This is the current state of the wrapped Bitcoin market: CryptoQuant

The Wrapped Bitcoin market is seeing the emergence of new players, such as Coinbase, the largest American crypto exchange. Analysts believe that the current market condition presents an opportunity for greater user engagement, greater cross-chain liquidity, and significant growth in the coming years.

However, observations made in CryptoQuant’s latest report suggest that the race may not be smooth and that investors may be reluctant to use some tokens due to the mechanisms used by custodians.

The Emergence of New Wrapped Bitcoin Tokens

Wrapped Bitcoin tokens allow holders to use other decentralized finance (DeFi) networks and applications that are not on the Bitcoin network without selling their BTC. They are backed 1:1 with BTC and are mostly on Ethereum. The first of its kind, WBTC, was created in 2019 by digital asset infrastructure provider BitGo. It is currently the largest Wrapped Bitcoin on the market, with a circulating supply of 153,000.

Other types of Wrapped Bitcoin were launched in 2020, including HTX exchange’s HBTC, Threshold Network’s tBTC, and Ren Protocol’s renBTC. Coinbase’s cbBTC is the latest on the market and sits on Ethereum’s Layer 1 network and underlies the exchange’s Layer 2 protocol.

Coinbase launched cbBTC on September 12, and within a week, the token became the third largest wrapped Bitcoin on the market, surpassing HBTC and renBTC. CryptoQuant analysts found that 64% of the token supply in Ethereum is on the decentralized exchange (DEX) Uniswap. The token has been pooled to provide liquidity to various trading pairs such as cbBTC/WBTC and cbBTC/USDC.

Problems and criticisms

The Coinbase Wrapped Bitcoin has a circulating supply of approximately 1,670 cbBTC ($101 million), with 941 cbBTC directly in Ethereum and 729 in Base. Although cbBTC has opened up a number of financial opportunities and offers holders access to trading, lending, lending and yield farming on DEX, the token has faced criticism from the community.

Unlike BitGo, which publishes the list of addresses supported by BTC WBTC on the Bitcoin network, Coinbase has refused to disclose the same information for cbBTC. This has made it impossible for any user to remotely verify that the BTC backing up cbBTC actually exists on the Bitcoin blockchain.

“Other criticisms have arisen that the cbBTC smart contract administrator may blacklist addresses for transferring, minting, and recording cbBTC. This could pose a risk to cbBTC users that their holdings may be frozen,” CryptoQuant said .

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