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What Is Wrapped Bitcoin And How Does It Work?
As the worlds first, largest, and most-recognized cryptocurrency, Bitcoins revolutionary technology -a
peer-to-peer electronic cash system- has largely remained the same since its creation over a decade ago.
However, that does not mean that Bitcoin is simply the most important part of cryptocurrency. You are
definitely familiar with the thriving decentralized finance (DeFi) ecosystem that is built upon smart
contract blockchains such as Ethereum. Now what does one need to do if they want to use Bitcoin
within the DeFi ecosystem of Ethereum? Wrapped Bitcoin was created in order to allow users to do just
that. It simply combines the best of both worlds by bringing the intrinsic value of Bitcoin to the world of
decentralized finance. But how? Lets find out!

What Is Wrapped Bitcoin?

Launched on the Ethereum mainnet in January 2019, Wrapped Bitcoin (WBTC) is in fact an ERC-20 token
that represents Bitcoin, currently being controlled by a Decentralized Autonomous Organization (DAO)
called the WBTC DAO. It was created as a collaborative project between the DeFi ecosystem major
leaguers such as BitGo, MakerDAO, Compound, Dharma, Ren, Set Protocol, and Kyber, in an endeavor to
bring more liquidity into the Ethereum network using Bitcoin.

Despite what you may think, it is not at all that hard to use Wrapped Bitcoin. It allows users to convert
their BTC into WBTC and vice-versa as one Wrapped Bitcoin equals one BTC, which makes things much
easier for beginners.

What Makes WBTC So Special?

The key advantage of ERC-20 tokens is that they make transfers of WBTC faster than Bitcoin, which is
mainly because of its integration into the world of smart contracts, decentralized apps (dApps), and
Ethereum wallets. More importantly, many of the biggest DeFi dApps and products on the Ethereum
blockchain, including MakerDAO and Compound require the use of collateral. So basically, in order for
users to borrow crypto assets, they are required to lock up other crypto assets. However, this is
considered as a downside by many and even limits how much protocols can grow because the overall
value of Ethereum is considerably lower than Bitcoin. However, WBTC deals with this problem in its own
unique way as well as helping protocols get a boost in liquidity by bringing Bitcoin over. Also, it allows
BTC holders to keep their WBTC while using DeFi apps to lend or borrow money.

WBTC can be traded on decentralized exchanges and can be used in DeFi for token swapping, lending,
borrowing, and yield farming in liquidity pools.

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