Understanding Wrapped Bitcoin

Bitcoin has become the most well-known cryptocurrency asset worldwide, even rivaling traditional investment assets such as stocks and gold in popularity.

Despite the increasing number of emerging altcoins (cryptocurrencies other than Bitcoin), Bitcoin's popularity remains unparalleled. When it comes to price, there is a significant gap between Bitcoin and altcoins.

However, Bitcoin has a drawback in terms of its protocol, doesn't support smart contracts like Ethereum, which means Bitcoin cannot facilitate decentralized finance (DeFi) applications.

Wrapped Bitcoin has emerged to address this issue. By utilizing the ERC-20 protocol, Wrapped Bitcoin is essentially Bitcoin on the Ethereum network. The goal is to bring the value and liquidity of Bitcoin into the growing DeFi world.

So, how does Wrapped Bitcoin work to bring Bitcoin's value into DeFi? Let's discuss it further.

What is Wrapped Bitcoin?

Wrapped Bitcoin (WBTC) is an ERC-20 token that represents the value of Bitcoin, so one WBTC is equal to one Bitcoin. Being on the ERC-20 network makes the transfer process faster compared to Bitcoin. The token was launched on the Ethereum mainnet in January 2029 as a collaboration project.

This collaboration involves major players in the DeFi ecosystem such as BitGo, Compound, Dharma, Kyber, MakerDAO, Ren, and Set Protocol. The goal is to bring more liquidity to the Ethereum network by incorporating Bitcoin into it. WBTC is managed by a Decentralized Autonomous Organization (DAO) called WBTC DAO.

Currently, Wrapped Bitcoin is regularly used for swapping on decentralized exchanges and as collateral for using services on lending and derivative platforms.

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