Hey guys :) I’m back with another comprehensive Q&A piece, this time for an ERC20 token that is backed 1:1 by Bitcoin – Wrapped Bitcoin (WBTC).
Wrapped Bitcoin (WBTC) is a fairly new innovation that effectively brings BTC to the Ethereum blockchain and it already has nearly 100X more Bitcoin locked in it than the Lightning Network.
As of October 1, 2020, Wrapped Bitcoin is ranked as the 5th largest DeFi asset in terms of locked USD value with more than $1 billion worth of Bitcoin locked in.
Now, before we dive in, the following piece is similar to my latest articles on Uniswap (UNI), Curve (CRV), and Nexus Mutual (NXM), so if you haven’t already seen those, be sure to check them out as well.
Hope you enjoy!
The list of Q&A is kind of long so first comes the list of questions that I have prepared the answers to:
- What is Wrapped Bitcoin $WBTC?
- Who and When Created Wrapped Bitcoin?
- What is the Purpose of $WBTC?
- How $WBTC is Created?
- Can You Exchange $WBTC for BTC?
- Are there any other forms of BTC on Ethereum?
- How to Store $WBTC?
- Where to Buy $WBTC?
1. What is Wrapped Bitcoin $WBTC?
Wrapped Bitcoin website homepage
Wrapped Bitcoin (WBTC) is the first ERC-20 token that’s backed 1:1 with Bitcoin, meaning one WBTC equals one BTC. In other words, Wrapped Bitcoin is simply an ERC-20 token on the public Ethereum blockchain that represents Bitcoin and it’s completely transparent, 100% verifiable, and community-led.
The primary innovation or key advantage of Wrapped Bitcoin is that it integrates seamlessly into the world of Ethereum wallets, dapps, and smart contracts. WBTC brings greater liquidity to the Ethereum ecosystem of decentralized exchanges and other financial applications.
Also, since WBTC is an ERC-20 token, the transfer of WBTC is much faster and scalable than normal Bitcoin. In this sense, Wrapped Bitcoin can be considered an alternative or a competitor to the Bitcoin Lightning Network.
In fact, as of October 1, 2020, there are over 92K BTC on WBTC and just 1.1K BTC on the Lightning Network.
The growth rate of Wrapped Bitcoin is currently parabolic and this is largely due to the explosive growth of decentralized finance (DeFi) on Ethereum.
For instance, WBTC can be traded on Decentralized Exchanges (DEXs) like Uniswap, borrowed and lent on Compound and Aave, locked in sophisticated DeFi farming strategies using Yearn.Finance, and so much more.
Wrapped Bitcoin has opened up a whole new world for Bitcoin and that world is built on Ethereum.
2. Who and When Created Wrapped Bitcoin?
Wrapped Bitcoin Community
BitGo is an institutional digital asset platform that specializes in secure Bitcoin custodianship, security, and technical knowledge in building crypto platforms.
Ren is an open protocol providing access to inter-blockchain liquidity for all decentralized applications. It brings non-Ethereum digital assets such as Bitcoin, Bitcoin Cash, and ZCash onto Ethereum.
Kyber Network is a blockchain-based liquidity protocol that powers secure and instant token exchange in any decentralized application.
The Wrapped Bitcoin project first began when Loi Luu the CEO of Kyber reached out to Benedict Chan the CTO of BitGo about building a Bitcoin ERC20 token. Chan of BitGo was instantly interested in making this happen and the two companies began reaching out to various projects in the DeFi space to gauge sentiment and feedback about the idea behind WBTC.
From there a lot of work went into building relationships and getting everyone involved and represented in the project to make sure that the governance of the Wrapped Bitcoin DAO is built in such a way that represents everyone.
From a technical perspective, several components of Wrapped Bitcoin were built including a token contract with multi-party issuance and redemption; a DAO, tooling, and processes around securing keys; and so on. As well, WBTC’s smart contracts have been validated/audited and reviewed by multiple people.
Overall, Wrapped Bitcoin was the culmination of many people’s and project’s efforts which is why it’s the most widely used form of Bitcoin on Ethereum today.
3. What is the Purpose of $WBTC?
The purpose of $WBTC is to bring Bitcoin onto Ethereum so that it can bring greater liquidity to the Ethereum ecosystem including decentralized exchanges (DEXs) and financial applications.
Bitcoin is the largest and most liquid cryptocurrency in the world but its vast liquidity is limited to centralized exchanges and institutions.
Wrapped Bitcoin changes that by bringing Bitcoin’s liquidity to DEXs and an array of DeFi applications, making it possible to use Bitcoin for token trades, lending, borrowing, earning, and more.
