Wrapped Bitcoin (WBTC) is a project created by a group of developers and organizations to facilitate the interaction between different blockchains. The main figures of this undertaking are BitGo, Kyber Network, and Ren. This is quite a challenging innovation that aims to use the advantages of BTC in the Ethereum blockchain. This coin is designed to bring the value and stability of Bitcoin to Ethereum’s ever-growing ecosystem of decentralized applications.
One of the main problems that cryptocurrency users are constantly facing is that there are not so many bridges connecting Ethereum and Bitcoin. The creators of WBTC insist that WBTC helps to optimize Bitcoin for decentralized use cases within the Ethereum ecosystem via standardizing Bitcoin to the ERC-20 format.
WBTC creators explain the need for their coin by Bitcoin’s wide distribution. The market cap of Bitcoin is much greater than Ethereum’s when valued in US dollars. At the same time, it is nearly impossible for BTC owners to take advantage of the large part of the DeFi ecosystem and DApps based on the Ethereum network or use the tokens outside of Ethereum on decentralized exchanges.
WBTC is an attempt to introduce Bitcoin to the Ethereum blockchain in the easiest and most convenient way giving the chance to the owners of the digital assets to investigate other blockchains.
How Wrapped BTC Works
Wrapped BTC, or WBTC, was launched on January 30, 2019, and it is the first ERC-20 token that is backed by Bitcoin at a 1:1 ratio. In some way, it can be identified as a stablecoin though it is disputable if Bitcoin can be called a "stable" asset. WBTC represents a custodian model of the Bitcoin tokenization. This means that each minted WBTC has its BTC equivalent kept in a reserve at the custody.
The main peculiarity of this coin is that its creators try to achieve complete transparency. All key details of the network are open to users and regular audits are conducted by third parties (like Solidified Technologies, ChainSecurity, and Coinspect) to prove that all wrapped tokens minted are backed by an equal amount of assets stored. This position has been met with a mixed reaction of the crypto community as such transparency is not common for stablecoins. But token creators believe that it supports users’ trust in the digital currency.
There are four key participants of this system:
1) Custodians (i.e. BitGo) that hold the owned asset;
2) Merchants represented by institutions (i.e. Kyber or REN) that distribute WBTC to users;
3) Users that hold WBTC;
4) WBTC DAO Members represented by a group of institutions empowered with the right to make any modifications of the system.
To perform a Bitcoin to WBTC swap or backward, a user makes a request to a merchant. The merchant verifies the user’s identity and they execute their swap. The merchant receives Bitcoin, and the user receives WBTC.
WBTC Minting and Burning
The whole system performs two main tasks which are minting and burning. They form the basis for the system functioning and are necessary to maintain the balance of assets within it.
To create (“mint”) new wrapped tokens, a merchant sends BTC to a custodian. The custodian confirms that this merchant has deposited a certain amount of BTC on a custodian account on the Bitcoin blockchain. The corresponding amount of WBTC tokens is then minted and sent to the merchant’s account on the Ethereum blockchain.
Burning refers to the action of converting WBTC tokens back into BTC. A merchant places a request to burn a certain amount of WBTC tokens. The custodian transfers the requested amount of BTC back to the merchant’s account and the circulating supply of WBTC is then reduced.
BitGo is the initial and in the meantime the only custodian. Kyber Network and Ren were the first merchants. They covered an initial amount of WBTC tokens with their own Bitcoins to guarantee immediate availability for swaps with users. There were eight merchants at the start of the project. At the time of writing, the number of merchants mentioned on the official website exceeds 20.
Overall, both blockchains, Ethereum and Bitcoin, are equally engaged in these transactions. A record of all mintings and burnings of WBTC tokens can be observed at the Dashboard on the official website. It is demonstrated in accordance with the project’s policy of transparency. All minting and burning transactions should be done not later than within 48 hours.
Exchanges and Wallets
As WBTC is an ERC-20 token, it can be stored in any ERC-20 compatible wallet. It can be bought, sold, and traded on several exchanges like Kyber Network, Bitfinex, Biki, and others. The full list of exchanges is available on the official website.
Team and Partners
As it has already been mentioned above, WBTC is identified as a joint initiative of a number of decentralized exchanges and applications. The main participants are BitGo, Kyber Network, and Ren, formerly Republic Protocol.
BitGo is a digital asset trust company headquartered in Palo Alto, California, the US. It was created in 2012 by Mike Belshe who is a Chief Executive Officer of the Company. BitGo plays a key role in the project taking the function of a custodian.
Kyber Network is an on-chain liquidity protocol that makes it possible to exchange tokens without the need for an intermediary. Ren is a decentralized dark pool for cross-chain atomic trading. Both parties play a crucial role in the project development being the initial merchants.
The WBTC project is governed by the WBTC DAO (DAO stands for Decentralized Autonomous Organization). Any crucial changes to the WBTC structure must be accepted by the DAO. From the start of the project, there are 17 WBTC DAO Members, e.g. AirSwap, Blockfolio, or Compound. The full list of DAO Members is available on the official website.