Created by BitGo, Kyber and Ren on Jan 30 2019, WBTC is an ERC-20 standard wrapped token linked 1:1 to BTC and circulating in the Ethereum network. (WBTC also has a version of the TRC-20 standard that circulates in the Tron network). And it is the first ERC-20 token that is backed by Bitcoin at a 1:1 ratio.
WBTCs are created and issued (Minting) through a custodian. There are various types of custodians, which can be merchants, multi-signature wallets, DAOs, or even smart contracts. Anyone can mint and issue WBTC by finding the right custodian; the user first sends the BTC from the Bitcoin network to the custodian's wallet, who treats it as collateral and deposits / locks it in the Digital Vault, and then mint it 1:1 on the Ethereum (or Tron) network via their own smart contract, completing the wrapping process.
Similarly, users can request to burn WBTC and redeem their original BTC assets (Bitcoin network).
If you hold BTC Coin in the Bitcoin network, you can simply lock your BTC and mint WBTC on Ethereum mainnet to borrow other Tokens or earn interest in a protocol like AAVE.
According to its whitepaper, WBTC's implementation and technology model consists four critical participants:
- Custodian: The entity or party that holds the asset is the custodian. The keys to minting tokens are in the hands of custodians.
- Merchant: The institution or party to whom wrapped tokens are issued is known as the merchant. The wrapped token is distributed mostly through merchants. Each merchant has a key that may be used to start the minting of new wrapped tokens and the burning of old wrapped tokens. Cryptocurrency burning is when a fraction of tokens are sent to a wallet with no private key. This means the tokens are lost forever. Tokens are usually burned to reduce availability and increase market value.
- Users: The holders of the wrapped token are referred to as "users." Wrapped tokens may be transferred and transacted in the Ethereum network just like any other ERC20 token.
- Member of the WBTC DAO: A multi-signature contract governs contract amendments and the addition and removal of custodians and merchants. The WBTC DAO holds the keys to the multi-sig contract owned by institutions.
It is not Bitcoin, but rather a separate ERC-20 token that's designed to track Bitcoin's value. WBTC was created to allow Bitcoin holders to participate in decentralized finance (“DeFi”) apps that are popular on Ethereum. Through a WBTC partner, 1 Bitcoin can be exchanged for 1 Wrapped Bitcoin, and vice-versa.
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 protocol is controlled by a decentralized autonomous organization (DAO), WBTC DAO. As of this writing, the wBTC DAO has 17 members (e.g. AirSwap, Blockfolio, or Compound) representing stakeholders from around the DeFi ecosystem. Wrapped bitcoin DAO members each hold a key to the multi-signature wallet that secures the system. Any crucial changes to the WBTC structure must be accepted by the DAO.
Wrapped Token refers to a mapping/proxy asset (a token) that issues a native asset (a coin) from one blockchain (e.g. BTC in Bitcoin network) to another/multiple blockchains or its own blockchain (WETH is also on Ethereum chain).
The issued wrapped tokens are backed and pegged 1:1 with the original asset (the native coin). Every wrapped token can be traced back to a locked coin on the original chain.
Wrapped Token mainly solves the problem of non-integration of original assets between different chains, and was the dominant solution before the emergence of Layer Zero.
After staking the original asset, a new representative Token is minted in another standard, and there can be multiple Wrapped Tokens for the same original asset as long as they meet different format standards (e.g. WBTC)
Blockchains such as Bitcoin and Ethereum is as separate distributed databases. As blockchains are separate, they can’t communicate easily with each other.
Almost every chain will have its own native asset Coin, and these Coins are also not interoperable due to the different nodes and consensus.
You can’t use your Bitcoin directly on the Ethereum blockchain, because only the Bitcoin blockchain “knows” that you hold Bitcoin.
Wrapped tokens were created as a solution to this problem. It uses a new token to represent the original asset's value. With wrapped tokens, you can effectively move assets between blockchains and use them across the crypto ecosystem.
The core logic of Wrapped Token is it is just a representation. The point of this, is that some blockchain can do things that other blockchains can't. Meanwhile different coins are not available for other chain. So the early developers made representations and called them wrapped tokens so that you can essentially have the main coin, but use it on any other chains.