Bitcoin is the most famous crypto asset in the world. It also has the highest market capitalization of any cryptocurrency in the ecosystem by a wide margin from the competition. But executing fast and affordable bitcoin transactions has been a challenge for a long time. And this is where wrapped tokens come in handy. What is the essence of these? And how to use them properly?
Wrapped tokens can be used in a variety of new decentralized scenarios including DEX. They can act as collateral for stablecoins and can also be used to make payments and launch flexible smart contracts in the wrapped Ethereum and BTC ecosystem. In this article, we will share with you a detailed guide on the WBTC and WETH projects, answer who created these projects and which organization they are currently controlled by.
What Is ERC-20?
A new project of ERC-20 tokens, also known as “Wrapped Bitcoin,” was created by the developers of Ren, Kyber Network, and BitGo. It was presented to the public in January 2019. Wrapped Bitcoin was conceived primarily as a collaborative project between the major protocols in the DeFi ecosystem. The founders of WBTC explained that the main goal of this platform was to increase the liquidity of the cryptocurrency ecosystem. Since its inception in January, the project has reached a million-dollar value in a very short period of time.
What Are WBTC and WETH?
WBTC is a token representing BTC on the Ethereum blockchain, respectively WETH is a token representing Ethereum on the BTC blockchain. These are ordinary ERC-20 tokens. Each WBTC and WETH is fully supported in a 1: 1 ratio. Their main purpose is to transfer the stability and liquidity of BTC to the Ethereum network.
Wrapped tokens significantly increase liquidity in the Ethereum and Bitcoin ecosystem, including other financial applications. Most of the trading volume has recently come from centralized exchanges supporting both cryptocurrencies. At the same time, WBTC and WETH bring the liquidity of Bitcoin and Ether to DEX and can be used for token trading.
4 Systems in the Wrapped Token Ecosystem
There are four main participants in the wrapped token ecosystem, namely:
- Custodians – These organizations hold various assets that were used to create “wrapped tokens.”
- Merchants – They control the distribution of “wrapped tokens.” They have the right to issue or burn “wrapped tokens.”
- Users – All other financial transactions related to “wrapped tokens” are carried out and performed by ordinary users.
- Members of WBTC and WETH DAO. They are responsible for managing custodians, merchants, and users. DAO members also grant permissions for any changes to contracts, add/remove custodians.
In conclusion of this review, it is worth noting that the cryptocurrency community continues to show rapid growth thanks to the liquidity that BTC and ETH can provide. Wrapped tokens also contribute to the smarter use cases for cryptocurrencies.