Original｜Odaily Planet Daily (@OdailyChina)

Author: Wenser (@wenser2010)

Recently, BitGo, the official custodian of the WBTC project, announced that it will establish an exclusive partnership and joint venture with Bit Global, and its WBTC business will be transformed into the world's first cross-jurisdictional and cross-institutional custody business." The latter is a global custody platform supported by Justin Sun and the Tron ecosystem.

Due to the important "bridge" role that WBTC plays in the DeFi field (according to information on the WBTC official website, the number of WBTC custodians on the Ethereum chain currently exceeds 154,738, with total assets exceeding US$9 billion), the industry has paid close attention to the news as soon as it came out.

Odaily Planet Daily will briefly introduce and comment on WBTC and recent changes in this article, look into its impact on the prices of Bitcoin and Ethereum, and interpret the "centralization risk" and chain reactions.

The birth of WBTC: the “key bridge” between Bitcoin and Ethereum

For many crypto players who are only active on the Ethereum network, WBTC (Wrapped BTC) may be a relatively unfamiliar term compared to WETH (Wrapped Ether). But for veteran DeFi players, WBTC is an important "tool" and "bridge" that once brought liquidity to many Dapps in the DeFi field.

A new solution to the liquidity problem: Bringing Bitcoin to Ethereum

As early as 2018, BitGo CTO Benedict Chen published an article briefly explaining WBTC. At the beginning, he emphasized:

WBTC aims to bring Bitcoin to the Ethereum network as an ERC20 token. The token will bring Bitcoin’s stability and value to Ethereum’s broad ecosystem of decentralized applications.

With this, WBTC users will be able to use Bitcoin in a variety of new decentralized use cases (Dapps), for payments in the Ethereum ecosystem including as a stablecoin or lending collateral on decentralized exchanges (DEXs) and for flexible smart contracts.

In 2019, under the advocacy of BitGo, Kyber Network and Ren, many decentralized projects including Kyber Network, Republic Protocol, MakerDAO, Dharma, Airswap, IDEX, Compound, DDEX, Hydro Protocol, Set Protocol, Prycto, RadarRelay and Gnosis began to provide corresponding support for WBTC, thereby realizing WBTC's "first tokenization of Bitcoin in the form of full reserve proof" and "pegged to Bitcoin at a ratio of 1: 1". Later, star projects such as AAVE, Uniswap, 0x, and Coinlist also joined this "community".

WBTC official website support project interface

It can be said that WBTC provides great convenience for users and DEX, ERC20 wallets or other DApps - while there is no need to run a Bitcoin node separately, the liquidity related to the Bitcoin market is brought to the Ethereum chain, greatly shortening the transaction time and transaction path.

A new attempt with a precedent: another progress after gold tokenization

In 2017, BitGo worked with industry partners such as the Royal Mint and CME Group to create the Royal Mint Gold (RMG), realizing the "gold tokenization". The launch of WBTC has realized the tokenization of "digital gold" - Bitcoin. It can be said that this is a "new attempt" with a mature case.

At the same time, WBTC can also be seen as a strong response to the "tokenization of assets such as securities, commodities and real estate" in which many institutions have a strong interest. To a certain extent, it even provides a practical use case for RWA in recent years that can be used for reference.

The important role of WBTC: reducing the circulation of Bitcoin and boosting price increases

It is worth mentioning that on the basis of connecting DeFi with the Bitcoin market, the emergence of WBTC also means that unless the holder redeems it, the Bitcoin held as WBTC collateral is basically in a custodial state (no different from a long-term position), which to a certain extent reduces the number of Bitcoins in circulation, thus becoming a positive factor in driving up Bitcoin prices.

In addition, the Burning stage mentioned on the WBTC project’s official website also explains the possibility of a reduction in WBTC supply, and that “only the Merchant address can perform the destruction operation.”

WBTC official website introduction interface

The rise of WBTC: DeFi Summer and the prosperity of Ethereum ecosystem

From the perspective of users, Dapps and the overall Ethereum ecosystem, WBTC is a win-win for all parties. After all, increased liquidity and flexible access are conducive to the efficient operation and stable growth of the market. However, the development of WBTC is not a "one-day job".

The beginning of a rapid development: DeFi Summer

In January 2019, the first WBTC was successfully minted.

In July 2020, WBTC’s daily trading volume exceeded US$1 million.

In October 2020, WBTC's daily trading volume exceeded US$50 million.

At the end of October 2020, thanks to the emergence of more and more "liquidity mining projects" in the DeFi Summer craze, WBTC's market value exceeded US$1.5 billion, becoming the 6th largest cryptocurrency on the Ethereum network, second only to CRO, USDC, LINK, BNB and USDT. At that time, its market value jumped to 18th in the cryptocurrency market.

In December 2020, the number of WBTC exceeded 115,000, and the market value reached US$2.5 billion, ranking first among DeFi projects.

In June 2021, more than $6 billion worth of Bitcoin was tokenized as WBTC on Ethereum, meaning that "1% of the total circulating supply of Bitcoin (at the time) had been tokenized as WBTC."

Of course, the growth of asset shares and the fact that WBTC is based on the Ethereum ecosystem also laid the groundwork for hacker attacks.

WBTC theft: endless stream of hacker attacks

In 2022, Inverse Finance suffered a flash loan attack and lost 53.2445 WBTC;

In 2023, Nirvana was attacked by hackers, and the subsequent attackers exchanged 3.3 WBTC for 48 ETH and 2.9 WBTC for 41 ETH respectively.

