Think of Wrapped Bitcoin as regular Bitcoin’s proxy on the Ethereum network. 

Ethereum is ground zero for the bulk of the decentralized finance (DeFi) ecosystem. 

Bitcoin holders, via wrapping, can participate in a wide array of the network’s myriad DeFi applications and smart contracts. Wrapping creates a bridge between the Bitcoin and Ethereum blockchains. Wrapped tokens such as WBTC share similar properties and functionality to stablecoins.

A partnership involving REN, Bitgo, and Kyber Network led to the creation of WBTC, which began trading in January 2019. To facilitate transparency, Bitgo keeps an accurate, updated record of the number of WBTC in circulation. 

Wrapping and unwrapping come down to two central processes: minting and burning. 

Minting occurs when a market participant sends BTC to the custodian and receives an equivalent amount of WBTC in their Ethereum wallet. Burning is when the participant swaps that WBTC back into BTC.

WBTC minting has really taken off in tandem with the widespread adoption of Defi apps. 

According to Defi Pulse, the total value locked (TVL) in WBTC surged by 943% between May and August of 2020. 

This trend has emerged as additional market participants seek to avoid trading BTC on centralized exchanges, opting instead to wrap their tokens and trade them on DEXs.

What is the price of WBTC?

Since the ratio between the value of BTC and WBTC is maintained at 1:1, their moves track closely – as of early February, BTC was trading between $35,000 and $38,000. WBTC moved in lockstep, more or less. Sometimes, not often though, this ratio gets thrown out of whack and when it does, arbitrage opportunities ensue. 

The DeFi revolution has powered up WBTC. During the first half of 2020, the token’s market cap was only about $10 million. But once Bitcoin took off, in mid-July, and more DeFi apps began supporting it, investors began piling into WBTC. As of January 2021, WBTC had a market cap of $4.3 billion. It trades on most exchanges.