What Are Wrapped Tokens?

This unlocks the potential to turn founder david sønstebø steps down after iota boards unanimous decision bitcoin into a yield-bearing asset, one that can earn returns from something like liquidity pools on Uniswap or Yearn Finance, for example. Ethereum has become the world’s second most valuable cryptocurrency because of the vast DeFi ecosystem it supports. Ethereum’s programmable smart contracts allow developers to build applications for lending, borrowing, providing liquidity, and much more. Wrapped bitcoin is created when you request Ethereum-based ERC-20 tokens from a merchant in exchange for your bitcoin.

The role of custodians

Instead, they can get their hands on a wrapped token representing their original asset. 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. That includes some degree of trust that you’ll be able to get your assets back whenever you want them.

Wrapped tokens allow unsupported assets like bitcoin and ether to be traded, lent and borrowed on DeFi platforms.

To obtain renBTC, you must send bitcoin to Ren’s protocol, which will lock it up in a smart contract. The protocol then verifies the details of the transaction and returns a minting signature, which allows you to mint renBTC, an ERC-20 token representing bitcoin. Crypto exchange Huobi Global launched its own version of wrapped bitcoin, Huobi BTC (HBTC), in 2020. You can obtain HBTC by first depositing BTC into your Huobi Global exchange account and then withdrawing HBTC. You can redeem your BTC by depositing your HBTC into your account and withdrawing BTC.

That includes trading them on decentralized exchanges — like Uniswap, 1Inch, Sushiswap — and exploring decentralized finance opportunities through protocols and platforms supporting WBTC. Before wBTC, there was no way to take advantage of smart contracts and decentralized applications (dApps) with Bitcoin, as it can’t natively run on the Ethereum network. However, with the introduction of wrapped Bitcoin tokens, users can now access Ethereum’s smart contracts and dApps by leveraging BTC in a form that is compatible with the Ethereum blockchain. The need for cross-chain asset movement has led to the development of wrapped tokens. Wrapped tokens are synthetic versions of native assets designed to operate on blockchains other than their native networks. The process involves securely locking the canada blockchain approved as bitcoin price continues to tumble original tokens—like Bitcoin—on their source blockchain.

It enables users to access the benefits of Bitcoin while leveraging the capabilities of the Ethereum network. It allows Bitcoin holders to effectively use their how much energy does bitcoin mining really use it’s complicated 2020 Bitcoin in Ethereum-based smart contracts, decentralized applications (dApps), and various other blockchain services. Wrapped Bitcoin (WBTC) is an example of how blockchain technology continues to bridge the gap between different ecosystems to create a more interconnected and accessible financial system.

Decentralized Dog

Since Bitcoin’s creation over a decade ago, the technology behind the revolutionary “peer-to-peer electronic cash system” has largely remained the same. If you want to swap your actual Bitcoin for real Bitcoin it can be done with platforms like Atomic Wallet or Poloniex.

• As it is with most cryptocurrencies, sending either BTC or wBTC to the wrong address may result in an irreversible loss of funds.
• Because a central group could, at any time, mess with the money that’s supposed to back the wrapped token.
• The merchant then initiates a transaction with a custodian, who mints wBTC tokens and sends them to the merchant.
• According to DeFi analytics hub DeFi Pulse, the total value of the wBTC market grew from $665 million to $848 million between August 1 and September 20, 2020.
• It is worth noting that users should exercise caution and follow best practices for securely storing their wrapped BTC tokens.

Who Invented WBTC?

The process typically involves sending WBTC to a custodian or smart contract, which then unlocks and releases the equivalent amount of Bitcoin. The most popular example of wrapped Bitcoin tokens is the wBTC token launched in January 2019, jointly created by BitGo, Kyber, and Ren. WBTC is the first ERC-20 token backed by Bitcoin; the project is overseen by the WBTC DAO (Decentralized Autonomous organization). Whether WBTC is a good investment depends on your needs and portfolio strategy. It’s important to note that WBTC is tied to Bitcoin’s price, so it costs the same as BTC. If you think it has a chance to remain the main version of tokenized Bitcoin, and you expect the price of BTC to rise in the future, WBTC might be a decent investment.

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. The tokens are available for sale on INX.one, a regulated platform for cryptocurrencies and security tokens. Wrapped cryptocurrencies are an innovative way to solve some of the interoperability challenges in DeFi. Creating a representation of crypto assets like Bitcoin (BTC) on another blockchain makes it possible to use the crypto asset on that blockchain.

All About Wrapped Cryptocurrency Tokens Explained

Understanding these risks is crucial for users seeking to interact with wrapped assets in DeFi. RenBTC uses RenVM protocol, a decentralized network of nodes called Darknodes. These nodes collectively manage the locking and minting of renBTC, reducing the reliance on a single entity. Therefore, safety hinges on smart contract vulnerabilities and node centralization of the Darknodes. Wrapped Bitcoin (WBTC) is a custodial-based wrapped asset, meaning its safety is tied to the trustworthiness of the custodians who hold the original Bitcoin in reserve. These custodians are responsible for locking Bitcoin in secure vaults and issuing an equivalent amount of WBTC on the Ethereum blockchain.