Coinbase announced it will remove Wrapped Bitcoin (BTC) from its exchange, starting by suspending trading on December 19, 2024. This move has raised many questions, especially after Coinbase recently launched its own Wrapped Bitcoin (BTC) on the Base blockchain.
Coinbase, the leading cryptocurrency exchange based in the United States, stated that it will remove wBTC from its platform 'because it does not meet our listing standards.' Coinbase added that it regularly evaluates all assets offered on its site and removes assets that do not meet its exclusive requirements. This diligence has led Coinbase to conclude that it will suspend trading for wBTC, effective around noon Eastern time on December 19, 2024.
Wrapped Bitcoin (wBTC), simply put, is a token that allows users to use Bitcoin (BTC) on other blockchains, like Ethereum, by 'wrapping' it to represent the value of Bitcoin on the Ethereum network. Although wBTC has become popular, especially in decentralized finance (DeFi), it has come under scrutiny in recent months.
The rise of Coinbase's cbBTC
One aspect that makes Coinbase's decision quite interesting is the fact that it was made close to the launch of Coinbase's own wrapped Bitcoin version, called cbBTC. This is the Layer 2 network named Base, which Coinbase has been and is operating. Providing an alternative to wBTC - especially in the increasingly growing decentralized finance space - cbBTC will be the closest alternative offered by Coinbase.
Coinbase's cbBTC is being marketed as a direct competitor to wBTC, largely custodial, meaning Bitcoin is always held by a centralized party, BitGo, to facilitate use on Ethereum or other blockchains. Essentially, Coinbase is offering wrapped Bitcoin linked to its platform, and in some respects, raises questions about its significant competitive advantage over wBTC services.
Concerns surrounding the custodial structure of wBTC
This is also related to the fact that there have been recent concerns about the custodial structure behind the token. The company responsible for custodian wBTC recently joint ventured with BiT Global, a custodian company partly owned by cryptocurrency figure Justin Sun. This partnership has raised alarms in certain areas of the cryptocurrency community due to their reputations being questioned in the industry.
However, BitGo's CEO, Mike Belshe, has spoken out in defense of this partnership, making his case while stating that critics have been misinformed about Sun. According to Belshe, BiT Global has a legal structure that restricts any individual from holding more than 20% shares and decentralizes the operations of the custodian. Additionally, the wBTC custodial keys will be distributed among multiple parties to ensure security, as Belshe highlighted.
Belshe has also spoken quite a bit about Coinbase's cbBTC, arguing that this token is 'too centralized' and could undermine the more decentralized ideals of the broader DeFi space. The CEO of Coinbase added a sharp criticism, 'If the DeFi community chooses Coinbase's central bank as the ultimate custodian, then I think all hopes for DeFi will be lost.' In Belshe's view, Coinbase's centralized approach to wrapping Bitcoin may be seen as contrary to the values of decentralized finance.
The future of wrapped Bitcoin
Coinbase's decision to delist wBTC from its platform, along with the launch of cbBTC, signals the beginning of a new era in wrapped Bitcoin. It is now clearer that competition between cryptocurrency exchanges and projects has increased, as everyone wants to dominate the market for these wrapped Bitcoin tokens.
While the industry waits to see what all this means for the broader adoption of wBTC and cbBTC, the delisting also marks challenges in custodial structures for wrapped tokens. The ongoing debate between centralization versus decentralization in the cryptocurrency space will continue to shape the future of wrapped assets like wBTC.