In early May 2024, a whale lost 1,155 WBTC worth $68 million due to malicious transactions caused by a phishing attack; on the 15th of that month, the Sonne Finance attacker exchanged 59 WBTC for 1,185 ETH and 183,000 DAI.

Not only that, in previous attacks on platforms such as Balancer, Poly Network, Harmony Cross-Chain Bridge, HopeLend, Nomad Cross-Chain Bridge, Euler Finance, and Orbit Chain, WBTC was one of the tokens "favored" by hackers.

Alameda Research: The former largest minter of WBTC

Another WBTC event that attracted widespread attention was the "depegging storm" in November 2022. WBTC/BTC fell to 0.9276 on November 23, and rebounded to above 0.99 on November 24. At that time, affected by the FTX crash, Alameda Research, which had filed for bankruptcy, was the largest minter of WBTC, minting a total of 101,746.1 WBTC and destroying 29,435.3. Kyber Network CEO Victor Tran proposed on November 25 to migrate WBTC Big DAO to a new signature contract-related vote. The number of voters was changed from 11/18 to 8/13, and the FTX-related Blockfolio (FTX) address will be deleted. New members include B.Protocol, Badger, Balancer, BitGo, Chainlink, Compound, Gopax, Krystal, Kyber, Loopring, Multichain, Ren, and Tom Bean.

Since Alameda can only mint WBTC but cannot custody BTC, it did not have a systemic impact on WBTC. On the eve of FTX's bankruptcy, an anonymous representative of Alameda applied to redeem 3,000 WBTC, but was ultimately rejected by BitGo because it did not comply with the process.

New changes in WBTC: Why introduce Tron ecosystem and gain support from Justin Sun?

According to past information, BitGo’s recent announcement of introducing the Tron ecosystem and Justin Sun’s support was not a spur-of-the-moment move, but rather there were signs of it long ago.

Money Game: Acquisition and Anti-acquisition

In November 2022, sources said BitGo was in preliminary discussions to raise new funds at a valuation of $1.2 billion, and emphasized that it had no risk exposure to companies such as FTX, Alameda, or Three Arrows Capital and Celsius. Previously, Galaxy Digital announced the termination of its acquisition of BitGo in April of that year due to failure to provide compliant financial statements on time; in September, BitGo formally sued Galaxy Digital and sought $100 million in compensation from the latter.

In June 2023, a Delaware court ruled that Galaxy had a "valid basis" to terminate its acquisition of BitGo. That month, BitGo first announced plans to acquire Prime Trust, a crypto custody company regulated by Nevada, and then decided to terminate the acquisition later that month.

It has to be said that BitGo’s financial game might have begun to “brew changes” at that time.

A sudden turn of events: financing of 100 million, valuation of 1.75 billion

In August 2023, BitGo completed a $100 million financing at a valuation of $1.75 billion, but regarding the specific investor information, BitGo only stated that the investors were from the United States and Asia. When the recent announcement that "BitGo will provide multi-jurisdictional custody for WBTC" came out, everyone suddenly realized that the investors at that time might have included Justin Sun.

Bit Global, which will subsequently establish a joint venture with BitGo and was established on August 9, 2023, is a "strategic partner" with Justin Sun and the Tron ecosystem. BitGo is only a minority shareholder in the new joint venture.

In view of this, although Justin Sun stated that "participation in the WBTC project only provides strategic support and does not affect the project's security and decentralized core", it is no wonder that industry insiders and organizations including Jupiter co-founder Meow, BODL Fund founder Liu Feng, and Maker DAO risk management team Block Analitica Labs have questioned and responded to WBTC's "centralization crisis."

Centralization concerns: WBTC may trigger a chain reaction

According to Dune data, more than 41% of WBTC is currently used in the lending ecosystem, with the largest acceptor being MakerDAO (the industry's largest mortgage lending protocol, with nearly $5 billion in assets under management on the chain. It has now launched a "Proposal to Reduce the Size of WBTC Collateral" to address potential risks of changes in custody rights). Another nearly 32% is used for direct transactions.

Since many DeFi projects are affected by the inflow of WBTC, once WBTC is depegged again, a large number of DeFi projects and L2 ecosystems will be at risk, which may trigger a chain reaction. This is also the key reason why BitGo's action triggered multiple reactions.

No one wants to entrust their life and property to a "powder keg" that may trigger a "chain explosion".

However, where there are fears, there are also "greeds". Previously, James Fickel, a firm bull on the ETH/BTC exchange rate, spent 12 million USDC to buy 211 WBTC from August 6 to 9, with an average price of $56,824. I don't know how he feels now, but WBTC's market position is still mainstream.

Conclusion: WBTC is a centralized product, and the ownership of custody is the key

In summary, BitGo itself is a centralized custodian, and WBTC is a centralized synthetic asset. However, thanks to its multi-signature and cold storage technology and on-chain reserve proof used to protect Bitcoin to ensure asset security since 2019, the market and users believe that "WBTC is a trusted asset" and use it in multiple scenarios.

Therefore, although BitGo CEO Mike Belshe stated that "Bit Global has a separate customer funds custody team, and cannot lend funds or dispose of funds at will", and emphasized that "in terms of certification, wbtc.network will continue to operate," it still cannot completely dispel the doubts of multiple market players regarding the "ownership of custody rights."

Whether WBTC can continue to be the "key bridge between Ethereum and Bitcoin" may depend on BitGo's next "self-proving action."