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Wrapped Bitcoin: What Can You Do With A wBTC Token? | Gemini

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Why Use wBTC?

Decentralized finance (DeFi) has exhibited outstanding progress on the Ethereum blockchain, and wrapped bitcoin (wBTC) gives interoperability between Bitcoin and Ethereum, permitting bitcoin holders to take part in Ethereum’s burgeoning ecosystem. The wBTC protocol converts bitcoin right into a wBTC token on Ethereum that can be utilized on decentralized exchanges (DEXs) and decentralized purposes (dApps) working on Ethereum.

A Fast Recap

  • The wBTC protocol was launched in January 2019 as a strategy to convey the liquidity of bitcoin to the Ethereum community. Inside 18 months of its launch, greater than $800 million price of bitcoin was transformed into wBTC.

  • The wBTC protocol is at present managed by a decentralized autonomous group (DAO), that consists of 17 stakeholder members inside the DeFi house. In response to the wBTC web site, there are greater than 40 contributors — together with DAO members, wallets, retailers, and exchanges — within the wBTC ecosystem as of December 2020.

  • To amass wBTC, a bitcoin holder makes a request to a service provider, equivalent to Airswap, CoinList, 0x, AAVE, or Maker. Changing bitcoin into wBTC sometimes comes and not using a price, however when changing wBTC again into bitcoin, retailers usually cost a charge. Customers of wBTC additionally accrue Ethereum fuel charges as they transact inside the DeFi ecosystem. Now let’s discover out what you are able to do with wBTC tokens.

Collateral for Crypto Debtors

DeFi platforms that facilitate the lending of cryptocurrencies require debtors to safe their loans with collateral. What this implies in observe is that a specific amount of cryptocurrency is held on the platform for a time frame till the borrower repays their mortgage.

Earlier than wBTC got here into existence, collateral was sometimes paid in ether (ETH), Ethereum’s native cryptocurrency. Right this moment, nearly all of DeFi platforms are constructed on high of the Ethereum blockchain. Nevertheless, sustaining a single cryptocurrency as collateral could expose customers to a better threat of value volatility. Wrapped bitcoin permits for different digital property (e.g., bitcoin), uncorrelated to ETH or the broader Ethereum blockchain, for use as collateral.

As of December 2020, protocols that enable for wBTC for use as collateral to borrow digital property embrace:

  • MakerDAO

  • Compound

  • Kyber Community

  • AAVE

  • Uniswap

  • Balancer

Incomes Curiosity and Yield Farming

Platforms just like the above protocols enable lenders to earn curiosity on the wBTC that they provide to debtors by means of cash markets and liquidity swimming pools. A lot of the lending/borrowing platforms use an algorithm that adjusts primarily based on provide and demand to find out rates of interest.

For instance, the rate of interest for lending wBTC in a wBTC pool on Compound in December 2020 is just under 3%. In comparison with the curiosity you make on a financial savings account at a conventional financial institution — about 0.01% — the rates of interest supplied by DeFi platforms are typically considerably larger. Yield farming refers back to the means of leaping from crypto pool to crypto pool or DeFi platform to DeFi platform in an effort to maximise curiosity gained on loans.

Governance Tokens

Some DeFi platforms — together with Compound and Synthetix — have additional incentivized lending and borrowing by permitting each events to accrue the platform’s governance token.

On Compound, for instance, lenders and debtors obtain the native COMP token, which accrues in keeping with utilization of the Compound platform. Not solely are COMP tokens fungible, that means holders can change them for different crypto, however additionally they enable platform customers to vote on protocol upgrades and lending/borrowing mechanisms.

The method of incomes a secondary token along with curiosity is known as liquidity mining, and wBTC gives the primary alternative for bitcoin holders to take part on this new frontier of decentralized finance.

Margin Buying and selling Wrapped BTC

Utilizing Fulcrum, for instance, a decentralized software on the bZx protocol, wBTC holders can margin commerce ETH, stablecoins, and ERC-20 tokens.

Margin buying and selling can get advanced, however the fundamental concept is borrowing cash to commerce with. Executing a commerce with extra at stake could yield higher returns if it’s profitable, however the converse is equally true, and you’ll lose important quantities of your cash. That’s why margin buying and selling is usually higher suited to skilled merchants. You may each go lengthy (revenue from an increase in value) and go brief (revenue from a fall in value) with margin buying and selling. You may also merely lend your digital property to the protocol to present to others who’re margin buying and selling and earn a charge.

Wrapped bitcoin has unlocked a big retailer of liquidity to the DeFi ecosystem and already exhibited utility and delivered worth throughout Bitcoin and Ethereum since its launch in 2019.

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