Wrapped Bitcoin (wBTC)

Wrapped Bitcoin (wBTC) is a cryptocurrency that represents Bitcoin (BTC) on the Ethereum blockchain through a process known as tokenization. This tokenization enables Bitcoin to be utilized within the Ethereum ecosystem, including decentralized applications (DApps), decentralized finance (DeFi) protocols, and smart contracts.

Here's how Wrapped Bitcoin works:

• Tokenization: Wrapped Bitcoin is created by locking up or depositing Bitcoin into a custodian's address. In return, an equivalent amount of wBTC tokens is minted on the Ethereum blockchain, representing the locked Bitcoin.
• Custodianship: Custodians, often centralized entities or consortiums, hold the deposited Bitcoin securely. These custodians are responsible for minting and burning wBTC tokens based on the amount of Bitcoin deposited or withdrawn.
• Ethereum Compatibility: wBTC tokens are ERC-20 tokens, meaning they adhere to the Ethereum blockchain's token standard. As such, they can be easily integrated into Ethereum-based applications and smart contracts.
• Usage in DeFi and DApps: Once wrapped, Bitcoin in the form of wBTC can be traded, lent, borrowed, used as collateral, or participate in yield farming and liquidity provision within various DeFi protocols and DApps on Ethereum.
• Redemption: When users want to redeem their wBTC tokens for Bitcoin, they initiate a redemption process where they send the wBTC tokens back to the custodian. The custodian then burns the wBTC tokens and releases the equivalent amount of Bitcoin to the user's specified address.

Examples of use cases for Wrapped Bitcoin include:

• Providing liquidity on decentralized exchanges (DEXs) like Uniswap or SushiSwap by pairing wBTC with other tokens.
• Using wBTC as collateral to borrow stablecoins or other cryptocurrencies in decentralized lending protocols such as Compound or Aave.
• Trading wBTC on various decentralized and centralized exchanges to gain exposure to Bitcoin's price movements while leveraging the Ethereum ecosystem.

In summary, Wrapped Bitcoin (wBTC) serves as a bridge between the Bitcoin and Ethereum blockchains, enabling Bitcoin holders to access the various functionalities and opportunities available within the Ethereum ecosystem.