In order to use Bitcoin within Ethereum’s DeFi ecosystem, it’s necessary to create an ERC-20 token that represents it. This is Wrapped Bitcoin (WBTC), which aims to combine the best of both worlds by bringing the value and liquidity (money) of Bitcoin to the dynamic and rapidly evolving world of DeFi. On the flip side, as the DeFi space keeps evolving, other protocols and technologies might change the cryptocurrency concerns vs regulations in europe use case and demand for wBTC. Lastly, there are still security risks and challenges to overcome in that regard. However, if you don’t have an account at a centralized exchange, you should be prepared to pass the KYC check.
The wBTC protocol is controlled by a decentralized autonomous organization (DAO). As of this writing, the wBTC DAO has 17 members representing stakeholders from around the DeFi ecosystem. Wrapped bitcoin DAO members each hold a key to the multi-signature wallet that secures the system.
- There’s the question of safety and various factors to pay attention to, some of which are common when comparing centralized and decentralized currencies.
- Alternatively, users can buy WBTC directly from decentralized exchanges like Uniswap or SushiSwap by swapping other tokens for WBTC, making it a faster and more accessible option for most users.
- Another reason to get wBTC is to provide liquidity on decentralized exchanges.
Benefits of Wrapped Crypto Tokens
While Bitcoin (BTC) is the original cryptocurrency used for peer-to-peer transactions, Wrapped Bitcoin (wBTC) is an ERC-20 token representing BTC on the Ethereum network. WBTC allows Bitcoin holders to access Ethereum’s decentralized finance (DeFi) applications while maintaining BTC’s value. Wrapped Bitcoin can be traded on various cryptocurrency exchanges and used as collateral for loans and other financial transactions. Wrapping BTC has become a popular way for Bitcoin holders to access the world of DeFi and participate in Ethereum-based applications. The HAG tokens allow you to tap into this ecosystem and have an opportunity to receive real-time rewards on your investments. You get the opportunity to own an investment in an industry previously inaccessible and also receive a share of mined bitcoin directly into your digital wallets monthly in the form of wBTC.
What Is Wrapped Crypto?
For example, when you stake wBTC on Compound, you receive $COMP, the native token of Compound which allows you to vote on things like staking model and protocol upgrades. To receive wBTC, a user has to request from a merchant like Aave, Airswap, Maker, Coinlist, or 0x. The merchant will carry out all the necessary KYC/AML requirements to verify the user’s identity. After the initial verification, the users deposit BTC to swap for wBTC, which the merchant sends to the what is market depth chart user. Before Wrapped Bitcoin, it was much more cumbersome to participate in DeFi with Bitcoin.
Bitcoin on the Ethereum Blockchain
Another way you can earn with wBTC is through monthly dividend payment when you invest in certain security tokens through security token offering. For example, the Hashrate Asset Group pays out monthly wBTC dividends to their investors. The only concern with wBTC is the need to trust the custodian to maintain the wBTC value; this introduces a centralization factor. However, the project is managed by a DAO, which can vote to remove or add the custodian and merchants. The last stage of a wBTC cycle is burning, which refers to the redeeming process for BTC.
The wBTC protocol has brought increased liquidity to the decentralized finance (DeFi) ecosystem and has given bitcoin holders access to a variety of financial services not previously available to them. However, it’s worth noting that there’s a certain dose of risk when it comes to wrapped crypto. Essentially, you’re locking your digital assets away using custodians or smart contracts to get their wrapped counterparts.
The wBTC token allows users to interact with a variety of Ethereum’s decentralized apps (dApps) and, in particular, Ethereum’s decentralized finance (DeFi) ecosystem. Wrapped crypto comes to the rescue for projects building on different blockchains. Wrapping tokens, therefore making them ERC-20 compliant, enables a project’s users to experience the speed and scalability of other chains. Plus, all of this is possible without missing out on Ethereum’s large user base and liquidity.
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Cryptopedia does not guarantee the reliability of the Site content and shall not be held liable for any errors, omissions, or inaccuracies. The opinions and views expressed in any Cryptopedia article are solely those of the author(s) and do not reflect the opinions of Gemini or its management. A qualified professional should be consulted prior to making financial decisions. To understand this better, let’s take a look at how wrapped crypto actually works. In short, there’s a way to deposit your BTC from your Bitcoin wallet how to start crowdfunding in bitcoin for free and receive wrapped Bitcoin (WBTC) — an ERC-20 token — in your Ethereum wallet.