what is wrapped bitcoin [wbtc]?
wrapped bitcoin is a tokenized version of bitcoin (btc) that runs on the ethereum (eth) blockchain.
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wbtc complies with erc-20, the basic compatibility standard of the ethereum blockchain, allowing it to fully integrate into the latter’s ecosystem of decentralized exchanges, crypto lending services, prediction markets, and other decentralized finance enabled by erc-20 (defi) applications.
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wbtc is also backed by bitcoin at a 1:1 ratio through a network of automatically monitored merchants and custodians, ensuring its price is pegged to bitcoin at all times and allowing users to transfer liquidity between btc and eth networks in a decentralized and autonomous way.
wrapped bitcoin was first announced on October 26, 2018 and officially launched on January 31, 2019.
how are wrapped bitcoins created?
the creation of wrapped bitcoin brings the world’s leading bitcoin cryptocurrency to the world of ethereum’s defi ecosystem. the wbtc token adheres to the erc-20 token standard, with tokens created for those who wish to convert btc to wbtc.
all btc to be converted are held by a custodian, who is involved in minting and burning ethereum-based tokens. When the WBTC are burned, the user can claim their BTC balance from the custodian. During mining, users send BTC to the custodian for storage and receive an equivalent in WBTC tokens. bitgo is the largest bitcoin custodian wrapped up, and they will mine a certain amount of wbtc and send it to the merchant’s ethereum address.
the user who wants to exchange between wbtc and btc makes a transaction (through a centralized exchange or an atomic swap on a decentralized exchange) to transfer funds to the merchant. once finished, the user can use their btc/wbtc as they see fit. if wbtc is converted to btc, the associated wrapped bitcoin balance will be destroyed via a write transaction.
wbtc dao consists of governing members who decide on updates and significant changes to the protocol. Furthermore, these members can serve as merchants or custodians who manage BTC assets.
what can you do with wbtc?
As the wrapped bitcoin tokens adhere to the erc-20 token standard, one can use them throughout the ethereum ecosystem. That includes trading them on decentralized exchanges, such as Uniswap, 1 Inch, Sushiswap, and exploring decentralized finance opportunities through WBTC-supporting protocols and platforms.
defi opportunities for wbtc range from lending and lending to yield farming, token swapping, and liquidity pools. Several protocols and platforms support wrapped bitcoin, including aave, balancer, compound, makerdao. some of these providers may issue platform-native governance tokens as an additional incentive.
Using wbtc as collateral for a crypto-backed loan can be an important option for businesses. Additionally, WBTC holders can earn interest by providing liquidity, although the APY will be relatively low.
another option for wbtc is to engage in margin trading, in which wrapped bitcoin is used to margin trade ethereum, stablecoins and other erc-20 tokens. Users implement WBTC to enhance the security of funds while trading. that process is entirely non-custodial and powered by smart contract technology.
who are the founders of bitcoin wrapped?
the wrapped token project, of which wbtc is a part, was not founded by individuals but is a joint project of three organizations: bitgo, kyber network and ren.
bitgo, co-founded in 2013 by American computer scientist and entrepreneur mike belshe, is an institutional digital asset custody, trading and financial services company. In addition to being one of the developers of wbtc, bitgo also acts as its original custodian: the entity that owns the wbtc tokens and the keys needed to mint more.
kyber network is a blockchain liquidity protocol that allows the integration of different cryptocurrency tokens and defi applications. It was founded in 2017 by Loi Luu, Victor Tran and Yaron Velner and is based in Singapore. Together with Ren, Kyber Network has helped create WBTC and still serves as a merchant in its network: the institution that mints and burns WBTC tokens to maintain a 1:1 BTC token-to-reserve ratio.
Like Kyber, Ren is a company focused on the integration between blockchains of cryptocurrency assets and defi applications through solutions such as Renbridge, Renvm and others. It was founded in 2017 by Taiyang Zhang and Loong Wang.
what makes wrapped bitcoin unique?
By virtue of being the oldest and largest cryptocurrency on the market, bitcoin can boast a massive user base and liquidity pool of several tens of billions of dollars. however, its blockchain functionality is relatively basic by modern standards.
Unlike bitcoin, ethereum was built from the ground up to support more advanced use cases through the use of smart contract technology, giving rise to an entire industry called “decentralized finance.”
ethereum and derivative products offer their users such advanced financial instruments as loans and insurance, which do not depend on reliable intermediaries.
by “wrapping” btc into the erc-20 standard, wbtc enables the full integration of a bitcoin-like asset into this advanced environment of decentralized finance applications, bringing with it the immense liquidity associated with the btc market.
furthermore, wrapped bitcoin makes life significantly easier for exchanges, wallets, and payment services powered by ethereum: instead of having to run two separate nodes for the eth and btc networks, they can support wbtc operations with just an ethereum node.
Finally, the ethereum blockchain’s faster average block time (around 15 seconds vs. 10 minutes respectively) increases the speed with which wbtc can be transacted, compared to real bitcoins.
wrapped the bitcoin stream on the ethereum network
part of the circulating supply of bitcoin flowed into the ethereum network, corporate treasuries, and exchange-traded investment products in the form of wrapped btc (wbtc) in 2021, according to arcane research, while the balance of bitcoin in the crypto exchanges are down about 1.2%, bitcoin held in corporate treasuries, exchange-traded investment vehicles and ethereum are up 0.51%, 0.69% and 0.98% respectively. There is currently $10.9 billion worth of WBTC on the Ethereum network, as of February 2022. In addition to Ethereum, WBTC is also available on the Tron blockchain, with a total value of $4.1 Million. in bitcoin.
learn more about other bitcoin-pegged tokens on the ethereum network, such as renbtc and hbtc.
see our educational deep dive on how ren is taking bitcoin to defi.
cmc alexandria has a basic for wrapping bitcoin here.
how many wrapped bitcoin [wbtc] coins are there in circulation?
There is no default wbtc issuance schedule. instead, wbtc is automatically minted or burned whenever users buy or sell their tokens for bitcoin through a system of merchants and custodians.
Because the wrapped bitcoin is always backed by bitcoin in a 1:1 ratio, the number of tokens in circulation is directly dependent on the number of bitcoin reserves on the wbtc network. As of October 2020, that number was just over 94,000 tokens, with a total value of approximately $1 billion.
how is the wrapped bitcoin network secured?
wbtc tokens are protected by the main blockchain they run on: ethereum. in turn, eth is protected by the ethash proof-of-work function, a representative of the keccak family of hash functions.
where can you buy wrapped bitcoin [wbtc]?
You can buy wbtc on various exchanges, both centralized and decentralized, that serve as merchants in the wrapped bitcoin network. some of the main ones include:
- huobi global
- kyber network