totally different than the network of Ethereum.
But some find a clever way to still use it, by wrapping up BTC and giving wBTC in return. This allows for faster transaction processing and enables Bitcoin holders to participate in DeFi and let their money work.
However, the processes we have to run through in order to wrap it up are filled with risks, as seen in our extensive history where wrapping services simply quit or gave a warning that migration processes were going to happen without further notice.
There’s a dependency on the integrity of these custodians and the system that bridges BTC to WBTC. If this breaks you are left behind in tears.
So the choice is yours to make – will you use a derivative of your BTC to earn potentially more and use DeFi, or will you let your capital stay dormant while remaining in full control and more secure?
WBTC was honored to be featured in a16z’s 2024 State of Crypto report as the leader for the highest value locked in bridged assets.
Wrapped Bitcoin serves as a critical bridge between Bitcoin and Ethereum, and wants to bring the massive liquidity and the extensive smart contract capabilities of the Ethereum crypto network together. Some see it as truly innovative while others see it as a potential threat to their self-custodial way of life.
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