The wrapped Bitcoin market is witnessing a remarkable development with the entry of new players, most notably Coinbase, which is the largest cryptocurrency exchange in the United States.
Analysts see these developments as providing opportunities to increase user engagement, enhance liquidity across networks, and drive significant growth in the coming years.
Opportunities and Challenges of Wrapped Bitcoin:
According to a recent report from CryptoQuant, the current wrapped Bitcoin market offers promising potential, but it is not without challenges.
Some investors may be hesitant to use some digital tokens because of the mechanisms adopted by the security authorities that manage these digital tokens.
It is worth noting that Wrapped Bitcoin offers users the opportunity to benefit from other networks and decentralized finance (DeFi) applications without having to sell actual Bitcoin.
These digital tokens are backed 1:1 by real Bitcoin, and are often used on the Ethereum network.
The first such token is WBTC, launched in 2019 by BitGo, and is currently the largest wrapped Bitcoin token with a circulating supply of around 153,000 coins.
In 2020, other wrapped Bitcoin variants were launched, including HTX's HBTC, Threshold Network's tBTC, and RenBTC from Ren Protocol.
The latest addition is cbBTC from Coinbase, which runs on Ethereum (Layer 1) and Coinbaseâs Base (Layer 2) network.
Coinbase launched cbBTC on September 12, and it quickly became the third-largest wrapped Bitcoin on the market, surpassing HBTC and renBTC tokens.
According to CryptoQuant analysts, 64% of cbBTC is held on Ethereumâs Uniswap decentralized exchange, where the token is used to provide liquidity for trading pairs like cbBTC/WBTC and cbBTC/USDC.
It is worth noting that despite the rapid growth, the cbBTC coin has been subjected to harsh criticism.
The circulating supply of cbBTC is approximately 1,670 units, worth approximately $101 million, with 941 units on the Ethereum network and 729 on Base.
While cbBTC offers new financial opportunities, including trading and lending on decentralized platforms, there are some concerns about its transparency.
Unlike BitGo, which provides a public list of addresses holding WBTC-supporting Bitcoin on the Bitcoin network, Coinbase has declined to disclose this information for cbBTC.
This makes it difficult for users to independently verify that the Bitcoin supporting cbBTC actually exists on the Bitcoin blockchain.
Additionally, CryptoQuant pointed out other criticisms regarding the control of cbBTC smart contracts.
The smart contract administrator can block addresses and prevent the transfer, minting, or burning of the token, posing a risk to users who may find their holdings frozen under certain circumstances.
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