ZoneBitcoin EditorialYou may have heard of it, right? In fact, there is more and more talk of what is called "Wrapped Bitcoin" (wBTC). In French, we can also say "BTC wrapped" but frankly, we rather use the English expression, to tell you frankly.
For many people, the wBTC token was particularly anticipated, especially among bitcoin holders. More specifically, wbtc was anticipated by those who wanted to use " bitcoin in DeFi », just like we do with other tokens.
You will quickly understand why wbtc has a crucial role by reading this article.
To understand this enthusiasm around this recent token, I offer you this article which wants to explain to you, in detail, what Wrapped BTC is.
What is Wrapped Bitcoin wBTC?
To quickly explain it, Wrapped Bitcoin is an ERC-20 token, which therefore belongs to the Ethereum blockchain. It is therefore a bitcoin which is compatible with the Ethereum ecosystem.
By having placed Bitcoin in the Ethereum blockchain, we allowed it to benefit from DeFi tools.
Because yes, this is precisely why Wrapped Bitcoin was invented. To take Bitcoin out of its isolation so to speak and to be able to "work" with it as one can do with other Ethereum tokens.
These are BitGo, Ren (formerly Republic Protocol) Kyber Network as well as other companies which are behind this project. They came together to launch Wrapped Bitcoin (wBtc) at the same time on October 26, 2018.
Today, you can buy wbtc on most crypto exchange platforms.
The mission of wBTC
In fact, the main mission of wBtc was to thereby provide liquidity to the decentralized ecosystem. Because this is precisely the strength and great advantage of bitcoin: it enjoys greater liquidity due to its popularity. Thus, by creating wrapped bitcoin, it was ultimately the possibility of creating a win-win partnership between bitcoin and ethereum. For Ethereum, by providing more liquidity, we enable better functioning of decentralized applications for example.
Thus, each wBtc is in fact an ERC-20 token which represents the cryptocurrency bitcoin. And this, on a 1:1 basis. This means that 1 wBTC = 1 BTC quite simply. Thus, you can exchange and convert your bitcoin into wBTC and vice versa. Wrapped Bitcoin will always follow the price of Bitcoin and that is very important to know.
This flexibility is particularly appreciated by bitcoin holders, as you can imagine. This allows them to benefit from different investment strategies on their bitcoin.
And, if they do it...It's good that there is a reason, you will tell me. And, indeed, more than a reason, there are even advantages to having Wrapped Bitcoin.
Let's see what they are precisely..
What are the advantages of Wrapped Bitcoin?
As you will see for yourself, there are many reasons why investors own Bitcoin warrepd.
Integrated into the Ethereum eco-system
The first reason, as we saw in the introduction, is that it is integrated into the entire Ethereum school system. What does it mean? Well, since there are different applications on Ethereum, for once it is possible to participate with bitcoin as well.
And, when we talk about an eco-system, we are talking about the possibility of using exclusive wallets, dApps, opportunities, decentralized platforms (DEX), to participate in games and also be able to benefit from smart contracts.
In fact, for example, if people wanted to benefit from DeFi services, in the past, it was impossible to participate other than with Ethereum tokens. Now, it is entirely possible to participate with your bitcoins. This is precisely what has sparked such enthusiasm on the markets.
Liquidity
The other big advantage of wBTC is that it brings greater liquidity to the market. As you know, Ethereum is varied in terms of functionality. It also happens that some decentralized exchange platforms and other platforms lack liquidity. However, if we lack liquidity, we cannot make the markets operational. Understand that a user who wants to exchange, for example, ETH for ADA can only do so if there is enough "liquidity". This is the condition sine qua to allow exchanges on platforms (centralized or not elsewhere). No liquidity, no operations, it's that simple.
This is how wBTC brings the liquidity present in bitcoin into the Ethereum ecosystem. Therefore, wBTC brings liquidity present in CeFi into DeFi. The entire Ethereum ecosystem is delighted!
