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The Rise Of Wrapped Bitcoin [WBTC]

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Dalz
@dalz
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Wrapped Bitcoin is an Ethereum token that represents the same amount of BTC on the main chain. It’s a pegged Bitcoin on the Ethereum network.

Why would someone put their Bitcoin on Ethereum?

Well there is a lot of reasons for this but mainly for the options and opportunities that an ETH tokens have. A lot of this is DeFi related. ETH has smart contracts that the native bitcoin blockchain doesn’t have. This allows the Bitcoin on Ethereum to be used on plethora of application. Some of them:

  1. Use Bitcoin as collateral on lending platforms
  2. Use Bitcoin to provide liquidity on ETH DEXs like Uniswap
  3. Faster block time when making transfers
  4. Other application use cases

Overall generate interest from Bitcoin.

In general, WBTC has more functionalities than just holding Bitcoin in your wallet. You can collect all kinds of interest and dividends with WBTC.

Who is behind WBTC and is it safe?

Wrapped Bitcoin was announced at the end of 2018 and started with operation in January 2019.
WBTC is a joint project of three organizations: BitGo, Kyber Network and Ren. BitGo goes back from 2013, the Kyber Network dates from 2017. It is a DeFi oriented blockchain, trying to integrated different blockchains. The same goes Ren, it tries to integrate multiple blockchains and provide DeFI services. Some of their product are RenBridg and RenVM.

As we can see there are some serious names behind the project. They are acting as a custodial for WBTC. Every time someone wrap Bitcoin, they are locking it in custody and mint WBTC on Ethereum. When someone unwrap WBTC, they are burning the same amount of WBTC, making sure that each WBTC on Ethereum is pegged to the same amount of BTC on the main chain.

There is a WBTC DAO, Decentralized Autonomous Organization that manages the transactions. They have regular audits to make sure everything is safe.

WBTC’s DAO

The WBTC Decentralized Autonomous Organization (DAO) manages this project. WBTC does not have the same degree of security and trustlessness as Bitcoin, so the DAO makes sure that it undergoes regular audits.

WBTC also publishes all on-chain transactions. This provides verifications for both the Bitcoin and Ethereum networks. If a user is so inclined, they can independently audit how much of their BTC was sent to the WBTC address on the Bitcoin blockchain. Then they can double-check if those transactions match up with the amount of WBTC tokens created on the Ethereum blockchain.

There is a dashboard where you can view minting and burning: https://wbtc.network/dashboard/order-book

Note: I don’t know all the technicalities behind the process, or cant state for sure how safe WBTC is. All the above is claimed by the WBTC custody providers.

How can I get WBTC

The simple way will be to just buy it on a DEX like Uniswap.

source

As we can see there is a total of 877M liquidity in the WBTC-ETH pool on Uniswap at the moment, making it the largest pool on the DEX. A total of 28k WBTC are locked in this pool.

The other option is to wrap Bitcoin by your self on some of the wallets that allow this, like Coinlist.

WBTC Market Cap

There is a market cap for WBTC? Well sort of. It basically represents the value of the Bitcoin that is wrapped and locked in custodian wallets. This same Bitcoin is also included in the overall Bitcoin market cap.

Here is the chart.

This is the chart for WBTC, starting from January 2019. As we can see there is not much of a Market Cap in the first year. For a long period the MC of WBTC was under 10M USD. Some serious growth started from July 2020.

If we zoom in for this period the chart looks like this.

From July 2020 to October 2020 the WBTC market cap has seen increased from 100M to almost a 2B!

This is an incredible growth of X20, just in a period of four months. The main reason for this? Well off course DeFi!. Having this much of Bitcoin put in DeFi just shows how big the DeFi game is. It shouldn’t be underestimated.

At the moment, Nov 6th, 2020, there is 123411 Bitcoin wrapped, with a total value of almost 2 billion USD. This is 0.67% of the total supply of Bitcoin. WBTC is ranked no.15 by market cap.

The data for the chart above is extracted from coinmarketcap. There are some other web pages that shows the total value locked (TVL) for WBTC. An example for this is https://defipulse.com/wbtc

The same pattern as the chart above.

Furthermore, we can see the richlist for WBTC on etherscan.

source

  • Uniswap 22.8%
  • Compound 19.8%
  • Maker 12.2%
  • Aave 9.5%
  • Curve (Ren.Swap) 6.8%
  • Nexo 2.3%
  • Balancer 1.5%

As we can see, Uniswap holds the no.1 spot with 22.8% of WBTC, followed by Compound and Maker. All the above are basically interest generating platforms. Obviously just holding BTC and generating some interest from it is an attractive proposition.

Obviously Ethereum is becoming home to more and more projects. Having 2 billions of wrapped Bitcoin on the ETH network is an obvious signal where things are going. If you haven't wrapped your token to ETH, it might be a good time to start.

All the best @dalz

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