Why WBTC Highlights the Importance of Decentralization

The crypto world has been a bit tumultuous lately, particularly regarding some unsettling news about WBTC (Wrapped Bitcoin).

To understand the turmoil, let’s start from the beginning.

1. What is WBTC?

WBTC, or Wrapped Bitcoin, is a tokenized version of Bitcoin. However, unlike Bitcoin, WBTC doesn’t operate on the Bitcoin blockchain. Instead, it runs on other networks. Essentially, WBTC uses smart contracts to "wrap" Bitcoin, creating a 1:1 token on another blockchain. In other words, you give one Bitcoin (BTC) to WBTC’s custodian (like BitGo), and they issue you one WBTC as a certificate.

2. The Value of WBTC: Benefits of Converting BTC to WBTC

With WBTC, you can use Bitcoin in various blockchain operations. WBTC has become an integral part of the crypto ecosystem.

1. Cross-Chain Asset: WBTC is a successful example of a cross-chain asset, demonstrating how Bitcoin’s value can be integrated into smart contracts. This cross-chain interoperability opens new possibilities for blockchain innovation.

2. Participation in DeFi: Originally, Bitcoin was confined to its own blockchain, unable to participate in various DeFi protocols on other blockchains. WBTC breaks this barrier, allowing users to leverage their Bitcoin in lending, trading, liquidity mining, and more across multiple blockchains, providing Bitcoin holders with additional earning opportunities.

3. Increased Liquidity: Currently, 45,000 WBTC tokens are distributed across different blockchains, with Solana holding the most at 14,500 tokens.

However, WBTC’s Achilles' heel is also clear, which is why people are starting to find it unreliable.

3. Why Has WBTC Become Untrustworthy?

Because it is centralized. If the "center" becomes unreliable, WBTC could face the same fate as HBTC.

BitGo is WBTC’s primary custodian, the current "center," responsible for managing the Bitcoin that’s been "wrapped." Recently, however, BitGo announced plans to transfer control of WBTC to a new "center"—Justin Sun and his Tron ecosystem.

You might ask, who is Justin Sun? In short, he’s a "master of hype" in the crypto space, known for his ability to stir things up. He was previously involved in launching HBTC, another Bitcoin-wrapped token, which didn’t end well. The token’s price ended up closer to USDT (a stablecoin) than BTC. This transfer of control has sparked concerns that WBTC might follow a similar path, leading to a crisis of trust.

4. The Lesson from HBTC

HBTC (Huobi BTC) is a Bitcoin-wrapped token launched by the Huobi exchange, similar to WBTC, with a 1:1 peg to BTC via centralized custody. Users could convert Bitcoin to HBTC through the Huobi platform for use on the Ethereum network. However, HBTC didn’t perform as expected.

• Centralization Issues: HBTC is entirely controlled by Huobi, meaning users must trust Huobi’s custody system. This high degree of centralization raised concerns about its security, especially considering Justin Sun’s potential influence behind HBTC, which amplified these worries.

• Poor Market Performance: Due to centralized management and low market demand, HBTC’s performance has been underwhelming. At one point, HBTC’s price neared that of USDT, not BTC, deepening market distrust.

Launched in June 2020, HBTC was trading at $12,000 as of August 26, which is less than a quarter of BTC’s price. So, you can understand why people are concerned about Sun taking control of WBTC.

When Sun might control WBTC, the only choice for most people is to abandon WBTC.

5. What are the Alternatives to WBTC?

As doubts about WBTC’s future grow, naturally, people are considering safer alternatives. Currently, there are a few options in the market:

• tBTC (Threshold Bitcoin): A more decentralized Bitcoin-wrapped token with on-chain proof of reserves, not relying on a centralized custodian. This means greater transparency and security, regardless of who’s behind the scenes.

• frxBTC: An upcoming Bitcoin-wrapped token from the Frax ecosystem. Although not yet launched, it has already attracted attention in the community.

• RenBTC: A decentralized Bitcoin-wrapped token issued by the Ren protocol. It uses multisig (multi-signature) to manage BTC custody, aiming to strike a balance between decentralization and efficiency. While RenBTC’s market share isn’t as large as WBTC, it has a presence in the DeFi space.

6. Which Alternative is the Best?

Given the current market conditions, tBTC seems the most promising replacement for WBTC. It offers a higher degree of decentralization and already has a solid foundation in the DeFi space, with significant trading volume on platforms like Curve Finance. Additionally, tBTC has shown stability over time, giving people more confidence in its future.

Of course, the market is ever-changing, especially in the crypto world. But for those seeking greater decentralization and security, tBTC might be the best option right now.

Conclusion

Justin Sun’s takeover of WBTC control has raised significant concerns about WBTC’s future. This event also reminds us that decentralization is not just an ideal in cryptocurrency; it’s a safeguard for security and trust. The shift from centralization to decentralization is an irreversible trend. While centralization can offer convenience—much like using centralized crypto exchanges—it always comes with risks.

HBTC’s failure is a prime example: once centralized management falters, the consequences can be severe. In this context, tBTC, as a more decentralized Bitcoin-wrapped token, aligns with this irreversible trend, offering a more transparent and secure alternative that could be the future direction.

As for how to earn more with tBTC, we’ll cover that in detail another time.

By the way, people are worried about over-issuance with WBTC under new management. But with other centralized cryptocurrencies, the concern is freezing. For instance, USDC and USDT, both centralized cryptocurrencies, are controlled by their issuing institutions.

In theory, they could freeze your USDC or USDT anytime they want. Here’s a list of USDC and USDT wallet addresses that have been frozen (with a summary screenshot of the frozen addresses at the top).

But don’t worry, if you lose access to USDC or USDT, you still have Dai and LUSD, which are decentralized and relatively safe. Of course, that’s another topic we’ll discuss another day.

To sum up today’s content in one sentence: Decentralization is really important.

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