Wrapped Bitcoin (WBTC) is an ERC20 token that has been designed to be fully collateralized with Bitcoin (BTC), this means it acts as a 1:1 representation of BTC on the Ethereum network. There has been a lot of interest behind this sort of DeFi (decentralized finance) project running on Ethereum as the idea of integrating Bitcoin's liquidity with Dapps and decentralized exchanges on ETH is exciting for many teams. Notably, the thought is it could kickstart a much wider adoption of DeFi applications in general: lending, derivatives, DEXes, and payments.
What is WBTC and how does it work?
- Project founders
- WBTC Token Details
- Why tokenize Bitcoin?
- How does WBTC work?
- What does the future look like for WBTC?
How is the project managed?
As a result, there are many crypto projects behind WBTC, the main collaborators who brought the project to life would be BitGo, Kyber Network, and Ren. However, the WBTC project is run by a DAO of which you will find many major open finance Dapps are members: Dharma, Compound, MakerDAO, Set Protocol and more.
WBTC DAO Members are institutions or individuals that govern the project, most are also merchants but this is not a requirement. Therefore, they are responsible for adding or removing those who can operate as a Merchant (initiate the token minting or burning process), or a Custodian (hold the swapped Bitcoin, mint new tokens or burn redeemed tokens), or authorizing things such as contract changes and upgrades.
WBTC Token Details
- Project name: Wrapped Bitcoin
- Symbol: WBTC
- Standard: ERC20
- Total Supply: 21,000,000 WBTC
- Circulating Supply: ~589 WBTC (changes as WBTC is minted or burnt)
- ROI since launch: +117.25%
- Website: https://www.wbtc.network/
Why tokenize Bitcoin at all?
Asset tokenization can bring various advantages:
- Increased transaction speed - A transaction that is executed using Wrapped Bitcoin will use the Ethereum blockchain and will complete much faster than the Bitcoin blockchain. For example, this could be a major benefit when it comes to accepting payments in crypto as a retailer.
- Usability - Wrapped Bitcoin follows the ERC20 standard meaning it can easily be slotted into numerous exchanges, Dapps and different wallet providers in the existing Ethereum ecosystem. Essentially, anything that supports ERC20 can support WBTC.
- Greater liquidity - Ethereum is the main choice when it comes to interacting with dapps or trading ERC20 tokens, but Bitcoin possesses significantly more liquidity than Ethereum. This means introducing WBTC into the ETH network is an opportunity to provide greater liquidity when interacting with dapps or trading tokens.
How does WBTC work?
In short, one token corresponds to one BTC. Users can swap their BTC for WBTC by going through an approved merchant such as Kyber, Ren or MakerDAO (currently there are 20 merchants mostly well-known Dapps or crypto brokers). To do so they must verify their identity and pass the merchant's KYC/AML process. The merchant will then supply the Bitcoin to the custodian (So far the only custodian is BitGo) who mints an equal amount of WBTC. Merchants are also able to redeem BTC by doing the reverse process, which will result in WBTC tokens being burnt.
Traders who do not wish to go through any of the swapping processes or have to deal with passing a KYC process can always buy or sell WBTC on decentralized exchanges such as Saturn Network.
Where is the project going?
Currently, we see constant innovation happening in Ethereum's DeFi ecosystem, with open finance Dapps really only just starting to find their use cases - in short, it is just the beginning. We will undoubtedly see more Dapps creating more use cases for wrapped tokens such as WBTC appear as things progress. Just recently, TokenSets launched the first ETH/BTC EMA Ratio Trading Set which will automatically rebalance your portfolio's ETH and WBTC following trends in the ratio.
The project founders have also taken steps to ensure the WBTC can continue to grow, even if it became economically unviable to operate on Ethereum (due to high network costs for example). Their whitepaper also outlines a model where they could operate as a pegged sidechain which you could compare to a setup of a stablechain such as xDai Chain.
Though we are seeing that DEX usage is at an all-time high, the majority of cryptocurrency trading goes through centralized platforms with one of the main reasons for this simply being that Bitcoin trading has more liquidity compared to other coins. Wrapped Bitcoin is seen as the potential solution for bridging that gap, providing more liquidity on decentralized exchanges.
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Please note Token Profile Articles are not endorsements by Team Saturn, the goal is to make it easier for you to learn more about the asset. Always do your own research before entering a trade or investing in any crypto project.