Wrapped Bitcoin is a relatively new concept, but one that can prove vital to bringing liquidity to Defi.
How Do WBTC Tokens Work?
- Imagine you’re already familiar with Bitcoin and keen to start using Defi applications. But there is a problem.
- And there is not much of a cryptocurrency bridge connecting Bitcoin and Ethereum.
- And wrapped BTC helps to solve this problem and deliver some much-needed liquidity to Defi protocols.
- Also, WBTC is the ERC-20 token that’s backed on a 1:1 basis with Bitcoin. (In some ways, they can compare to stablecoins, even if Bitcoin itself isn’t always adamant.)
- When Bitcoin is wrapped, the cryptocurrency is held in reserve by the BitGo Trust. In an aim to be fully transparent.
- And (something that other stablecoins take struggle with,) the amount of WBTC in circulation remains made public — with proof that Bitcoin, the underlying asset, its existence securely held in custody.
- Also, WBTC can wrap (and unwrapped) in wallets such as those provided by CoinList.
What Are the Benefits of Wrapped Tokens?
- In short, they give the owners of digital assets the freedom to explore other blockchains.
- Also, a large chunk of the Defi ecosystem (and DApps) is based on the Ethereum network rather than the Bitcoin blockchain.
- Also, it can immensely frustrate BTC owners, as this means it’s nearly impossible for them and they get involved unless they sell their crypto assets and buy others.
- Later the WBTC network launched in January 2019 many Defi protocols — including MakerDAO, Dharma, and Compound.
- And the Kyber Network — take begun allowing borrowers to use WBTC as collateral.
- Also, it can then lock up into the smart contract, with crypto loans usually paid out using the DAI stable coin on the Ethereum ecosystem.
- And the Wrapp Bitcoin project is overseen by the WBTC DAO. To jog our memory, DAO stands for Decentralized Autonomous Organization.
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