Tokenization of Bitcoin (BTC) for usage in Decentralized Finance (DeFi) protocols is a competitive opportunity.

Several investors have already migrated their Bitcoin on to the Ethereum Network to trap significant value.

For those who are new to the concept, WBTC stands for Wrapped Bitcoin and is simply an ERC20 token that represents Bitcoin.  The purpose of WBTC is to provide for more liquidity to DeFi apps. BTC holders will be able to lend their BTC for the purposes of WBTC and they will be able to earn interest for lending BTC.

The WBTC project is meant to provide for more sophisticated financial services. It is managed by a group of organizations who are working under the DeFi banner.

The major focus of the WBTC projects is to cover for the best of the both worlds. In the process the value of the BTC is made usable in the world of Decentralized Finance.

WBTC is an ERC20 token issued for the value of Bitcoin invested.  One WBTC represents one BTC. Both of them can be interconverted; therefore, BTC to WBTC or WBTC to BTC.

Since BTC is converted to an ERC20 token, the transfer of WBTC is faster than normal Bitcoin.  The good thing about WBTC is that it gets integrated in to Ethereum wallets, Dapps, and smart contracts.

WBTC has been around since January 2019.  It is a collaborative project between major players in the  DeFi Ecosystem like “BitGo, Ren, Dharma, Kyber, Compound, MakerDAO, and Set Protocol” and the major focus is to bring in liquidity.  The project is controlled by DAO and is known as WBTC DAO.

Maheen Hernandez, writer at The Currency Analytics opined:  “WBTC is a great way to bring BTC to the Ethereum Network.  And, this means, Ethereum has thus achieved a boost in its liquidity also providing for a rich collateral source for their Dapps.”

Bitcoin (BTC) to WBTC Trust Becomes Necessary

A disadvantage with WBTC is that there will be people and organizations who will manage the system instead of the pure code.  Trust in people becomes necessary and it is no more like BTC chain and ETH chain transacting natively. However, to ensure transparency regular audits are carried out and all the on-chain transactions and verifications for the Bitcoin and Ethereum networks are published.

Thus, individual users will be able to know how much BTC was sent to the WBTC address and verify if the BTC and WBTC creation tally with each other. The reverse process of converting WBTC to BTC can also be tracked and verified.