October 2020, customers in qualifying countries will be able to send and receive WBTC on Coinbase Pro. Full trading on Coinbase Pro will begin on or after 9AM Pacific Time (PT) Tuesday October 20th and on Coinbase.com on or after 9AM Pacific Time (PT) Wednesday October 21st 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 to 1 wrapped bitcoin and vice versa. WBTC is designed to allow Bitcoin holders to participate in decentralized finance ("DeFi") apps that are popular on Ethereum. The BTC that WBTC supports is transparently verifiable through a "proof of reserve" system that verifies 1:1 collateral between minted WBTC tokens and bitcoin stored by custodians. WBTC is maintained by a group called WBTC DAO, which now consists of over 30 members. It was originally founded by BitGo, Ren, and Kyber.
Advantages of Token Wrapped
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 BTCs. First and foremost, 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 get access to DeFi credit and loan networks without giving up or trading their Bitcoin directly. It is this latter reason that has caused a stir in the market recently.
Another major 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 necessary liquidity to function optimally. Low liquidity makes an exchange less effective because users cannot trade 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 major benefit gained by wrapping your bitcoin. Since wrapped tokens exist in the Ethereum blockchain and not directly in Bitcoin, transactions made with wBTC are faster and cost less. In addition, 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 self-executing pre-programmed protocols. They are considered the core technology of the blockchain sector. However, they only became 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 birth to wBTC. At the very least, it is the spark that ignited the wBTC fire. DeFi apps 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.
Staking is one of the most popular DeFi functionalities. There are currently several versions of staking protocols in effect. Most require a user to lock their cryptocurrency into a smart contract for an agreed upon amount of time in exchange for rewards. Users who convert their BTC to wBTC can take advantage of these next-generation protocols. For example, on platforms like CoinList, you can automatically earn rewards by putting wBTC into your network wallet.
Yield Farming BTC
Yield farming is another DeFi protocol that continues to gain momentum in the industry. Farming is different from staking in a few ways. Specifically, farming protocols have shorter lockup periods. Many farming systems allow network users to borrow their crypto with interest. For example, Compound allows anyone to earn passive income by lending wBTC to other users on the network via farming pools.
wBTC on the rise
There are some serious benefits gained when you wrap BTC. These benefits have helped create a new sector in the blockchain industry. Nowadays, more and more investors want to use wBTC services. A September report highlighted this growth in spectacular form. According to researchers, there is now over $1.1 billion in wBTC in use worldwide
Different wBTC models
Interestingly, there are a few different BTC packaging models within the sector. Each of these strategies differs slightly, but leads to the same result - BTC on the ETH blockchain. Here 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 a prime example of this strategy in action.
The second and more advanced way to wrap Bitcoin is a decentralized system. The Keep network offers users wrapped BTC services in the form of tBTC. In this scenario, centralized custodial responsibilities are transferred to smart contracts. Your BTC remains locked in a network contract that the platform cannot adjust without permission from you. This strategy provides users with a trusted 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 800% of the value of a BTC in SNX. SNX is the platform's main governance token for the Synthetix network. It is supported by liquidity pools.
Is Wrapped BTC (wBTC) safe?
The concept of wBTC is quite safe in that the technology is sound. However, there are still many risks that 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 a risk that the platform could somehow unlock the real BTC and leave token holders with fake wBTC.
Another issue worth mentioning is centralization. Whenever you involve third-party custodians who hold large amounts of bitcoin, mint new tokens, and monitor 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 out 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 wrapped bitcoin 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 need to register for an account. Registration is quick and straightforward. However, you will need to verify your identity before you can participate in trades.
Given the overall 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 wrapped Bitcoins into more complex DeFi concepts.
Complex DeFi networks allow users to double their tokens. For example, imagine deploying your wBTC and then immediately redepositing your rewards in a separate pool. There are also strategies where developers want to pay staking rewards directly with crypto instead of DeFi tokens. In this situation, you deploy wBTC but receive ETH directly as a reward.
The concept of wBTC continues to see momentum in the market for many reasons. First and foremost, no one wants to trade their BTC, especially since this cryptocurrency is now at all-time 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.