Coinbase released its new wrapped Bitcoin token, cbBTC, according to a report on Thursday. The token is available on the Ethereum network with Coinbase’s layer-2 scaling solution, Base. With this launch, the firm aims to expand the usage of Bitcoin in DeFi-related protocols and applications.
1:1 Bitcoin Custody
The cbBTC token is 1:1 factored and held in Coinbase’s custodian for Bitcoin. This guarantee holds that one cbBTC exists in circulation and is matched by an equal amount of Bitcoin held on reserve. The exchange has also confirmed that cbBTC will not exist in the form of its own order books or trading pairs on the Coinbase platform.
After users send the Bitcoin to a Base or Ethereum address, cbBTC is automatically minted at 1:1 ratio. In the reverse direction, when users redeposit cbBTC onto Coinbase it is then auto-converted into regular BTC. The aim was for a smooth process to simplify access of Bitcoin holders into the fast expanding DeFi market.
Enhancing Bitcoin’s Lending Potential
Tokens like cbBTC, an interest-bearing version of Bitcoin, aim to tap the potential of lending in decentralized finance for Bitcoin. Even Bitcoin itself has remained difficult to incorporate in deFi applications because of the structuring feature of its blockchain, which has a UTXO base.
Coinbase Sees First AI-to-AI Crypto Transactions on BaseCoinbase makes Bitcoin compatible with DeFi activities by wrapping it as cbBTC. These activities include taking out loans against Bitcoin or lending it to earn interest. At launch, cbBTC is liquid on a range of top DeFi platforms including Aave and Compound Finance, with support from Morpho, SparkPool and Moonwell.
BitGo’s WBTC Decentralization
Last month, BitGo revealed that it would decentralize the custody of WBTC to multiple regions, such as Hong Kong and Singapore. The project’s association with Tron founder Justin Sun has already raised red flags in some circles. This Sun connection has prompted risk management firm Block Analitica to recommend that WBTC positions be approved with certain conditions.
The cbBTC token introduced by Coinbase presents a more viable option to users in terms of reliability and transparency. The new token makes it much easier to incorporate Bitcoin into DeFi, allowing users to get more value out of their Bitcoin in this rapidly evolving DeFi landscape.
