What is WBTC?

Bitcoin is the most recognizable cryptocurrency or digital asset in the world, but since the Bitcoin protocol doesn’t natively support general smart contracts, there isn’t an easy way to use it in decentralized finance (DeFi). WBTC, or Wrapped Bitcoin, is the solution to this problem. In this article we go into more detail about what exactly WBTC is, and why there is a need for it.

Trade WBTC, WETH, VERSE, DAI, and other cryptoassets on Bitcoin.com’s multichain Verse DEX. Enjoy permissionless and non-custodial trading access to DeFi, with a special focus on newcomers. Safely and securely swap crypto with low fees, including cross-chain trading between BTC, BCH, ETH and more. Anyone can also earn yield by providing liquidity through Verse DEX Pools, and additional rewards through Verse Farms.

Table of Contents

  1. What is Wrapped Bitcoin (WBTC)?
  2. What is the need for Wrapped Bitcoin (WBTC)?
  3. How is WBTC created?
  4. Are there other types of wrapped Bitcoin besides WBTC?

What is Wrapped Bitcoin (WBTC)?

WBTC is an ERC-20 token on the Ethereum blockchain that is pegged to Bitcoin (BTC). WBTC is backed one-to-one with Bitcoin. Before WBTC, the only way to use Bitcoin in a financial transaction was through centralized entities, like centralized exchanges (CEXs). WBTC was launched in January 2019 as a way to give decentralized applications (DApps) on Ethereum access to Bitcoin. Now, WBTC is routinely swapped on decentralized exchanges (DEXs), and used as collateral on lending platforms and derivatives platforms.

What is the need for Wrapped Bitcoin (WBTC)?

Bitcoin is an incredible decentralized cryptocurrency with the highest market cap of any cryptocurrency or digital asset. However, there wasn’t a good way for the ecosystem of DApps that made up DeFi to access all of the value in Bitcoin. Like any financial market, access to more value translates to increased liquidity. Ample liquidity ensures the smooth functioning of markets. Unlocking Bitcoin through WBTC made DeFi more robust. An additional benefit is that, since the Ethereum blockchain can handle more transactions per second, WBTC transactions happen much faster than BTC transactions.

How is WBTC created?

Creating WBTC is called, “minting.” To mint WBTC, submit a request to a WBTC merchant along with payment. The payment will be the amount of WBTC you want plus a fee for minting. The merchant will complete Anti Money Laundering (AML) and Know Your Customer (KYC) on the submitter. If everything checks out, the merchant will send BTC to the custodian, who will mint the equivalent amount of WBTC. This minting occurs at known addresses that anyone can track. The custodian deposits the BTC at known reserve addresses. The custodian sends the newly minted WBTC to the merchant. Upon receiving the WBTC, the merchant will send it to the submitter.

To get back BTC, simply reverse the process. Pay a fee and submit WBTC to a merchant. The merchant will pass the WBTC to the custodian, who burns the WBTC and sends back the appropriate amount of BTC from the reserves address. The merchant forwards the BTC to the submitter.

Are there other types of wrapped Bitcoin besides WBTC?

At the time of writing, WBTC dominates the wrapped Bitcoins market with over 170,000 WBTC in circulation, equating to 0.8% of the circulating supply of Bitcoin. Other wrapped Bitcoin tokens have historically achieved only a fraction of the market share as WBTC; most notably renBTC, which reached a peak circulation of 13,698 bitcoins in 2021.

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