Virtual currencies have emerged as a popular asset class since the launch of the first crypto, Bitcoin, in 2009. There are more than 18,000 cryptocurrencies in the market currently, with a total market capitalization of over $1 trillion at publishing time. Some blockchain projects on which cryptos are based were created to solve related issues such as interoperability, liquidity, scalability, and security. One of these solutions is Wrapped Bitcoin (WBTC), founded by BitGo and Kyber Network in January 2019 as an ERC-20 token fully backed 1:1 with BTC.
What is a Wrapped Bitcoin?
Wrapped Bitcoin is a Bitcoin-backed digital asset. It is similar to Tether (USDT), which is pegged to the USD. Wrapped Bitcoin can be traded for Bitcoin (BTC) on cryptocurrency exchanges. The primary use case for WBTC is an Ethereum-based ERC20 token that developers can use to issue loans or create payment channels instead of using BTC directly.
How does Wrapped Bitcoin work
A popular ERC20 token with the backing of Bitcoin, WBTC is fully transparent, open-source, and audited. It has been built on a public blockchain with smart contract functionality to enable rapid settlement and near-zero transaction fees.
Every WBTC token is 100% collateralized and will be held by the custodian that holds the underlying asset. The WBTC tokens are fully redeemable against the underlying asset at any time through Binance Chain or other exchanges where tracing them on the secondary market is possible.
What is Wrapped BNB?
Simply put, Wrapped BNB is a tokenized version of the Binance (BNB) Coin. The financial value of Wrapped BNB is tied to the price of the BNB asset. In other words, Wrapped BNB is a cross-chain bridge for transferring BNB onto the Ethereum blockchain via wrapped tokens. Also, it has several benefits that make it an excellent cryptocurrency to trade with on other platforms. The reason for the creation of Wrapped BNB is simple: many decentralized exchanges are currently created on the Ethereum blockchain. As such, tokens from different blockchains can’t be used directly.
To get around this limitation, projects such as Wrapped BNB use a protocol known as token wrapping to allow users to trade their tokens across different blockchains. Wrapped BNB is a strategy to trade with your BNB on other platforms while reaping the benefits of the original token. The wrapped version allows users to change their BNB for any other coin or token, including DAI and USDT, using the Binance DEX. You can now use your NEO or Ethereum tokens as collateral for future trades without losing any of your funds stored in the platform’s native wallet.
Use cases of Wrapped Bitcoin and Wrapped BNB
Wrapped Bitcoin has the same value as Bitcoin, but can be transacted on Ethereum. It has several use cases. You can use it to provide liquidity for decentralized exchanges such as MakerDao, Compound, and Uniswap; as well as liquidity for decentralized loans, stablecoins, and derivatives.
Wrapped Bitcoin also allows users to transfer their BTC quickly to ETH, avoiding high gas fees on the Bitcoin network. Gas costs are payable to miners in the form of Ether.
The price is calculated based on a combination of factors, including how much work your transaction takes, how long it takes for the miner to solve it, and what kind of gas limit you put on your transaction.
When you send Bitcoin between two addresses on the Bitcoin blockchain, as opposed to sending Ether, you must pay a higher mining fee because there is no pre-existing contract between users specifying how much each party will pay in fees. With wrapped Bitcoin (WBTC), however, this changes because users can write their contracts into their transactions. And users can specify exactly how much they want their wallet provider/exchange partner to pay in fees.
Wrapped BNB reduces transaction costs significantly as users pay little to no gas fee. Besides, wBNB can also be used to buy Ethereum tools and smart contracts, as well as used in Ethereum wallets such as MetaMask and MyEtherWallet.
Making transactions with Ether (ETH) is another use case of wrapped BNB. It has several uses, including the following:
- Send ETH to addresses
- Send ETH to contracts
- Send ETH to decentralized exchanges like 0x, Kyber Network, etc.
- Send ETH to smart contracts.
Conclusion
Wrapped Bitcoin (WBTC) is an ERC-20 token that represents Bitcoin on the Ethereum blockchain. It aims to bring the liquidity and value of BTC to Ethereum-based DeFi protocols, allowing users to use their BTC as collateral for decentralized loans, or participate in staking programs on Ethereum through a WBTC multi-sig wallet.
FAQs
What’s the Difference Between Wrapped Bitcoin and BNB?
Wrapped Bitcoin (WBTC) is Bitcoin tokenized on the Ethereum blockchain, allowing it to be used in Ethereum’s ecosystem. BNB is Binance Coin, native to Binance exchange, used for trading, fees, and more on Binance’s platform. Different purposes and platforms.
Are Wrapped Tokens Safe?
Yes, wrapped tokens are generally safe. They undergo certain processes to ensure their value is pegged to the underlying asset. However, like any digital asset, risks exist, so use reputable platforms and exercise caution.
How are Wrapped Coins Used in DeFi?
Wrapped coins, like Wrapped Bitcoin (WBTC), are used in DeFi by bringing assets from one blockchain (e.g., Bitcoin) to another (e.g., Ethereum) through tokenization. They enable BTC to participate in Ethereum-based DeFi protocols, providing liquidity, lending, and trading opportunities within the DeFi ecosystem.
