On Jan. 30, a group of cryptocurrency developers and organizations officially launched a project called Wrapped Bitcoin (WBTC) on the Ethereum network. The ERC20 token is a coin backed by bitcoin core (BTC) reserves and has started trading on several exchange platforms.
The Introduction of Wrapped Bitcoin
Last October, a joint initiative by Bitgo, Kyber Network, and Ren (formerly Republic Protocol), revealed the creation of a new ERC20 token called WBTC. The new tokens are meant to bring more liquidity into the decentralized ecosystem between both chains, while also enhancing decentralized applications. Wrapped bitcoin (WBTC) is the first ERC20 token backed 1:1 with BTC. The organizations that developed the protocol believe WBTC is the beginning of a multi-institutional framework for tokenizing any asset.
“WBTC will allow the Ethereum network to be leveraged to enable new applications and use cases for itcoin — WBTC standardizes itcoin to the ERC20 format, so dapps such as Compound, Dharma, Dydx, Gnosis, Maker, Set protocol and more can leverage bitcoin for decentralized lending, margin trading, and derivative markets,” explain the creators of WBTC. “Further compelling new applications and use cases will be identified, explored and implemented as the ecosystem continues to grow and actively innovate.”
Initially, eight merchants will be facilitating conversion between WBTC and BTC. There is a required Know Your Customer (KYC) process involved with obtaining WBTC through these merchants. Initial merchants dealing with WBTC will include Airswap, Dharma, Ethfinex, Gopax, Kyber Network, Prycto, Ren, and Set Protocol. The developers also say that WBTC will be integral to the development of decentralized exchanges.
“WBTC also makes it possible for traders to use bitcoin value for token trades on decentralized exchanges (DEXs) such as Airswap, Ddex, Ethfinex, Idex, Kyber Swap, Loopring, Radar Relay, Renex, Switcheo Network, and the Ocean,” the WBTC announcement detailed.
The WBTC representatives added:
Wallet providers and exchanges will now be able to reduce overheads with the ability to support multiple currencies while maintaining only the one Ethereum node.
Proof of Reserve
The community-backed project is also centralized to a degree by a chosen custodian. Bitgo will hold the keys to mint tokens and the project will be very similar to stablecoin projects that use proof of reserves. The WBTC whitepaper details that there are many cryptocurrency assets and government issued bonds that use the reserve method. “This is the case with tether, trueusd, USDC, digix (gold), globcoin (a mix of fiat currencies), and AAA reserve (governmental bonds),” the whitepaper details. Additionally, the WBTC creators emphasize that the system’s smart contracts have been audited by several reputable third-party audit firms such as Coinspect, Solidified Technologies, and Chainsecurity.
“The first WBTC on the main Ethereum chain have been minted and burnt which can be observed onchain on Ethereum — The proof of reserve is onchain, which shows the exact 1:1 between minted WBTC tokens and bitcoin stored by the custodians,” the WBTC announcement notes.
The WBTC topic has been a hot discussion on social media and forums since the protocol launched. The crypto economy has seen many newly introduced stablecoins and other types of smart assets like RSK Labs’ smart bitcoins, and Blockstream’s federated system Liquid. Besides stablecoins backed by fiat, the Maker protocol has produced a stablecoin called dai that’s bolstered entirely by the backing of collateralized cryptocurrencies. WBTC will add a different flavor to the world of proof of reserve based coins that have entered the economy in the last few years.