Key facts:
CbBTC is backed 1:1 by the bitcoin held by Coinbase.
The wrapped BTC token will be available for trading on DEX with Coinbase Wallet.
Coinbase, the largest cryptocurrency exchange in the United States, announced on Thursday, September 12, the launch of its wrapped bitcoin (BTC) token, called cbBTC, expanding the ways to use BTC in the Ethereum ecosystem. This token is backed 1:1 by the bitcoin that Coinbase holds in custody and is available to its millions of users.
A wrapped token is a representation of a digital asset on a different blockchain than the original. This mechanism allows assets like bitcoin, which do not have native support for smart contracts, to be used in ecosystems that do support them, such as Ethereum. This process is carried out through smart contracts that hold the original asset and issue an equivalent token on the new chain.
According to the informed By the exchange, the cbBTC token is compatible with Base, the Ethereum second-layer network developed by Coinbase to improve scalability and provide a space for new decentralized applications (dApps). In addition, cbBTC can be used on the Ethereum mainnet, allowing users to interact with a wide range of DeFi applications.
This announcement follows Coinbase’s integration of Bitcoin’s Lightning Network, a move reported by CriptoNoticias, which sought to improve the speed and efficiency of Bitcoin transactions in that exchange.
“Starting today, millions of Coinbase customers can seamlessly and securely access financial applications within the Ethereum ecosystem using BTC they already own,” Coinbase stated. This step links the deep off-chain liquidity of Bitcoin to the low-cost, high-speed financial rails of Base and Ethereum for the first time, according to the platform.
The impact of cbBTC on the DeFi ecosystem is significant. This is because “it is designed to be perfectly compatible with DeFi applications”, allowing users to Take advantage of new use cases such as providing liquidity or using BTC as collateral to borrow other cryptocurrencies.
Several DeFi applications have already enabled support for cbBTC, including Aerodrome, Curve, Aave, Sky Protocol, Compound, Maple, and cross-chain bridges such as deBridge.
When Coinbase users send their BTC to addresses on Base or Ethereum, it is automatically converted 1:1 to cbBTC. When you receive cbBTC into your Coinbase accounts, it is converted 1:1 to BTC.
cbBTC will not have a separate order book on Coinbase but will be available for trading on DEX using Coinbase Wallet and potentially on other third-party exchanges.
The utility of wrapped tokens in the cryptocurrency ecosystem is multifaceted. For example, they facilitate interoperability, allowing assets from one blockchain to be integrated and operated on another. This is fundamental for the development of Web 3.0 and DeFi, where the ability to move and use assets between different platforms is essential.
Furthermore, wrapped tokens, especially BTC ones, allow this asset to be integrated into DeFi applications. This means that bitcoin can be used as collateral, lent, or provide liquidity in DeFi protocols, significantly expanding BTC’s functionality beyond its use as a currency.
This also opens the door to the creation of new financial products that were not previously possible with Bitcoin in its native form, including derivatives, options, and other financial instruments that can be designed and executed on blockchains more advanced in terms of functionality.
This article was created using artificial intelligence and edited by a human on the editorial staff.