Low liquidity makes an exchange less efficient because users cannot trade their tokens quickly and for the amount they want. wBTC integrates the liquidity of BTC into the flexibility of the Ethereum ecosystem. In this way, wBTC closes the liquidity loop between many CeFi and DeFi products.
Speed and Scalability
One of the big differences between Ethereum and Bitcoin is the fact that Ethereum is faster than Bitcoin. ETH transactions are completed in seconds while bitcoin can take up to 10 minutes per transaction (and even more).
This means that when bitcoin is “wrapped” into the ETH blockchain, it then becomes as malleable and flexible as an ERC-20 token.
And, in addition to being faster, the transactions are also cheaper…
New features
Yes, here again, this is another advantage of Wrapped BTC which is not the least. wBTC brings users more features than regular BTC. For example, wBTC can take advantage of Ethereum's smart contracts. It's not nothing! Do not forget that, precisely, Vitalik Buterin to decide to create Ethereum precisely to be able to do something other than payments.
So this is a wonderful meeting, to put it like that. Finally, bitcoin can take advantage of the rich and numerous features of Ethereum. Among them, it goes without saying, that we are mainly talking about DeFi services.
How does wrapped Bitcoin (wBTC) work, what is its special feature?
Wrapped bitcoin, as you can already assume, remains a particular crypto, in its nature and in its functioning. You will see that for all the tokens that are called "wrapped" (because yes, there is also for example wrapped ETH), there is a particular operation. This is based on the forging and dissolution of crypto. We explain what this means below.
From the start, the companies behind wrapped Bitcoin, Kyber Network and Ren provided a certain starting amount from their own inventory. This was done to guarantee initial liquidity and to make wBTC available on exchanges upon its release.
Anyone can have wBTC. It is possible to obtain it on a platform such as Kyber Network, MakerDao or even Ox. You also have to pass KYC to be able to obtain it. It is in fact BitGo (which is in fact the sole custodian) which will then forge an equal amount of wBTC before giving it to the original requester.
As everything is done on the blockchain, please note that the creation of wBTC is still recorded on the blockchain. And, when people exchange wBTC for bitcoin, then the latter are burned. This is how we can guarantee a 1:1 ratio. Likewise, we can then recover the initial BTC by doing the opposite mechanism, and this time by burning wBTC tokens.
So, this is what we call token forging and dissolution. These are also recorded and visible on the blockchain. We can thus, as with other tokens, verify transactions on Blockchain Explorer as Etherscan for example.
DeFi services for bitcoin
In fact, we can safely say that it is the expansion of DeFi (Decentralized Finance) which led us to create wBtc. In any case, it remains DeFi which has favored its emergence.
DeFi applications want to transform traditional finance services to incorporate them into a decentralized version. This is how we can summarize DeFi, here. Thus, well-known applications like Compound allow users to technically replace banks and provide liquidity in exchange for rewards. This is not the only service that they authorize, but remember that DeFi services are of interest to the public because they allow make money with cryptocurrencies.
But, it's not just Compound but hundreds of other applications. Some of them allow us, for example, to staking.
There are several ways to put your bitcoins to work on DeFi; Here are two resources that might be helpful to you:
—> Our complete guide to Bitcoin in DeFi and the different applications.
—-> Our video that explains the role of bitcoin in DeFi.
Staking with WBTC
The main reason we're talking about staking here is that it's one of the most popular features of DeFi. There are several versions of staking protocols out there right now. However, the vast majority of them involve "locking" a certain amount of cryptocurrency in exchange for a reward. The higher the amount locked and the longer the lock date, the greater the reward.
If there are so many people who have converted their BTC into wBTC, it is mainly to be able to benefit from Staking, let it be said.
Do Yield Farming with wBTC
Ah, Yield Farming, you have certainly heard of it with projects like Uniswap et Sushiwap, to name only the most famous. Yield Farming is different from staking in several ways. Although the purpose (earning rewards) is the same, the mechanism and principle are different. Specifically, yield farming has shorter crypto lock-up periods. And there, it's more about lending cryptos to the network in exchange for interest.
