Coinbase has introduced cbBTC, a wrapped version of Bitcoin, which is now available on both the Ethereum and Base networks. Announced on September 12, Coinbase confirmed that cbBTC would be fully backed by Bitcoin held in a 1:1 ratio on Coinbase, expanding the utility of Bitcoin in decentralized finance (DeFi).
According to Coinbase, Bitcoin has played a vital role in the widespread adoption of cryptocurrency. The introduction of cbBTC aims to enhance this role by connecting Bitcoin’s liquidity with the fast-growing DeFi ecosystem on Ethereum and Base. This new product will allow millions of Coinbase users to access financial applications within the Ethereum network using their existing Bitcoin holdings.
In its announcement, Coinbase emphasized that cbBTC marks a significant development for DeFi, enabling users to engage with the Ethereum ecosystem through their Bitcoin assets. Several prominent DeFi protocols, including Aerodrome, Aave, Compound, Curve, Maple, Spark, and DeBridge, have already extended their support for cbBTC.
Minting process and global accessibility
Coinbase’s cbBTC functions as an ERC-20 token, similar to other wrapped Bitcoin products on the market. However, Coinbase plans to streamline the minting process, making it more user-friendly. Customers can mint cbBTC at a 1:1 ratio by sending Bitcoin through Coinbase to an Ethereum or Base address. The conversion back to Bitcoin is equally straightforward, requiring users to send cbBTC to their Coinbase account.
Unlike other tokens, cbBTC will not have a separate trading pair on Coinbase’s platform. Instead, the wrapped Bitcoin will be available for trading on decentralized exchanges via the Coinbase wallet. This approach encourages users to leverage their Bitcoin for DeFi transactions, thereby increasing liquidity within decentralized protocols on Ethereum and Base.
Initially, cbBTC was accessible to Coinbase users in the United States, excluding New York State, the UK, Singapore, Australia, Brazil, and the European Economic Area (EEA). Despite the current geographical limitations, the tokenized Bitcoin can be used on Base and Ethereum networks, with plans to expand access to other blockchain networks.
Potential alternative to BitGo’s WBTC
The launch of Coinbase cbBTC comes during uncertainty for WBTC, the most widely used wrapped Bitcoin with a market cap of $9 billion. Concerns have arisen over WBTC’s future after its custodian, BitGo, revealed plans to transfer the reserves’ custody to a new joint venture with BiT Global. The connection between BiT Global and controversial crypto entrepreneur Justin Sun has raised alarm among DeFi stakeholders, prompting some protocols to reassess their exposure to WBTC.
WBTC Supply (Source: WBTC)
Sky (formerly MakerDAO) is among the prominent DeFi platforms that have limited their use of WBTC, citing potential risks until a clear resolution is achieved. Meanwhile, Threshold Network, the issuer of tBTC, has proposed acquiring WBTC and partnering with BitGo to fully decentralize the custody and minting process for the wrapped Bitcoin. It remains uncertain whether BitGo will accept this offer and how it will impact WBTC’s future.
Coinbase’s introduction of cbBTC could position it as a strong alternative to WBTC, particularly in light of the ongoing uncertainties surrounding BitGo’s product. As the DeFi landscape evolves, cbBTC is poised to play a critical role in integrating Bitcoin with Ethereum’s DeFi ecosystem.