Bitcoin increasingly ‘locked up’ in Ethereum blockchain

WBTC is an ERC-20 token on Ethereum, each one backed 1-to-1 by actual Bitcoin held in reserve. The protocol launched in 2019 to close a gap: Bitcoin users had no way to access Ethereum's DeFi ecosystem. WBTC let holders deploy Bitcoin capital into smart contracts, lending pools, and decentralized applications without converting to another asset.

Merchants facilitate the conversion. Someone trading Bitcoin for WBTC sends their coins to a merchant, who validates the transaction, stores the Bitcoin, and mints WBTC. To reverse the trade, the holder burns WBTC and retrieves Bitcoin from storage. A DAO controls the system, with auditors verifying reserves on both the Bitcoin and Ethereum blockchains.

Other wrapped Bitcoin protocols exist, including renBTC and imBTC, but WBTC's 76% share demonstrates its dominance. As developers built DeFi applications, demand for wrapped Bitcoin surged. Total value locked in DeFi reached $4 billion by late July, fueled by Bitcoin holders seeking to borrow, lend, and trade on Ethereum while keeping Bitcoin exposure.

Andy Bromberg, president of CoinList, told CoinDesk that "DeFi is the biggest opportunity for decentralized finance's growth today." TokenSet, launched about a year after WBTC, exemplified this momentum. The platform let users build autonomous trading strategies across ETH and WBTC pairs, allowing them to capture gains on both chains without constant monitoring.