Wrapped Bitcoin (WBTC) is the first ERC20 token backed 1:1 with Bitcoin. Completely transparent. 100% verifiable.
As a trusted wrapped to port Bitcoin to Ethereum, WBTC DeFI has taken an increased role in Bitcoin’s growing trend in DeFi lending.
How does WBTC DeFi Work?
WBTC is a multi-institutional framework for wrapping tokens on Ethereum through the use of Merchants and Custodians to issue, burn, and custody the underlying assets. This proposal was initiated by BitGo, Kyber Network, and Republic Protocol with the first asset being wrapped Bitcoin (WBTC).
There are four primary ecosystem actors in the WBTC ecosystem:
Custodians: A professional custodian (i.e. BitGo) or party who holds the native asset. Custodians control the keys to mint new tokens.
Merchants: An institution or party (i.e. Kyber or Republic) which issues or burns wrapped tokens. Merchants play a key role in the distribution of the wBTC to users.
Users: The holders of the wrapped token who can transfer and transact the asset like any other ERC20 token within the Ethereum ecosystem.
WBTC DAO Members: Individuals with the authority to govern custodians, merchants and users. DAO members are responsible for authorizing any contract changes along with the addition and removal of custodians.
Receiving WBTC token
To receive WBTC, a user requests tokens from a merchant. The merchant then performs the required KYC / AML procedures and verifies the user’s identity. Once this is completed, the user and merchant execute their swap, with Bitcoin from the user transferring to the merchant, and WBTC from the merchant transferring to the user.
Minting refers to the process of creating new wrapped tokens. Minting in the wrapped framework is initiated by a merchant and performed by a custodian.
Burning is the action of redeeming Bitcoin for WBTC tokens, and only merchant addresses can do this. The amount to be ‘burnt’ is deducted from the merchant’s WBTC balance (on chain) and the supply of WBTC is then reduced.