The concept of Wrapped Bitcoin is new but could be pivotal in terms of DeFi liquidity.
WBTC or Wrapped Bitcoin is a new technology that allows BTC to be used on the Ethereum blockchain. WBTC has many uses, but one of the main ones lies in decentralized finance.
Now picture you’re already knowledgeable about Bitcoin and very interested in utilizing DeFi applications. The only issue is that there’s not a dependable cryptocurrency bridge connecting Bitcoin and Ethereum!
Wrapped BTC provides the DeFi industry with much-needed liquidity to various protocols.
WBTC is an ERC-20 token that has a 1:1 value with Bitcoin. Even though Bitcoin’s value doesn’t always stay the same,WBTC tries to copy its stability .
To ensure the cryptocurrency is fully protected, Bitcoin is wrapped and held in a reserve by the BitGo Trust. In an effort to maintain transparency ( something other coins have struggled with,) the WBTC team has made public both how much of the coin is circulating as well as provided physical proof that the Bitcoin ,the underlying asset,is securely being kept in their custody.
WBTC can be wrapped or unwrapped in wallets from providers such as CoinList.
In other words, they allow the owners of digital assets to move their assets to different blockchains.
A majority of the DeFi ecosystem and DApps rely on the Ethereum network instead of the Bitcoin blockchain, which can be very irritating for BTC owners because it makes participating nearly impossible without selling their cryptocurrency or purchasing others.
The WBTC.network launched in January 2019, and since then, many DeFi protocols have begun to allow borrowers to use WBTC as collateral. This can be locked into a smart contract using the DAI stablecoin on Ethereum, with crypto loans being paid out using this method.
The Wrapped Bitcoin project is managed by the WBTC DAO, which stands for Decentralized Autonomous Organization.
ETH can certainly be used as collateral on DeFi platforms, but it’s worth noting that Bitcoin’s market cap is far greater when measured in USD. This makes BTC a more popular choice among investors. However, expanding the range of acceptable collateral types is crucial for DeFi applications—especially as they reach new all-time highs in terms of value locked. With trading volumes increasing, liquidity becomes an increasingly important concern to avoid significant price fluctuations during transactions.
The number of BTC being converted into wrapped tokens is on the rise as well. According to DeFi Pulse, the total value locked in WBTC surged by 943% from mid-May to mid-August 2020.
There are a number ofofficial merchants who support Wrapped Bitcoin, including CoinList. In some cases, you may need to go through KYC checks in order to verify your identity. Alternatively, you could use a DEX (decentralized exchange).
The process of minting WBTC is not complicated.
WBTC tokens are one solution to the long-standing problem in the cryptocurrency world of how to better connect major blockchains such as Bitcoin and Ethereum.