Wrapped Bitcoin (WBTC) is an ERC20 compatible token that tracks Bitcoin (BTC). WBTC is the first ERC20 token set up to be pegged 1:1 to Bitcoin, and it is overseen by the decentralized organization WBTC DAO. The plan to introduce the token in 2019 was proposed by BitGo, Kyber Network, and Ren.

WBTC behaves much like a typical stablecoin, with one key difference: instead of backing it with a FIAT currency like a dollar or euro, it is backed by Bitcoin. Through a WBTC partner, 1 Bitcoin can be exchanged for 1 Wrapped Bitcoin and the conversion can be done in reverse as well. Like Bitcoin, WBTC also has a maximum supply of 21 million coins.

The main benefit of WBTC is that it brings Bitcoin into the Ethereum world, enabling use with Ethereum compatible wallets, dApps, and smart contracts.

What are WBTC key features and how does it work?

At its core, WBTC converts Bitcoin into the ERC20 standard, which makes it possible for smart contracts to interact with Bitcoin transfers. By doing this, WBTC helps improve liquidity across the Ethereum ecosystem, including decentralized exchanges (DEXs) and financial applications. Because much of Bitcoin trading happens on centralized exchanges, WBTC aims to shift some of that liquidity toward DEXs and make Bitcoin usable in token trading.

The security and reserve management for the token is handled by two groups: custodians and merchants:

Custodians maintain the reserves that back WBTC. They also handle the creation of additional coins-meaning new wrapped tokens are minted-an action that starts with a merchant and is carried out by the custodian.

Merchants, meanwhile, burn tokens when WBTC needs to be converted back into BTC. The amount to be “burnt” is taken from the merchant’s WBTC balance (on-chain), and the total supply of WBTC is reduced after the burn. Merchants also rely on custodians whenever there is demand for tokens, which involves a minting request. They further support markets by managing coin supply.

What can Wrapped Bitcoin be used for?

For holders of BTC, Wrapped Bitcoin offers a way to get involved in decentralized finance (DeFi). WBTC provides access to standard DeFi activities, including farming and quick swaps.

By default, Uniswap and other major Ethereum-based DEXs support WBTC, and it can also be used on prominent centralized exchanges such as Binance.

Bitcoin is a cryptocurrency with a capitalization in the hundreds of billions of dollars, and WBTC is actively supported by major DeFi players because it lets them take advantage of Bitcoin’s influence. As a permission-less ERC20 token, WBTC can serve as a core component for DeFi applications. One example is TokenSets, a platform that automatically trades between WBTC and ETH to pursue gains from both assets. 

Where can you buy WBTC?

Since Wrapped BTC was built mainly for DeFi, it can be found across a range of aggregators and decentralized exchanges, including Uniswap, SushiSwap, AAVE, and more. You can also buy WBTC on centralized platforms such as Binance, HitBTC, and Kraken. In some cases, WBTC is even purchasable with a bank card-for instance through services like Simplex. For a full list of places to buy WTBC, check here.