October 2020, customers in qualifying countries will be able to send and receive WBTC on Coinbase Pro. Full trading on Coinbase Pro will begin from 9AM Pacific Time (PT) on Tuesday, October 20 and on Coinbase.com on or after 9AM Pacific Time (PT) Wednesday, October 21, 2020.
What is WBTC?
Wrapped Bitcoin (WBTC) is an ERC-20 token that represents Bitcoin (BTC) on the Ethereum blockchain. A key advantage of WBTC is its integration with the world of Ethereum wallets, dapps and smart contracts.
Through a WBTC partner, 1 bitcoin can be converted into 1 wrapped bitcoin and vice versa. WBTC is designed to allow Bitcoin holders to participate in Decentralized Finance ("DeFi") applications that are popular on Ethereum. The BTC supported by WBTC is transparently verifiable through a " proof-of-stock " system that verifies the 1:1 Guarantee between WBTC minted tokens and bitcoin stored by custodians. WBTC is maintained by a group called WBTC DAO, which now consists of more than 30 members. It was originally founded by BitGo, Ren and Kyber.
Advantages of the Wrapped Token
When you learn about wBTC, you may ask yourself, "Why would I want to convert my BTC to wBTC? " Fortunately, there are many reasons why an investor would want to wrap their BTC. First, it offers integration with the Ethereum ecosystem. Ethereum has the largest ecosystem of any cryptocurrency.
This huge network includes exclusive wallets, Dapps, DEXs, games, and smart contracts. Some Bitcoin users can even gain access to DeFi credit and lending networks without giving up or trading their Bitcoin directly. It is this last reason that has caused a stir in the market recently.
Another big advantage that wBTC brings to the market is greater liquidity. The Ethereum ecosystem is diverse and widespread. This distribution of funds can create a scenario where DEXs (decentralized exchanges) and other platforms lack the liquidity needed to function optimally. Low liquidity makes an exchange less effective because users cannot exchange their tokens quickly and for the amount they want. wBTC integrates the liquidity of BTC with the flexibility of the Ethereum ecosystem. In this way, wBTC closes the liquidity loop between many CEFI and DeFi products.
Scalability is another important benefit gained by wrapping your bitcoin. Since the wrapped tokens exist on the Ethereum blockchain and not directly on Bitcoin, transactions made with wBTC are faster and cost less. Plus, you have more transaction and storage options.
Wrapped BTC offers users more functionality compared to regular BTC. For example, wBTC can use Ethereum's robust smart contracts. Smart contracts are pre-programmed self-executing protocols. They are considered the core technology of the blockchain industry. However, they only did so when Ethereum entered the market years after BTC. Consequently, BTC lacks full smart contract capabilities in its true form.
It can be argued that the expansion of DeFi (Decentralized Finance) gave rise to wBTC. At the very least, it is the spark that ignited the fire of wBTC. DeFi applications seek to transform traditional centralized financial services into decentralized solutions. Popular apps like Compound allow users to replace banks and provide liquidity in exchange for rewards.
Tethering is one of the most popular DeFi features. There are currently several versions of Staking protocols in place. Most require a user to lock their cryptocurrency into a smart contract for an agreed amount of time in exchange for rewards. Users converting their BTC to wBTC can take advantage of these next-generation protocols. For example, on platforms such as CoinList, you can automatically earn rewards by putting wBTC into your network wallet.
BTC yield farming
Yield farming is another DeFi protocol that continues to gain momentum in the industry. Farming is different from gambling in some respects. Specifically, agricultural protocols have shorter lock-in periods. Many agricultural systems allow network users to borrow their crypto with interest. For example, Compound allows anyone to earn passive income by lending wBTC to other network users through farming groups.
wBTC on the rise
There are some serious benefits gained when wrapping BTC. These benefits have helped create a new sector in the blockchain industry. Today, more and more investors want to use wBTC services. A September report highlighted this growth dramatically. According to the researchers, there is now more than billion 1.1 billion in wBTC in use worldwide
Different wBTC models
Interestingly, there are a few different BTC packaging models within the industry. Each of these strategies differs slightly, but leads to the same result: BTC on the ETH blockchain. These are the three most popular packaging protocols in use today.
In a centralized BTC packaging strategy, you rely on one company to preserve the value of your assets. In this system, you provide your BTC to a centralized intermediary. From there, they lock your crypto into a smart contract and issue a corresponding ERC-20 token. The downside of this approach is that you are completely dependent on the company to keep your BTC safe. The BitGo platform is an excellent example of this strategy in action.
The second and more advanced way to wrap Bitcoin is a decentralized system. The Keep network offers users packaged BTC services in the form of tBTC. In this scenario, centralized custody responsibilities are transferred to smart contracts. Your BTC remains locked in a network contract that the platform cannot adjust without your permission. This strategy provides users with a reliable and autonomous system.
Another form of wBTC that is gaining momentum in the market is the use of synthetic assets. In this design, you lock your BTC into a smart contract and receive a synthetic asset of equal value. Unlike the other two scenarios, this token is not backed directly by BTC. Instead, the platform backs the asset with native tokens.
Synthetix DEX is pioneering this strategy. Notably, the platform's WBTC, called sBTC, is not backed by BTC, but by 800% of the value of a BTC in SNX. SNX is the platform's primary governance token for the Synthetix network. It is compatible with liquidity funds.
Is Wrapped BTC (wBTC) Secure?
The concept of wBTC is quite safe in that the technology is sound. However, there are still many risks you should be aware of before converting your BTC to wBTC. One of the main concerns stems from the trust-based models of previous wBTC platforms. In this scenario, there is always the risk that the platform could somehow unlock real BTC and leave token holders with fake wBTC.
Another issue worth mentioning is centralization. As long as you involve third-party custodians holding large amounts of bitcoin, minting new tokens and monitoring the value of bitcoin collateral, you have a market ripe for concentration of power.
How to wrap BTC
Once you understand the risks associated with wBTC, you're ready to try these new tokens. Platforms like Coinlist make it easy to wrap BTC. In particular, Coinlist offers a guaranteed 1: 1 value exchange with zero spread and a flat fee of 0.025%.
Where to Buy Bitcoin Wrapped wBTC
Buying wBTC is easy. The reputation and longevity of this token make it available on most major exchanges. Binance offers a variety of wBTC trading pairs. To get started, you must register for an account. Registration is quick and easy. However, you will need to verify your identity before you can participate in trading.
Given the general usefulness and affordability of BTC's packaging, it's no surprise to learn that developers are working hard to expand this concept. They are already seeing a push to introduce Bitcoins wrapped in more complex DeFi concepts.
Complex DeFi networks allow users to duplicate their tokens. For example, imagine deploying your wBTC and immediately redepositing your rewards into a separate pool. There are also strategies where developers want to pay gambling rewards directly with cryptocurrencies instead of DeFi tokens. In this situation, you deploy wBTC but receive ETH directly as a reward.
The wBTC concept continues to see momentum in the market for many reasons. First, no one wants to trade their BTC, especially since this cryptocurrency is now at record highs. With Bitcoin, these long-term hodlers can earn passive rewards without giving up ownership of these valuable digital assets. For these reasons, you can expect more wBTC to hit the market in the coming weeks.