BTC is officially starting to pull back. We have mentioned in our previous articles many times that all indicators indicate that there is a need for a short-term pullback. One event may have accelerated the pullback, which is the recent WBTC flash crash.
We need to know that 1 WBTC is equal to 1 BTC. It can be said that WBTC is the shadow of BTC.
However, at around 22:30 on November 23, Binance's WBTC/USDT trading pair experienced a flash crash, with the price briefly falling to US$5,209 before quickly returning to normal levels.
The 15-minute trading volume increased from less than 1WBTC per day to 88.6 WBTC.
Analysts believe that due to the lack of liquidity of this trading pair, abnormal price fluctuations may be caused by large market sell orders.
The community speculates that there is a possibility that hackers may use low-liquidity trading pairs to carry out cross-trading against XQ. Currently, Binance has not issued an official statement on the matter.
Previously, similar flash crashes occurred in niche trading pairs such as BNB/USDC, WBTC/BTC, and ARB/TUSD on Binance. The most familiar one among them should be OKB.
The OKB flash crash occurred on January 23. On that day, the price of the currency dropped from 53 to 25, a drop of nearly 60% in a very short period of time.
The entire network exploded at once. Finally, OK conducted a self-inspection and said that it was because a large investor sold thousands of OKB at the market price. The liquidity of OKB itself was not large, which triggered a chain of liquidations among large investors who pledged OKB to borrow coins.
It is said that Star was furious about this and fired several people, but anyone who believed in OKX and had some dignity bought discounted OKB products and had a great time.
Let’s talk about wbtc, the protagonist of this flash crash. Many friends may not be very clear about what WBTC is?
WBTC (Wrapped Bitcoin) is a token that represents Bitcoin (BTC) on multiple blockchain networks.
It is a cryptocurrency pegged to Bitcoin that allows Bitcoin to be used on blockchains such as Ethereum, thereby being able to take advantage of Ethereum's smart contract capabilities.
WBTC is created by locking Bitcoin in a specific smart contract and issuing WBTC tokens of equal value at a ratio of 1: 1. This means that each WBTC token is backed by an equal amount of Bitcoin.
That is, 1WBTC=1BTC.
How are WBTC and Bitcoin pegged?
The process of WBTC (Wrapped Bitcoin) pegging to Bitcoin involves several key steps to ensure that each WBTC token is 1:1 anchored to an equivalent amount of Bitcoin. Here is a rough outline of the process:
Locking Bitcoins:
When an entity (called a validator or guardian) wants to create WBTC, it first needs to send Bitcoin to a specific multi-signature wallet. This wallet is controlled by a smart contract managed by the WBTC DAO.
Once Bitcoins are sent to this multi-signature wallet, they are locked there and cannot be transferred or spent until the corresponding WBTC are redeemed.
Issuing WBTC:
The smart contract will issue an equal amount of WBTC tokens based on the amount of Bitcoin locked. These tokens are represented on the Ethereum blockchain and can be freely traded within the Ethereum network.
The issuance process is automatic and follows the rules in the smart contract, ensuring the 1:1 anchor ratio of WBTC to BTC.
Redemption process:
If WBTC holders want to redeem their tokens back to Bitcoin, they can send their WBTC back to the smart contract.
The smart contract verifies the amount of WBTC and releases the corresponding amount of Bitcoin back to the holder's Bitcoin address.
This process also ensures a 1:1 exchange ratio, so the price of WBTC is basically equal to the price of BTC.
However, there is still a gap between theory and reality. The USDT issued by Tether is also said to be 1:1 US dollar, 1 USDT equals 1 US dollar, but it is certain that the risk of USDT default is far greater than BTC. The currency circle can do without USDT, but not without BTC.
I can’t sleep well when holding a huge amount of USDT, but I feel very at ease when holding a huge amount of BTC.
What makes us most alert in this incident is leverage. It is leverage that makes us successful, and leverage is also the cause of our failure, because every time such an incident happens, leverage is the one that gets hurt the most.
Fortunately, this time it was the niche WBTC, and last time it was OKB. Can you imagine what would happen if such a thing did not happen to shadow WBTC, did not happen to OKB, but happened to BTC.
The price of the currency instantly plunged from 98,000 to 5,209 U.S. dollars, and then immediately went up to 98,000 on a V-shaped trendline, all within a few tens of seconds. What would happen then? How many long and short contracts would be blown up, how many loan leverages would be blown up, and how many people's assets would be reduced to zero? Don't even think about whether you could grab some goods at that time. There would be no time for you to react.
It can be seen that we still need to always respect the market and understand that holding spot BTC in a cold wallet is truly risk-free. All others have the possibility of multiple factors returning to zero.
The application of financial instruments may bring returns that are magnified several times, but it may also reduce assets to zero.
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