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Wrapped bitcoin (WBTC) is a token that operates on the Ethereum network and functions as a representation of bitcoin. It offers a convenient method of utilizing bitcoin in smart contracts and enables greater accessibility of the world’s largest cryptocurrency on decentralized exchanges (DEX). The value of WBTC is tied to that of bitcoin as they exist in a 1:1 ratio, so changes in the price of bitcoin will directly impact WBTC.
The WBTC protocol allows bitcoin holders to exchange their bitcoin for an equal amount of WBTC tokens, which can then be utilized on Ethereum and accessed through DeFi platforms. This opens up new avenues for bitcoin holders to participate in decentralized finance and engage with Ethereum-based services and applications. By bridging the gap between bitcoin and Ethereum, WBTC makes it easier for users to interact with DeFi platforms, helping to bring more users into the ecosystem.
Wrapped Bitcoin (WBTC) is a token that represents Bitcoin on the Ethereum network. This allows Bitcoin holders to access DeFi platforms and bring the liquidity of the world’s largest cryptocurrency to the decentralized finance arena.
The process of creating new WBTC tokens involves a merchant making a request to a custodian. The custodian mints the WBTC and sends it to the merchant’s wallet on the Ethereum blockchain after the merchant sends Bitcoin. Merchants are responsible for performing necessary KYC/AML checks with end users. Currently, BitGo is the sole custodian for WBTC, and the founding merchants include Kyber Network and Ren. By June 2021, over 1% of Bitcoin was held in WBTC tokens.
Removing WBTC from circulation involves a “burn” process that can only be performed by a merchant. The merchant calls the “burn” function in the governing contract, reducing their WBTC balance. The custodian can then release the backing Bitcoin to the merchant, who can reimburse the end user. Proof of assets is displayed on the protocol’s website.
