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Wrapped Bitcoin (WBTC) is an ERC20 token created to integrate Bitcoin with DeFi. As the stable currency of Bitcoin, this token means that 1 WBTC will always represent the value of 1 BTC. Although there are many new currencies at the top of the crypto rankings, Bitcoin is still the largest currency in terms of market share, so it is very reasonable to inject the full power of the original currency into DeFi. As an ERC20 token, WBTC’s transfer speed is faster than ordinary BTC, but its key advantage lies in its integration with dApps, Ethereum wallets and smart contracts.
Since its establishment, WBTC has generated a lot of interest in the entire DeFi application, including lending, derivatives, DEX and payment protocols.
Wrapped Bitcoin was launched on Ethereum in January 2019 as part of cooperation between mainstream players of DeFi, such as Ren, BitGo, Compound, Kyber, MakerDAO and Set Protocol. Today, the project is managed by a decentralized autonomous organization (DAO) called WBTC DAO.
For DeFi, one of the biggest advantages of WBTC is the injection of liquidity brought by tokens. Many of the most popular DeFi dApps require users to invest their own collateral to use the service. For example, when using Compound to borrow crypto assets, users need to lock up a certain amount of collateral. Using ETH alone would limit the growth rate of these protocols, but by integrating the service with Bitcoin, this limit has been removed. More and more people are investing more money in Bitcoin.
Now, people can use these funds through the DeFi protocol that supports WBTC while holding Bitcoin.
WBTC operating mode
The framework of WBTC tokens has 3 main components: receiving, minting and destroying.
To get WBTC, you need to receive tokens from WBTC merchants. The merchant will conduct KYC/AML procedures and verify your identity. Once completed, the transaction will be executed, the Bitcoin will be transferred to the merchant and WBTC will be transferred to you. Minting refers to the process of creating new tokens. The minting in the framework is initiated by the merchant and executed by the custodian. Destruction refers to the act of converting Bitcoin into WBTC tokens. Only the merchant address can be destroyed. The amount to be “destroyed” will be deducted from the merchant’s WBTC balance (on the chain), and then the supply of WBTC will be reduced.
As you can see, WBTC requires trust in people and systems, not pure code. In order to improve trust and transparency, WBTC will conduct regular audits and announce all on-chain transactions and verifications of Bitcoin and Ethereum networks. Anyone can check how many BTC has been sent to the WBTC address on the Bitcoin blockchain, match the transaction with the creation of WBTC, verify the destruction process of WBTC, and exchange BTC on the chain.
If you just want to trade WBTC, it’s much simpler. Most DEXs operating in the DeFi field support the token, including Uniswap, Kyber, and SushiSwap, as well as more and more centralized exchanges such as AAX. Then you can use this WBTC for any other protocol in DeFi, such as Compound, Aave or Set. Direct exchange between WBTC and BTC can only be achieved through official WBTC merchants, including Kyber, Dharma, Set, GOPAX, AirSwap, Prycto, ETHfinex and Ren.
The future of WBTC
The future of WBTC lies not only in how individual traders use it, but also in how DeFi developers deploy it strategically. As an ERC20 token, Bitcoin in the form of WBTC is another component in the design of the DeFi protocol modular system. Now, it’s the turn of the most innovative developers to find a more interesting gameplay and integrate the essence of Bitcoin, Ethereum, DeFi and innovative finance into one platform.