What Is Wrapped Bitcoin?
What Is Wrapped Bitcoin [WBTC]?
By utilizing Wrapped Bitcoin, you can tokenize your Bitcoin (BTC) and take advantage of the Ethereum (ETH) blockchain to make secure transactions.
WBTC is compatible with the most popular standard for Ethereum – ERC-20, granting it access to a wide range of options within DeFi. This includes decentralized exchanges, crypto lending services, prediction markets and any other applications enabled by ERC-20.
WBTC is bolstered by Bitcoin at a 1:1 relationship through a slew of automatically monitored retailers and custodians, guaranteeing that its value is reliably linked to Bitcoin all the time. This allows users to move liquidity between the BTC and ETH networks in an autonomous yet decentralized way.
On October 26, 2018, Wrapped Bitcoin was officially unveiled to the public and released on January 31st of 2019.
How Are Wrapped Bitcoin Created?
WBTC, the ERC-20 token standard that adheres to Ethereum’s DeFi ecosystem, has revolutionized Bitcoin by uniting it with the world of cryptocurrency. As a result, those who convert BTC into WBTC can now access these tokens which are created specifically for them.
For the conversion process, a custodian holds all of the BTC. This trusted third-party participates in minting and burning Ethereum tokens for WBTCs. After burning WBTCs, users can reclaim their original BTC balance from the custodian itself. When mining these coins, it’s as simple as sending your personal BTC to an assigned address held by said custodian and receive equal amounts of Wrapped Bitcoin (WBTC) token instead! BitGo is renowned for being one of the largest providers in this space and will supply merchants with freshly mined WBTC tokens sent straight to their designated Ethereum wallet addresses once processed.
To shift between wBTC and BTC, users can conduct a transaction at either a centralized exchange or an atomic swap on a decentralized exchange. Upon completion of the trade, those who have WBTC may use their assets however they wish. Should such individuals decide to convert from WBTC to BTC, Wrapped Bitcoin balances will be automatically eliminated through burning these tokens in yet another transaction.
The WBTC DAO is made up of governing members that are responsible for making important changes and updates to the protocol. These members can also serve as merchants or custodians, controlling BTC assets.
What Can You Do With WBTC?
The advantages of Wrapped Bitcoin tokens are that they conform to the ERC-20 token standard, allowing them to be used in Ethereum’s wider ecosystem. This includes being traded on decentralized exchanges like Uniswap, 1Inch and Sushiswap, as well as taking advantage of DeFi protocols utilizing WBTC.
With DeFi projects, there are plentiful chances to utilize Wrapped Bitcoin (WBTC). Taking advantage of WBTC includes borrowing and lending pools, yield farming options, token swapping services and even liquidity pools. Multiple protocols as well as platforms support the use of this cryptocurrency – think Aave, Balancer or Compound alongside MakerDAO- with some providers offering extra rewards in a form of governance tokens.
If you own WBTC, taking out a crypto-backed loan using it as collateral is an excellent option for businesses. Furthermore, holders of WBTC can even acquire additional income by providing liquidity in the market – albeit at a modest interest rate.
WBTC holders can take advantage of margin trading opportunities, allowing them to use Wrapped Bitcoin for Ethereum and other ERC-20 tokens. By utilizing this process, users will benefit from increased fund safety while conducting trades due to the non-custodial nature empowered by smart contract technology.