A short, cryptic tweet caused a stir in X circles late Tuesday night when the world’s leading exchange Coinbase hinted at plans to enter the wrapped bitcoin market. The initial speculation was quickly validated by Senior staff from certain Their excitement for further integration of Bitcoin into the company’s blockchain ecosystem.
Other observers have highlighted the strategic nature of the decision after a turbulent week for current market favorite wBTC, a BitGo coin. The latter has long been seen as the easiest and most popular way for Bitcoin investors to gain exposure to DeFi products.
With the industry focusing on native alternatives to Bitcoin, many view the announcement as a crucial step toward maintaining Ethereum’s dominance as the de facto DeFi layer to Bitcoin.
wrapped bitcoin assets
To better understand the emergence and interest in wrapped Bitcoin products, we need to turn back the clock to 2018 when the idea of DeFi was just starting to take off on Ethereum.
In an attempt to attract liquidity to their protocols, a group of projects have decided to focus on the most liquid asset on the market: Bitcoin. Louis Lu, one of the original contributors to wBTC, shared his experience point of view In distress:
“We realized that to really help DeFi grow, we needed to bring Bitcoin liquidity to the ecosystem.”
As the old saying goes, the rest is history. In mid-2020, the “summer of DeFi” sparked a speculative wave that sent the total value of wBTC held to over $10 billion. Today, over 150,000 BTC are still locked up in its own Ethereum contract, under the custody of institutional provider BitGo.
This custody, and the responsibility it entails, is the subject of the current controversy surrounding wBTC. Late last week, for example, BitGo announced open A new strategic partnership with Hong Kong-based BiT Global aims to expand the wBTC product into a “multi-disciplinary incubator.” BiT Global is backed by renowned cryptocurrency founder Justin Sun.
The announcement received negative feedback from users who claimed that introducing new actors into custody arrangements posed an uncalculated risk.
The dominoes started falling the next day when community members of the popular algorithmic stablecoin maker started Defender On Tuesday, BitGo founder Mike Belshe and representatives from Bit Global defended the decision to remove wBTC from the protocol’s list of additional assets as a security measure. X public space.
While the concerns expressed on social media have not had a significant impact on wBTC deposits, they have opened the door for competitors. Despite BitGo’s long history in the space, it’s safe to wonder if it has exhausted the trust of market participants.
Earlier this year, a lawsuit filed by the company over its failed acquisition by Galaxy Digital resurfaced after the Delaware Supreme Court ruled that the case should move forward.
Challenge to Bitcoin’s Programmable Layers
For Coinbase, this foray into the packaged assets business may be more than just opportunistic. Analysts see potential for the company to revitalize an old product by tying into the popular Bitcoin DeFi narrative.
based on research According to BitcoinLayers, over 60% of proposed new scaling protocols for Bitcoin are advertised as alternatives to the EVM (Ethereum Virtual Machine). Over the past year, the excitement surrounding these proposals has led many to suggest that they could steer users away from Ethereum and toward Bitcoin, but most projects have failed to make much headway so far. Coinbase may be looking for an opportunity to nip future competition in the bud.
The company’s stake in Ethereum’s success has increased dramatically since the launch of its native staking application, a baseLate last year. While it’s fair to wonder why it took them so long to compete with BitGo’s wrapped product, the ability to directly benefit from the growing demand for on-chain Bitcoin speculation is likely the driving force behind the decision.
Coinbase recently reported nearly $20 million in revenue from its BASE product in the last quarter alone.
Despite announcements of more authentic, less trustworthy solutions for Bitcoin, market participants have so far favored established custodial institutions like BitGo over more complex and economically volatile alternatives. Coinbase appears set to double down on this approach by leveraging its existing custodial moat.
Since the company is already responsible for protecting the assets of large institutional holders such as Blackrock’s IBIT ETF, the proposed cbBTC product is expected to inspire more confidence from larger players than its previous products.
The impact this could have on the next Bitcoin layer is significant. Coinbase is in a unique position to attract liquidity that will be difficult for smaller projects to compete with. Their strongest arguments will be based on the security of the still-developing peg mechanism.
like male According to industry analyst Jacob Brown, this week’s announcement follows a series of moves by Coinbase that show a growing interest in the Bitcoin ecosystem.
Of course, the security compromises offered by custodial products remain highly criticized by technologists and advocates of more decentralized solutions, but the question remains as to whether market participants adhere to these principles.