Wrapped Bitcoin (WBTC)
Wrapped Bitcoin (WBTC) is a token that represents Bitcoin (BTC) on the Ethereum blockchain. It bridges Bitcoin with the Ethereum ecosystem, allowing Bitcoin holders to participate in decentralized finance (DeFi) applications. WBTC is an ERC-20 token fully backed by Bitcoin at a 1:1 ratio, which ensures that every WBTC in circulation is backed by an equivalent amount of BTC held in reserve.
The creation of Wrapped Bitcoin
Wrapped Bitcoin was launched in January 2019 as a collaborative project by several prominent entities in the cryptocurrency space, including BitGo, Ren, and Kyber Network. These organizations sought to bring the liquidity and value of Bitcoin to the Ethereum blockchain, enabling Bitcoin holders to engage with Ethereum-based decentralized applications (DApps) and smart contracts.
| Ticker | WBTC |
| Category | Crypto-Backed Tokens |
| Website | https://www.wbtc.network/ |
| @WrappedBTC | |
| Contract Addresses | |
|---|---|
| ethereum | 0x22...99 Copied! |
How Wrapped Bitcoin works
Tokenization process
The process of creating Wrapped Bitcoin involves a few key steps:
Custodian role: A custodian, such as BitGo, holds the actual Bitcoin in reserve. For every Bitcoin deposited, an equivalent amount of WBTC is minted on the Ethereum blockchain.
Minting and burning: When a user wants to convert their Bitcoin into WBTC, the custodian mints an equivalent amount of WBTC. Conversely, when a user wants to redeem their WBTC for Bitcoin, the custodian burns the corresponding WBTC and releases the equivalent amount of Bitcoin.
Proof of reserve: The process is transparent and verifiable. The Bitcoin backing WBTC is regularly audited and can be publicly verified, ensuring that the total supply of WBTC matches the amount of Bitcoin held in custody.
Participation in decentralized finance
WBTC allows Bitcoin holders to participate in the growing DeFi ecosystem on Ethereum. By converting their BTC into WBTC, users can leverage their holdings in various DeFi protocols, including:
- Lending and borrowing: Users can lend their WBTC to earn interest or use it as collateral for borrowing other cryptocurrencies.
- Decentralized exchanges: WBTC can be traded on decentralized exchanges (DEXs) like Uniswap, providing liquidity and enabling users to trade Bitcoin in a decentralized manner.
- Yield farming and staking: WBTC can be used in yield farming strategies or staked in various protocols to earn additional rewards.
Benefits of Wrapped Bitcoin
Increased liquidity
By tokenizing Bitcoin on the Ethereum blockchain, WBTC enhances the liquidity of the DeFi ecosystem. It enables Bitcoin's vast market value to be integrated into Ethereum-based platforms, providing more capital and increasing the efficiency of the DeFi markets.
Interoperability
WBTC bridges the gap between Bitcoin and Ethereum, two of the largest blockchain networks. This interoperability allows Bitcoin holders to access the wide array of DApps and smart contracts available on Ethereum, expanding the utility of their assets.
Transparency and security
The custodial model of WBTC ensures transparency and security. The Bitcoin reserves backing WBTC are audited and publicly verifiable, providing users with confidence in the token's value and backing.