What is Wrapped Bitcoin (WBTC)?

Wrapped Bitcoin (WBTC) is an ERC-20 token that represents Bitcoin (BTC) on the Ethereum blockchain.

In brief –

  • WBTC is an Ethereum ERC-20 token that represents Bitcoin and can be swapped on a 1:1 basis for BTC.
  • BTC holders can use WBTC to participate in Ethereum’s decentralized finance (DeFi) ecosystem.

Bitcoin is the world’s first, largest, and most-recognized crypto asset. Since Bitcoin’s creation over a decade ago, the technology behind the revolutionary “peer-to-peer electronic cash system” has largely remained the same.

What is WBTC?

WBTC stands for Wrapped Bitcoin, simply an ERC-20 token that represents Bitcoin—one WBTC equals one BTC. A BTC can be converted into a WBTC and vice-versa. Being an ERC-20 token makes the transfer of WBTC faster than normal Bitcoin, but the key advantage of WBTC is its integration into the world of Ethereum wallets, decentralized apps (dapps), and smart contracts.

Invention of WBTC

Wrapped Bitcoin launched on the Ethereum mainnet in January 2019. Wrapped Bitcoin was brought to the world as a collaborative project between major players in the DeFi ecosystem, such as BitGo, Ren, Dharma, Kyber, Compound, MakerDAO, and Set Protocol, in an effort to bring more liquidity into the Ethereum network by dipping into Bitcoin. The project is now controlled by a Decentralized Autonomous Organization(DAO) called the WBTC DAO.

What’s makes it special?

Many of the most popular DeFi dapps on Ethereum require the use of collateral. Products such as MakerDAO and Compound require users to lock up crypto assets in order to borrow other crypto assets.

In simple words, the overall value of Ethereum is significantly smaller than Bitcoin, this limits how much these protocols can grow. By bringing Bitcoin over, protocols get a boost in liquidity and thus can create more sources of collateral for their dapps. Wrapped Bitcoin also allows Bitcoin holders to hold it as an asset while also using DeFi dapps like Compound to borrow or lend money.

How WBTC tokens produced?

The Governing members of the WBTC DAO decide on major upgrades and changes to the protocol as well as who can assume the roles of the merchants and custodians who manage the system.

Basically, Users who have BTC and want to convert it into WBTC must interact with merchants. Merchants initiate the process of minting or burning WBTC tokens by performing verification procedures to confirm users’ identity. The Custodians hold the actual BTC being wrapped and do the actual minting and burning of tokens on the Ethereum blockchain. When WBTC is burned, BTC is returned to the user from the custodian. When new WBTC is minted, BTC is taken from the user and stored by the custodian.

Now let’s check about How do you get hold of WBTC tokens? & What can you do with WBTC?

Since WBTC is an ERC-20 token, it can be traded on decentralized exchanges(DEXs) such as Kyber or Uniswap. If you want to swap BTC for WBTC, there are a number of platforms available, including Atomic WalletCoinlist, and Poloniex and many more.

WBTC can be used in DeFi for lending, borrowing, token-swapping, yield farming and in liquidity pools. Some DeFi platforms that support WBTC include Aave, Balancer, Compound, Kyber Network, MakerDAO and Uniswap.

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