America’s biggest crypto exchange Coinbase has launched its wrapped Bitcoin token—first teased in August—at a time when the leading version of the token is stirring lots of controversy in the fast-moving space.
The idea with the new token—called Coinbase Wrapped BTC, or cbBTC—is that traders can use their Bitcoin on Ethereum: It runs on the crypto network behind ETH, the second-biggest cryptocurrency by market cap, but is backed 1:1 with Bitcoin.
Why? So traders can use their Bitcoin on decentralized finance (DeFi) apps, mainly.
“By bringing assets across more chains, wrapped assets like cbBTC help build a more efficient, interconnected, and expansive financial ecosystem,” the San Francisco-based exchange said in a statement.
DeFi is the space in crypto that wants to replace things like banks and lenders via automated, decentralized apps. Think taking out a loan—but with no middleman, annoying questionnaires, or pesky bureaucracy getting in the way.
Bitcoin on DeFi is nothing new: Bitcoin holders have wanted to access DeFi applications using BTC for years but have struggled because many of the largest apps in the space run on Ethereum. Native Bitcoin DeFi apps have only started to spring up over the last year or so.
“Wrapped” tokens like Coinbase’s cbBTC hope to help them with that, and it’ll work on both the Ethereum mainnet and the exchange’s own layer-2 network, Base.
“Coinbase is for the first time linking deep off-chain Bitcoin liquidity to low cost, high-speed financial rails on Base and Ethereum,” the exchange said.
But wrapped Bitcoin has recently attracted controversy. BitGo, the custodian of WBTC—the 15th biggest digital asset by market cap and the biggest in the industry—announced last month that it was teaming with Hong Kong-based BiT Global to “diversify custody operations and cold storage across multiple jurisdictions” for the cryptocurrency.
The move attracted some criticism from others in the space because of BiT Global’s ties to crypto entrepreneur Justin Sun, the at-times controversial founder behind the Tron network.
cbBTC.
— Coinbase 🛡️ (@coinbase) August 13, 2024
MakerDAO, a DeFi organization which issues the DAI stablecoin, said Sun’s involvement in WBTC presented “an unacceptable level of risk” after they alleged that the TUSD stablecoin’s transparency had deteriorated under his control.
Such controversy has led other big players in the space to enter the wrapped token business, perhaps sensing an opening. Coinbase first teased cbBTC days after BitGo made its WBTC announcement, then the parent company of crypto ETF issuer 21Shares this month announced the launch of its own version of wrapped Bitcoin, 21BTC.