Late Tuesday night, a short, cryptic tweet from leading global exchange Coinbase sparked a furor in X circles when it suggested it planned to enter the wrapped Bitcoin market. Initial speculation quickly turned to Senior Employee Who Supported The hope is to further integrate Bitcoin assets into the company’s on-chain ecosystem.
Other observers have highlighted the strategic nature of the decision following a tumultuous week for BitGo’s current market favorite, wBTC, which has long been viewed as the easiest and most popular way for Bitcoin investors to get exposure to DeFi products.
The announcement is seen by many as a crucial move to maintain Ethereum’s dominance as the de facto Bitcoin DeFi layer as the industry turns its attention to Bitcoin-native alternatives.
The Origins of Wrapped Bitcoin
To better understand the emergence and interest in wrapped Bitcoin products, we need to rewind the clock to 2018, when the idea of DeFi was just starting on Ethereum.
In an attempt to attract liquidity to their protocols, several projects have decided to focus on Bitcoin, the most liquid asset on the market. Loi Luu, one of wBTC’s original contributors, said: perspective About the trial:
“We realized that to really spur the growth of DeFi, we needed to bring Bitcoin liquidity into the ecosystem.”
As the old saying goes, the rest is history. In mid-2020, the “DeFi Summer” sparked a speculative boom that saw total deposits in wBTC surpass $10 billion. Currently, just over 150,000 Bitcoin remains locked in Ethereum contracts under the custody of institutional provider BitGo.
This custody, and the liability that comes with it, is the subject of current controversy surrounding wBTC. For example, last weekend, BitGo Revealed The new strategic partnership with Hong Kong-based BiT Global aims to expand wBTC products into a “multi-jurisdictional custody” regime, behind which is notorious cryptocurrency founder Justin Sun.
The announcement sparked a backlash from users who argued that introducing a new entity into the custody system was a miscalculation of risks.
The next day, as community members of the popular algorithmic stablecoin maker began to topple dominoes, Assert On Tuesday, BitGo founder Mike Belshe and a representative from Bit Global called for wBTC to be removed from the protocol’s list of collateral assets as a security measure. Public X Space.
While the concerns expressed on social media have yet to have a major impact on wBTC deposits, they have opened the door to challengers. BitGo has been in the space for a long time, but it is fair to suspect that it may have lost the trust of market participants.
Earlier this year, the company’s lawsuit, arising from a failed acquisition attempt from Galaxy Digital, resurfaced after the Delaware Supreme Court ruled that the case should move forward.
The challenge of a programmable Bitcoin layer
For Coinbase, this latest foray into the wrapped assets business may be more than just opportunistic, as analysts see the company potentially capitalizing on the popular Bitcoin DeFi narrative to revitalize a stale product.
Based on the study According to BitcoinLayers, over 60% of proposed new Bitcoin scaling protocols are touted as alternatives to Ethereum’s EVM (Ethereum Virtual Machine). Over the past year, the excitement surrounding these proposals has led many to suggest they could entice users away from Ethereum and towards Bitcoin, but most projects have failed to make any significant progress so far. Coinbase may be looking at an opportunity to nip a potential competitor in the bud.
Since the launch of the native rollup implementation, the company’s involvement in Ethereum’s success has increased significantly. baseAnnounced late last year, it’s natural to wonder why it took so long to compete with BitGo’s wrapped product, but the ability to directly profit from the growing demand for on-chain Bitcoin speculation is likely what drove the decision.
Coinbase recently reported that it made nearly $20 million in revenue from its BASE product in the most recent quarter alone.
Despite the promotion of a Bitcoin-native, minimally trustworthy solution, market participants have historically preferred established institutional custodians like BitGo over more complex and financially unstable alternatives, and Coinbase appears intent on further strengthening this approach by leveraging its existing dominance in the custody business.
The company is already responsible for custody of assets for large institutional investors such as BlackRock’s IBIT ETF, and the proposed cbBTC product is expected to gain trust from even larger players than its predecessors.
The implications of this for the Bitcoin stratum going forward are significant: Coinbase is uniquely positioned to attract liquidity that will be difficult for smaller projects to compete with. The company’s strongest argument lies in the security of its bridging mechanism, which is still in development.
As attention According to industry analyst Jacob Brown, this week’s announcement follows a series of moves from Coinbase that signal growing interest in the Bitcoin ecosystem.
Of course, the security trade-offs offered by custody products remain heavily criticized by technologists and advocates of more decentralized solutions, but the question remains whether market participants will adhere to those principles.
