Wrapped Bitcoin (WBTC) is a cryptocurrency token that operates on the Ethereum blockchain as an ERC-20 token. It is designed to represent one-to-one ownership of Bitcoin, enabling Bitcoin holders to participate in Ethereum-based decentralized finance (DeFi) applications without needing to sell their Bitcoin.
Wrapped Bitcoin functions by having Bitcoin holders exchange their Bitcoin for WBTC through a custodian. The custodian holds the Bitcoin reserves and issues an equivalent amount of WBTC on the Ethereum blockchain. This process involves smart contracts that ensure each WBTC token is fully backed by an equal amount of Bitcoin. When a user wants to convert WBTC back into Bitcoin, the process is reversed.
Wrapped Bitcoin has several use cases, primarily within the DeFi ecosystem:
Wrapped Bitcoin was launched in January 2019 as a collaborative effort among multiple DeFi projects, including BitGo, Kyber Network, and Ren. The aim was to bring more liquidity to the Ethereum network by leveraging Bitcoin holdings. Since its launch, WBTC has become a crucial tool for enabling Bitcoin holders to access DeFi applications on Ethereum. No forks of WBTC have occurred, maintaining its role as a bridge between Bitcoin and the Ethereum blockchain.