As the liquidity for WBTC increases, more and more projects are becoming comfortable integrating WBTC in their platforms.
For example, WBTC is incorporated into the following top DeFi applications:
- Compound - Lending
- Aave - Lending
- Yearn.Finance - Assets
- Set Protocol - Assets
- Balancer - DEX
- Curve Finance - DEX
- Uniswap - DEX
- Synthetix - Derivatives
- bZx Fulcrum - margin trading
- + Much More
4. How $WBTC is Created?
How WBTC is minted
$WBTC is created when a user undergoes KYC/AML with a merchant, who supplies the user’s Bitcoin to the custodian, who mints an equal amount of WBTC.
That said, merchants initiate the process of minting WBTC tokens by performing verification procedures to confirm users’ identities. The merchant then supplies the user’s Bitcoin to the custodian who performs the procedure of minting and burning tokens on the Ethereum blockchain.
In other words, when WBTC is minted, BTC is taken from the user and stored by the custodian. In reverse, when WBTC is burned, BTC is returned to the user from the custodian.
The governing members of the WBTC DAO decide who can assume the roles of the Merchants and Custodians that manage the system as well as which upgrades and changes are made to the protocol.
Wrapped Bitcoin’s full list of partners including merchants, custodians, exchanges, and DAO members can be found here.
5. Can You Exchange $WBTC for BTC?
BitGo website homepage
The short answer is no. There is no direct bridge for regular everyday users as the only custodian is currently BitGo, which is a custodian for larger institutional-like players.
That said, directly exchanging WBTC for BTC is primarily done by large Bitcoin whales and institutional investors.
As for regular users, they can easily acquire and exchange WBTC for BTC and other ERC-20 tokens through a wide array of centralized and decentralized exchanges that support WBTC. See question #8 for more details.
6. Are there any other forms of BTC on Ethereum?
Yes, there are many forms of BTC on Ethereum. There are 7 different types of BTC on Ethereum including:
- Wrapped Bitcoin (WBTC) - 92,583 BTC / $980,129,433
- renBTC - 23,082 BTC / $244,357,342
- HBTC - 4,810 BTC / $50,922,005
- sBTC - 2,297 BTC / $24,322,235
- imBTC - 1,819 BTC / $19,258,584
- TBTC - 379 BTC / $4,014,491
- pBTC - 104 BTC / $1,098,128
As of October 1, 2020, the total number of BTC on Ethereum is 125,075 BTC equating to a USD value of $1,324,102,218.
Total BTC on Ethereum (Source)
As seen in the chart above, the number of BTC on Ethereum is growing at an absolutely staggering rate, and there’s already nearly 100X more BTC on Ethereum than there is on the Lightning Network.
7. How to Store $WBTC?
Wrapped Bitcoin (WBTC) is yet another ERC-20 token residing on top of the public Ethereum blockchain. That said, you can store WBTC in any ERC-20 token supported wallet.
However, the best wallets for storing WBTC are non-custodial Web3 wallets that provide seamless access to the best DeFi applications, such as Uniswap, Yearn.Finance, Compound, Aave, and many more.
That said, DeFi wallets are the best for storing WBTC because the token is widely used and supported in the Ethereum-DeFi ecosystem.
Popular Uniswap (UNI) Wallets:
- Trust Wallet (mobile)
- Argent (mobile)
- Coinbase Wallet (mobile)
- Ledger Nano S (hardware)
- Metamask (web)
In addition to the above-listed wallets, Wrapped Bitcoin (WBTC) can be stored on a wide variety of other reputable wallets supporting ERC-20 tokens.
8. Where to Buy $WBTC?
Wrapped Bitcoin (WBTC) can be bought and sold on a peer-to-peer (P2P) basis but the most popular way to buy, sell, or trade WBTC is through centralized and decentralized cryptocurrency exchanges.
You can buy WBTC with cryptocurrency or fiat currency at the following top DEXes and exchanges. In most cases, you will be able to buy WBTC with BTC, ETH, or stablecoins.
- Uniswap - WETH, DAI, HBTC, ETH, etc.
- Binance - BTC, ETH
- Curve Finance - renBTC, sBTC
- OKEx - USDT, BTC, ETH
- Balancer - BAL, WETH, renBTC, LINK, SNX, COMP, sUSD, DAI, etc.
In addition to the exchanges listed above, Wrapped Bitcoin (WBTC) is also traded on a wide variety of other exchanges and platforms that enable people to buy, sell, or trade cryptocurrencies.
Hope you enjoyed that read :) Let me know if I have missed something in the comments.