Wrapped Bitcoin

Wrapped Bitcoin (WBTC) stands as the initial and most significant 1:1 tokenized version of Bitcoin, functioning across various chains. It offers a uniform method for utilizing BTC in settings that value speed, efficiency, and scale, all while remaining true to Bitcoin’s foundational ideals. Functioning as a reliable and transparent asset within a multichain framework, WBTC employs a custody structure focused on security. This includes regulated minting and burning processes, continuous 24/7 surveillance, rigorous access restrictions, multi-party key management, and periodic audits to uphold strict security and compliance levels.

Wrapped Bitcoin (WBTC) introduces Bitcoin to Ethereum’s DeFi landscape by issuing ERC-20 tokens for users wishing to convert their BTC. A custodian holds the BTC involved in these conversions and handles the minting and burning of the corresponding Ethereum tokens. To mint WBTC, users send BTC to the custodian for storage and receive an equal amount of WBTC; conversely, burning WBTC allows users to retrieve their BTC from the custodian. BitGo serves as the primary custodian, minting specific quantities of WBTC and transferring them to a merchant’s Ethereum address.

Users exchanging between WBTC and BTC execute trades via centralized exchanges or atomic swaps on decentralized platforms to transfer funds to the merchant. After completion, they are free to utilize their assets. Converting WBTC back to BTC requires a burn transaction that destroys the Wrapped Bitcoin balance. The WBTC DAO, composed of governing members, determines major protocol updates and changes. These members may also act as merchants or custodians overseeing BTC assets.

Because Wrapped Bitcoin follows the ERC-20 standard, it functions throughout the Ethereum network. This allows users to trade on decentralized exchanges such as Uniswap, 1Inch, and Sushiswap, while also accessing decentralized finance services via platforms that accept WBTC.

DeFi uses for WBTC include lending, borrowing, yield farming, swapping tokens, and joining liquidity pools. Supported protocols include Aave, Balancer, Compound, and MakerDAO. According to the source, some of these services might provide their own governance tokens as additional rewards.

Businesses may find value in using WBTC as collateral for crypto-backed loans. Holders can also generate interest by providing liquidity, though the annual percentage yield is described as relatively low.

WBTC also enables margin trading against Ethereum, stablecoins, and other ERC-20 assets. This method uses smart contracts to operate in a fully non-custodial manner, aiming to improve fund security during trades.

Wrapped Bitcoin (WBTC) was not established by individual founders but is instead a collaborative effort among three organizations: BitGo, Kyber Network, and Ren.

BitGo, an institutional digital asset custody, trading, and financial services provider, was co-founded in 2013 by American computer scientist and entrepreneur Mike Belshe. As one of the developers of WBTC, BitGo also acts as its original custodian, holding the WBTC tokens and the keys required to mint additional units.

Kyber Network, an on-blockchain liquidity protocol that facilitates the integration of various cryptocurrency tokens and DeFi applications, was founded in 2017 by Loi Luu, Victor Tran, and Yaron Velner. Based in Singapore, Kyber Network helped create WBTC alongside Ren and continues to operate as a merchant on the network. In this role, it mints and burns WBTC tokens to preserve the 1:1 ratio between the tokens and BTC reserves.

Ren, which focuses on cross-blockchain integration for cryptocurrency assets and DeFi applications through solutions like RenBridge and RenVM, was also founded in 2017 by Taiyang Zhang and Loong Wang.

As the earliest and biggest cryptocurrency, Bitcoin commands a user base of millions and holds tens of billions of dollars in liquidity. Yet, its blockchain capabilities remain fairly simple compared to contemporary standards.

In contrast, Ethereum was designed from scratch to handle complex applications through smart contracts, sparking the growth of the “decentralized finance” sector.

This ecosystem allows users to access sophisticated financial tools like insurance and lending without needing trusted middlemen.

WBTC brings Bitcoin’s substantial liquidity into this advanced DeFi landscape by converting BTC into the ERC-20 format, allowing it to function seamlessly within Ethereum-based decentralized applications.

Furthermore, WBTC simplifies operations for wallets, exchanges, and payment providers on Ethereum. Rather than maintaining separate nodes for both the BTC and ETH networks, these services can manage WBTC transactions using only an Ethereum node.

Lastly, because Ethereum’s average block time is roughly 15 seconds—compared to Bitcoin’s 10 minutes—WBTC transactions settle much faster than those involving actual Bitcoin.

WBTC does not follow a fixed issuance timeline. Rather, tokens are minted or burned automatically as users exchange them for Bitcoin through a network of custodians and merchants. Since Wrapped Bitcoin maintains a 1:1 backing with Bitcoin, the circulating supply matches the Bitcoin reserves held by the WBTC network. As of October 2020, there were slightly more than 94,000 tokens in circulation, with a total value of roughly $1 billion.

The security of WBTC tokens relies on the underlying blockchain they operate on, which is Ethereum. Ethereum itself is safeguarded by the Ethash proof-of-work algorithm, a member of the Keccak family of hash functions.

WBTC is available for purchase on a variety of centralized and decentralized exchanges that act as merchants within the Wrapped Bitcoin ecosystem.

In 2021, a portion of Bitcoin’s circulating supply moved into corporate treasuries, exchange-traded investment products, and the Ethereum Network as wrapped BTC (WBTC). Arcane Research reports that while the Bitcoin balance on crypto exchanges dropped by approximately 1.2%, holdings in corporate treasuries, exchange-traded investment vehicles, and on Ethereum increased by 0.51%, 0.69%, and 0.98%, respectively. As of February 2022, the Ethereum network holds $10.9B worth of WBTC. Additionally, WBTC is present on the Tron blockchain, where it accounts for $4.1M worth of Bitcoin.