ERC-20 versions of Bitcoin are on the rise at an increasingly rapid rate. Today, I noticed that Wrapped BTC (WBTC) scratched the $1 billion level in Total Value Locked;
This is a significant milestone for anybody following the liquidity flowing into the Ethereum ecosystem from BTC itself. It shows that BTC holders are interested in taking part inside the Ethereum ecosystem, likely to take advantage of the latest DeFi dApps that have created so much value over these past few months.
With WBTC scratching the $1 billion level, I felt the need to talk a little more about what these ERC-20 versions of BTC are. I have covered them before; however, a fresher look was required at these assets to compare alternatives such as tBTC and renBTC further.
1. WBTC - Wrapped Bitcoin
WBTC is an ERC-20 version of Bitcoin, designed to allow BTC liquidity to enter into the Etheruem ecosystem. It was first announced in October 2018 as a collaboration between Kyber Network and BitGo, and it officially went live in January 2019.
It was the first ERC-20 version of BTC, and it is fully backed on a 1:1 basis, which is verifiable on the blockchain as the proof-of-reserves are hashed on the Bitcoin network.
- Stats: $1B+ TVL, 95,198 Bitcoin locked in - Source
- Operated since January 2018 by BitGo
- BitGo serves as the only custodian for the BTC locked into WBTC
- The process works through Custodians and Merchants. Custodians mint the WBTC and hold the BTC, and merchants communicate with users and custodians to get WBTC minted
- The merchants are responsible for conducting AML/KYC checks before they request WBTC to be minted by the custodians
- Only the merchant can burn the WBTC when a user requests back their BTC
- Direct swap from BTC to WBTC is primarily geared toward big players and not the average retail trader. See recent wraps
- All BTC is held by BitGo, who is the sole custodian
- The BTC can be verified on-chain through their “Proof Of Assets” dashboard
- The entire project is governed by the wBTC DAO (Decentralized Autonomous Organization)
- BitGO uses Chainlink as a price oracle for WBTC
- As WBTC was the first ERC-20 version of Bitcoin, it has already been integrated with many DeFI platforms such as Kyber Network, Airswap, Ren, DDEX , Gnosis, BitGo, Blockfolio, Maker, RadarRelay, DyDx
- You can trade WBTC here
tBTC is another ERC-20 token that is backed on a 1:1 basis with Bitcoin. There are no middlemen in tBTC, and there are no KYC/AML procedures that need to be overcome. It is a project of Keep, Summa, and the Cross-Chain group, and it finally was launched in September 2020. I say finally, because its origins reach far earlier than that.
- Stats: $4.5M TVL, 433 Bitcoin locked in - Source
- Operating since September 2020
- Users who verify the mint of tBTC are required to stake ETH to act as a deposit-bond as an anti-spam mechanism - more on this here
- A signing group is automatically selected to assign a BTC wallet for the depositor. These Signing Groups have also bonded some ETH, so they are incentivized to act honestly
- If one of the signing groups’ nodes goes offline, everybody in the group loses some of their bonded ETH - bit dramatic thread on Twitter
- This signing group is responsible for redeeming BTC if a user wishes to convert back to BTC from tBTC
- No AML/KYC is required
- Requires a price feed for the Bonded Ethereum to manage liquidations
- Can only mint lots of 1 BTC at a time
- Audited by ConsenSys, Trail of Bits, and Sergei Delgado
- List of partners/dexs that use tBTC: Uniswap, OasisDEX, Balancer, Kyber Network, Wyre, 1Inch Exchange
RenBTC is another ERC-20 version of BTC that is facilitated through the RenVM. It is a permissionless custodian that holds digital assets as they move through different blockchains.
- Stats: $305,8M TVL, 25,300 Bitcoin locked in - Source
- Operating since May 2020
- Can be minted much faster than WBTC and tBTC. It can be done many times per minute, at any time, without the need for a custodian or manager
- The RenVM dApp will create the BTC address for the user to send BTC to, and the renVM will mint the renBTC
- RenVM stores the BTC in a network of Darknodes
- The RenVM system can still survive even if one-third of Darknodes go offline
- The RenVM can easily be integrated into any existing dApp
- Uses ECDSA private keys to keep the data secret. This prevents any outside entity from ‘blocking’ a user to mint renBTC or redeem BTC by burning renBTC
- RenVM also supports BCH and ZEC to enter into ERC-20 tokens
- List of partners that use renBTC; Aave, AirSwap, bZx Protocol, Curve Finance, Kyber - Full list here.
- Where to trade it;
- Huobi Global
- Curve Finance
- 1Inch Exchange
It is challenging to state which one is indeed here to stay. This is because it all depends on the end-user and their specific use cases. Some users might feel a little more comfortable by handing their BTC over to a custodian like a mechanism of WBTC. At the same time, the custodian then can refuse any redemption if they violate the terms of service.
On the other hand, some other users might prefer a decentralized version, such as in RenBTC, as they believe cryptocurrencies should be totally decentralized. However, in this scenario, rather than trusting the custodian, the user has to trust the smart contracts and hope that there are no attack vectors to be taken advantage of.
Lastly, tBTC is something that is still yet to prove itself. It is the newest version of 'bitcoin on ethereum'. The most worrying part of their system is that ETH is being used as collateral while minting tBTC. With the recent news that came to light, it might hinder the growth of tBTC network. It doesn't mean that I'm not cheering for any project working on that matter.