What is Wrapped BTC?
Wrapped Bitcoin (WBTC) is an ERC-20 asset that lives on Ethereum-based chains. WBTC was the first wrapped asset on Ethereum. Launched in 2019 by Kyber and Ren Protocol (formerly known as Republic), WBTC is backed by BTC and, as a result, it's price should trade 1:1 with the price of BTC. The major advantage of this token is that it allows holders to retain price exposure to BTC while also enabling participation in the DeFi ecosystem.
All of the BTC backing this wrapped asset are held by a single custodian: BitGo. The WBTC smart contract is owned by a multisig controlled by different DeFi projects. Because of its design, BitGo or the WBTC multisig contract signers cannot blacklist or freeze WBTC tokens in individual's wallets, liquidity pools, and so on.
More details about WBTC can be found using the links provided below:
- WBTC website: https://wbtc.network/
- WBTC contract on Ethereum: https://etherscan.io/address/0x2260fac5e5542a773aa44fbcfedf7c193bc2c599
- WBTC contract on Optimism: https://optimistic.etherscan.io/address/0x68f180fcce6836688e9084f035309e29bf0a2095
Risks of Wrapped BTC
Multisig Security
While there's no ability for any entity to blacklist or freeze WBTC tokens held in wallets or liquidity pools, it is possible (although very unlikely) that the 8-of-13 multisig contract can freeze everyone's WBTC and make them untransferable until the contract is unpaused.
The "Large DAO" multisig signers (listed below) consist of various DeFi protocols, however, the individuals with access to the multisig keys are unknown. Any 8 of these signers can come together to pause or unpause the WBTC smart contract (as well as all WBTC tokens in circulation):
- B Protocol
- Badger
- Balancer
- BitGo
- Chainlink
- Compound
- Gopax
- Krystal
- Kyber
- Loopring
- Multichain
- Ren
- Tom Bean (bZx)
WBTC is a Custodial Token
Given that BitGo is the sole custodian for the BTC backing WBTC, some trust is required in this centralized entity that they will not go bankrupt, get hacked or fall victim to a regulatory attack.
If BitGo turns out to be dishonest or insolvent, then the value of WBTC could potentially diverge from the true value of BTC. Even if there are rumours that BitGo are insolvent or facing regulatory scrutiny, this could cause WBTC to de-peg and and trade at a price lower than Bitcoin's. There's currently no 'hard peg' mechanism in place to guarantee that 1 WBTC = 1 BTC.