Are Wrapped Bitcoin Under Threat After FTX Crash?

Wrapped Bitcoin (wBTC) is Bitcoin that has been regenerated to be used within the Ethereum ecosystem. Launched in January 2019, wBTC is an Ethereum token that’s backed by Bitcoin (BTC), which implies that one wBTC should always be equal to one Bitcoin. The wBTC token permits users to move with a variety of Ethereum decentralized applications (dApps) and especially Ethereum’s decentralized finance (DeFi) system.

What Is The Utility Of wBTC?

The wBTC token was created using Ethereum’s ERC-20 protocol to produce Bitcoin liquidity to the DeFi system. Bitcoin-only cryptocurrency users were antecedently unable to access and use DeFi dApps engineered on the Ethereum protocol, and DeFi comes known a chance to maximize the bigger market capitalization and better commercialism volume of the Bitcoin community through wBTC Ethereum tokens.

The standard use for wBTC is as collateral or loan reimbursement collateral once closing a cryptocurrency loan on DeFi platforms. when the borrowed cryptocurrency is repaid, the collateral within the sort of wBTC is came back. If the collateral is liquidated, the platform can get the wBTC back.

How wBTC Works?

Wrapped Bitcoins square measure created after you request Ethereum-based ERC-20 tokens from a businessperson in exchange for your Bitcoin. when receiving the request, the businessperson can then perform a recognize Your client (KYC) and Anti-Money washing (AML) method to verify your identity and initiate a group action with the keeper (BitGo is presently the only real keeper for wBTC). The repository then mints a precise range of wBTC and sends it to the merchant’s Ethereum address.

Next, you and therefore the merchandiser either create a trade through a centralized exchange (CEX) or a peer-to-peer group action (known as AN atomic swap) on a decentralized  exchange, feat the merchandiser with the Bitcoin and you together with your wBTC. Once the group action is completed, you may be able to use your wBTC tokens on varied DeFi platforms like Compound and MakerDAO. after you need to convert your wBTC back to Bitcoin, you raise the businessperson once more and therefore the wBTC is changed back. The merchandiser then destroys the wBTC in what’s referred to as a burn group action.

Are Wrapped Tokens Under Threat After FTX Crash?

For the past few days, Wrapped Bitcoin has shown its biggest drawdowns against its native Bitcoin. At the time of writing, wBTC is at 16,419.71, whereas Bitcoin is $16,587.11. Both are showing signs of progress as they are up by 0.57% and 0.49%. Thus, it’s unable to maintain the value of 1 Bitcoin. 

BitGo, the company which has been hired to recover assets from the failed FTX, holds a wBTC record book that shows there is a little more Bitcoin in custody than wBTC, meaning there are enough coins to back wBTC. The numbers from the record book shows there are approximately 10000 more BTC compared to the number of wBTC, 225,862 wBTC against a total of 235,452. 

If rumors are to be believed some wBTC has been missing since the collapse of Alameda. 

Alameda Research is claimed to be one of the largest market makers for the wBTC. wBTC is currently facing one of the largest drawdowns against Bitcoin following FTX crash. As per reports, Alameda Research minted more 70% of Wrapped Bitcoin tokens in August 2022 which is nearly 15,000 wBTC tokens. 

If this is true different firms will have to step in to revive the wBTC. The revival of wBTC in the past few hours can be a result of the burning of large numbers of wBTC by the controller. Thus, there is a high possibility of wBTC being affected by the crash of FTX.

Shourya is a crypto fanatic who has developed interest in Business Journalism in the past few years. Currently, working as a writer with Coingape, Shourya is also an avid reader. Apart from writing, you can find her attending poetry shows, exploring cafes and watching cricket. As she says, “dogs are my home,” her first rescue of a dog was at the age of 7! She has constantly been speaking up for mental health and the rainbow pride.

The presented content may include the personal opinion of the author and is subject to market condition. Do your market research before investing in cryptocurrencies. The author or the publication does not hold any responsibility for your personal financial loss.