Wrapped Bitcoin (wBTC) is an Ethereum-based token that represents 1 Bitcoin. The price of 1 wBTC is pegged to the price of 1 BTC. If Bitcoin is trading for $9,200 - for example - then wBTC is also trading for around $9,200.
The https://wbtc.network/ brings the promise of bridging the power & scope of Bitcoin with the flexibility of the Ethereum network.
We archived this guide on LeoPedia: https://leopedia.io/what-is-wrapped-bitcoin-wbtc
Bitcoin is the largest, most robust and decentralized computing network in the world. It’s also the highest market cap cryptocurrency by a large margin. There is no question that having access to that kind of value could be incredibly fruitful for DeFi and other crypto projects.
Ethereum has the largest pool of developers and projects on the bleeding edge of Decentralized Finance and other initiatives aimed at bringing real products & use cases into the hands of the masses.
Following that logic, it makes perfect sense to bridge these two blockchains together. To bring the power and market cap of Bitcoin into the flexibility and protocols of Ethereum.
Wrapped Bitcoin was launched in January 2019 as a joint effort between crypto projects Kyber, Ren, and BitGo.
Since then, a DAO (decentralized autonomous organization) has been established to manage the wBTC project. Many other Ethereum-based projects have taken up the initiative and backed the project in various ways.
How it Works
Management of the DAO works in an interesting way. There are 3 different types of “Partners” involved in the wBTC Organization:
The Wrapped Tokens DAO represents institutions who hold keys to the multi-signature contract that approves and removes merchants and custodians.
The Merchants are responsible for minting new wBTC and burning wrapped tokens.
The Custodians secure the Bitcoin and provide “institutional-grade security” for the wBTC protocol.
There are now dozens of partners who fall into these 3 categories. If you are active in the crypto/ethereum space, then you will recognize many of these names. Head over to https://wbtc.network/dashboard/partners to see the current list of partners and which category they belong to.
Safety is obviously a #1 concern when using something like a wrapped or “pegged” asset. If the asset is not secure, then there is no point in leveraging it.
As of today (7/16/20), there is over 11,500 BTC held in the wBTC protocol. Worth over $105 million USD
Using “proof of reserve”, the receipt, custody and ongoing issuance of wBTC and the BTC that backs it is all verifiable on-chain. You can see the actual Bitcoin that is held in custody on the audit page: https://wbtc.network/dashboard/audit
On this page, you’ll see the Bitcoin addresses of the custodians who securely store the BTC that backs each issued wBTC at a 1:1 ratio.
Just below that, you can see an even more detailed breakdown of the BTC in custody via a transaction history report:
As far as security is concerned, I think wBTC is one of the more mature protocols in terms of transparency and provably showing a 1:1 relationship between the pegged token (wBTC) and the token held in custody (BTC).
With that said, there is still a great degree of risk with any protocol - whether it’s on the Bitcoin network, Ethereum network or anywhere else. We’ve seen protocols blow up in the past and we’ve seen hacks varying in any way that seems imaginable.
Personally, I wouldn’t hold a large % of my wealth in any one protocol.. but I would still leverage these technologies and tools to improve my investments and more importantly my experience within crypto.
A wBTC use case that I am eying for my personal portfolio is leveraging the MakerDAO protocol (which just recently added wBTC as a collateral type). I can now take some of my Bitcoin, go to a participating merchant, wrap my BTC and then send that wBTC to a MakerDAO CDP vault and take out a crypto loan against it in the DAI stable coin.
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