Full Guide of Wrapped Bitcoin (WBTC)Apr 26, 2023
Bitcoin (BTC) is the first and the most popular cryptocurrency powered by blockchain technology. It enables users to send and receive money all over the world without any third-party governance. Although there are a lot of benefits of using Bitcoin, there comes the moment when you want to buy Ethereum. As these two assets are built on different blockchains there comes a problem which is solved by Wrapped Bitcoin (WBTC).
What is Wrapped Bitcoin?
This allows users to leverage the flexibility of Ethereum while trading in BTC assets. WBTC offers an attractive solution to some of the limitations experienced with traditional Bitcoin, such as scalability and sluggish transaction speeds. As an additional benefit, WBTC increases liquidity on the Ethereum network, meaning it’s easier for users to access certain services or take part in DeFi programs.
How Wrapped Bitcoin (WBTC) Works?
Acquiring Wrapped Bitcoin (WBTC) is a simple process:
- It starts with selecting a custodian to monitor and execute transactions;
- Once the custodian has been selected, users can obtain WBTC from any number of merchants, such as Maker, Loopring, and GOPAX;
- Upon initiating the transaction, the merchant will carry out KYC (Know Your Customer) and AML (Anti Money Laundering) checks to ensure that the transaction is safe and secure.
- After this, the custodian will convert real BTC assets into digital tokens on the Ethereum network in order to create WBTC for use in DeFi applications or decentralized exchanges.
What is Wrapped Bitcoin (WBTC) used for?
Advanced traders can benefit from margin trading while holding WBTC. Margin trading is the process of borrowing funds to buy more cryptocurrency than what a trader currently owns. This allows traders to leverage their investments and gain higher profits, as long as the price of cryptocurrency moves in their favour.
Providing liquidity to decentralized exchanges
WBTC holders can provide asset liquidity by pooling their assets in a DEX's smart contract, enabling DEXs to operate with greater speed and convenience. This also allows traders to quickly access the market at any time without having to wait for funds to be transferred from an exchange or other platform.
Lending and receiving interest
Lending WBTC on Compound protocol has numerous advantages. For example, users can earn significantly higher interest rates on deposits compared to traditional banking options. The average annual interest rate for WBTC is currently around 10%, whereas most banks offer far lower returns of around 1%. This makes it highly attractive for investors seeking to maximize their yield on their investments.
In addition, users can also participate in Compound’s liquidity mining program, earning COMP tokens by lending their assets in the platform's various pools such as WBTC/DAI and ETH/DAI. This presents another lucrative opportunity to make money from the DeFi ecosystem.
The growing popularity of WBTC highlights its potential to drive increased adoption and usage of crypto within both the traditional and the DeFi space. As WBTC is exchangeable for BTC or Ethereum at any time, it gives users the ability to benefit from its incorporation into popular decentralized finance protocols such as Aave and Uniswap. With this added usability, WBTC could potentially lead to increased adoption and usage of cryptocurrency amongst mainstream investors as well as crypto enthusiasts.