Everything You Need to Know About Wrapped Bitcoin

Wrapped Bitcoin (WBTC) is a cryptocurrency that represents Bitcoin (BTC) on the Ethereum blockchain. It is an example of a wrapped or tokenized asset, where the value of an underlying asset, in this case, Bitcoin, is mirrored on a different blockchain.

WBTC combines the liquidity of Bitcoin with the programmability of the Ethereum ecosystem.

The process of wrapping Bitcoin involves depositing Bitcoin into a custodial account, and in return, an equivalent amount of WBTC is minted on the Ethereum blockchain.

The amount of WBTC in circulation is always fully backed by an equal amount of Bitcoin held in reserve. This ensures that each WBTC token represents a one-to-one peg with Bitcoin, maintaining its value and ensuring redeemability.

WBTC brings several benefits of the decentralized finance (DeFi) ecosystem to users. It enables Bitcoin holders to access a range of decentralized applications (DApps) and DeFi protocols that are built on Ethereum, such as lending platforms, decentralized exchanges (DEXs), and yield farming.

By wrapping Bitcoin, users can participate in Ethereum-based activities without needing to sell their Bitcoin holdings.

Additionally, WBTC enhances liquidity within the Ethereum ecosystem by providing a bridge between the two largest cryptocurrencies, Bitcoin and Ethereum. It allows traders and investors to access Bitcoin exposure on Ethereum-based platforms, opening up new trading opportunities and facilitating the integration of Bitcoin into the broader DeFi ecosystem.