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22 Oct 2021

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What is the Wrapped Bitcoin? – Work, Benefits, and More
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What is the Wrapped Bitcoin? – Work, Benefits, and More

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 the problem.
  • And there is not much of the 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 stable coins, even if Bitcoin itself isn’t always adamant.)
  • When Bitcoin wrapped, the cryptocurrency is held in reserve by the BitGo Trust. In an aim to be fully transparent.
  • And (something that other stable coins take struggled 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.

Also Read: What is the Ethereum Classic? – Definition, Understanding

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) are base on the Ethereum network rather than the Bitcoin blockchain.
  • Also, it can immensely frustrating for BTC owners, as this means it’s nearly impossible for them and it 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, 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 Wrapped Bitcoin project is overseen by the WBTC DAO. To jog our memory, DAO stands for Decentralized Autonomous Organization.

Also Read: What is VeChain (VET)? – Works, VET, and VTHO

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