There are more and more applications that allow yield farming with wBTC. We can cite here, Compound to mention the best known. There is also Sovryn or Badger DAO.
There are different models of wrapped BTC
This article would not be complete if we did not talk about the different types of wrapped BTC models. This is because there are different strategies when wanting wBTC. For each intention and each strategy, a wrapped bitcoin model will be favored.
There are, in fact, 3 types of wrapped Bitcoin:
Centralized wBTC
In a centralized wBTC strategy, it is a company that will maintain 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. As with all centralized systems in general, the downside here is that you then depend on the company when it comes to the security of your bitcoin.
Among the centralized platforms that allow you to obtain centralized wBTC, we can cite BitGo for example.
BTC says Trustless
For example, we can use Keep network in order to have wrapped bitcoin in tBTC form. For example, with this newcomer in the field, you can store ETH and receive tBTC. Interesting isn't it? In this strategy, the responsibilities of centralized platforms are transferred to intelligence contracts. There, your bitcoins will be locked in a network contract and you remain in control of your actions. It is a system that guarantees you more autonomy than the centralized bitcoin wrap that we saw above.
Synthetic assets
Here again, we hear about it more and more. In this way, one can lock BTC in a smart contract and receive a synthetic asset of equal value. Even if it looks like what we just saw above with Keep.Network, know that it is still different. In this specific case, the token is not directly backed by BTC. Rather, it is the platform that will back up the asset with native tokens.
One of the platforms that allows you to do this and which is increasingly gaining popularity is Synthetix DEX (SNX). This remains the leader and pioneer in this niche. Here, we will not talk about wBtc, nor even tBtc but rather sBTC.
Thus, on the SNX platform, the wrapped Bitcoin (which is therefore called sBTC) is not directly supported by BTC, but by 800% of the value of a BTC in SNX.
Remember that SNX is the main platform governance token on the Synthetix network.
Is wrapped BTC (wBTC) secure?
It's a legitimate question. In fact, the technology behind wrapped Bitcoin (wBTC) is said to be solid. However, as with everything, there are risks to converting your bitcoin into wBTC.
The greatest risk lies in the trust given to the platforms that create wBTC. We can always imagine that these platforms use the real Bitcoin given by the user and give them a kind of fake wBTC instead. Well, that has never happened until today because the platform that did that would lose a lot.
Another problem is centralization. In particular for the case of centralized wrapped Bitcoin (wBTC) that we described above. Centralization of power can be dangerous. It can be a risk if a platform centralizes too much power...
How to get wrapped BTC?
If you understand the whole point of having wrapped BTC, you must certainly be wondering how to get some, right?
You can do this on certain platforms like Coinlist for example, easily and quickly.
As can be seen in the screenshot, Coinlist allows you to trade with a guaranteed 1:1 value, no fees and 0,25 commission.
If you have bitcoin and want to exchange it for wBTC, follow these steps.
Here are the steps to follow:
1/ The first step is to register on CoinList.
2/ Click on the “Wrap” button.
3/ You will be asked for the amount of BTC you wish to convert.
4/ Click on convert.
Where to buy Bitcoin Wrapped WBTC directly
If you don't have bitcoin or don't want to exchange them, it's entirely possible to buy some directly.
Conclusion on Wrapped BTC (wBTC)
We have just seen what wrapped Bitcoin (wBTC) is and we have also seen its usefulness. There are always more people using wrapped bitcoin, especially on crypto trading platforms.
Many people use wrapped bitcoin because they actually don't want to get rid of their bitcoin. Many people want to keep their bitcoins and be in an HODL strategy.
However, bitcoin holders also want to be able to take advantage of the attractive offers of DeFi. But, instead of earning interest on small tokens, we can finally earn interest on wrapped bitcoin directly. So, it seems more interesting to them, convinced that bitcoin will reach even higher heights.
See also:
- Bitcoin in DeFi: How to make your BTC grow? (The Ultimate Guide)
- What is BTC20? Between promise and doubts of a pale imitation of Bitcoin
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Note: This is not investment advice. Always do your own research
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