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Author: Admin | 2025-04-28
Wrapped tokens, in this case, WBTC. Custodians – Custodians act as vaults, providing security and reliability to WBTC. They also ensure that all WBTC tokens are verified and fully backed through on-chain proof of reserves. Users wishing to mint WBTC must deposit BTC and submit a request, following which the merchant transfers BTC to a custodian address. The BTC is locked, following which the custodian address mints the equivalent amount in WBTC (1:1 pegged to the value of BTC) on the Ethereum blockchain. When users wish to convert the WBTC back to BTC, the WBTC is burned, and the locked BTC from the custodian address is released back to the user. All the minting and burning of the tokens is recorded on the blockchain, ensuring transparency and verifiability. As the DeFi ecosystem grew, so did the demand for an asset such as WBTC. With the demand for using BTC in the DeFi ecosystem growing, the asset had to be converted into an ERC-20-compatible token to exist in the ecosystem. How To Use Wrapped Bitcoin Wrapped Bitcoin offers several advantages to users, allowing them to access dApps, decentralized exchanges (DEXs), and smart contract-driven platforms. Let’s look at how WBTC makes things simpler for BTC users wishing to use their assets in the Ethereum ecosystem. Liquidity WBTC is an excellent avenue for bringing greater liquidity to the Ethereum ecosystem. The sheer number of applications running in the Ethereum ecosystem means that funds are spread across a host of applications and protocols. This leads to a lack of liquidity, preventing these applications from functioning optimally. WBTC eases liquidity concerns by bringing in liquidity from BTC holders that wish to participate in the Ethereum ecosystem. Yield Farming WBTC is a very popular token in DeFi. Majority of the DeFi apps, like MakerDAO, Curve Finance, Aave, etc., allow you to provide liquidity in WBTC and earn rewards.Functionality Because WBTC is an ERC-20 token, it offers significant functionality, especially when compared to BTC. WBTC allows users to use smart contracts. Additionally, WBTC holders can deposit their assets into DeFi protocols and take out a loan. Should they choose to, they can use the funds to purchase even more WBTC. In ClosingBitcoin has several functionalities, but if you hold only BTC, you will be locked out of the decentralized application ecosystem currently thriving on Ethereum. WBTC is a clever way to enjoy the best of both worlds. Maintain your exposure to BTC while participating in all things DeFi on EthereumWant to learn more about BTC and other cryptocurrencies? Visit CoinSmart, Canada’s most trusted crypto platform.
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