WBTC is a product of BitGo, one of the oldest players in the industry. Kiarash Mosayeri, Product Manager at BitGo, explains what the WBTC product is all about, and how it is connected to other Ethereum projects like MakerDAO, Compound, Ave, and many more. In this article, we will explore what the purpose of WBTC is, and what hopes users hold when using this product.
Kiarash Mosayeri(Product Manager at BitGo)
Interview Date : 9th October 2020
My name is Kiarash, I am a product manager at BitGo where I am currently focusing on WBTC, our Wrapped Bitcoin product. BitGo is actually one of the most established companies in this space — we started our business in 2013. Our first product was our non-custodial, hot wallet APIs which are now the infrastructure behind 20% of all Bitcoin transactions. This means 1 out of 5 Bitcoin transactions go through our infrastructure, and it is used by many exchanges. BitGo became a regulated qualified custodian under the South Dakota Division of Banking in 2018, and since, we have expanded to provide our custody solutions to multiple countries across the world.
Full-Stack Infrastructure of BitGo
BitGo is one of the only full-stack infrastructure and service provider companies in the industry with a deep offering of integrated product and service solutions. We have a quite expansive Prime Brokerage business as well. This includes lending, borrowing, and trading straight out of cold storage, as well as settlements, portfolio management software, and tax software.
WBTC is also a product of BitGo, which is worth about 1.5 billion dollars in market cap today and used widely across DeFi.
We have the role of the sole custodian with WBTC. This means we secure every Bitcoin deposited to mint WBTC. For every 1 WBTC, there is 1 BTC sitting inside BitGo’s vaults being securely stored.
DeFi & WBTC Use Case
With Bitcoin, the things you could do were straight forward; you could send and receive the asset. However, the promise of Ethereum was programmable money via smart contracts, which gave rise to many financial applications coming out on the Ethereum ecosystem — this overarching ecosystem is referred to as DeFi. Nevertheless, the limitation was that you were limited to access only what was already existing in the Ethereum ecosystem. This meant that we had to tokenize other assets if we wanted to use these applications with assets that are not on the Ethereum blockchain. Believe it or not, this meant that we also had to tokenize BTC.
Imagine, you have these financial applications like Compound,MakerDAO, Aave, where you can lend and borrow ETH, and stablecoins for example. However, you can’t really bring Bitcoin into those applications. Thus, what you want is a mechanism through which you create a token that represents Bitcoin, and use it in these financial applications. That is the use case of WBTC.
Origin of WBTC
It all came about very organically and community-led. The WBTC Network is a federation of 18 different DeFi projects, including BitGo. In 2018 Kyber Network and Ren (formerly, Republic Protocol) approached BitGo with the idea of becoming the custodian behind WBTC. We saw ourselves in this very unique position to be able to do that. We already had the custody piece in place and we are a company that is built on security. At the same time, we are very optimistic about DeFi, and we knew that DeFi was going to be very big, so we took on the task.
Should I or Should I not?
If your goal is to just hold your Bitcoin, I don’t think you should wrap it. You should probably keep it as Bitcoin. However, the problem is that there isn’t much you can do with Bitcoin. You can buy it and hold it for an amount of time, or you can spend it or transact with it. On the other hand, you are enabled a full array of use cases with DeFi. For example, let’s say you have one Bitcoin that’s worth 10,000 dollars, and you want to buy a car. You will be faced with a dilemma thinking “do I sell my Bitcoin and lose my upside on this Bitcoin?” because you think BTC will rise in price, or “do I keep my Bitcoin and just not have a car?”. Applications like MakerDAO allow you to solve your dilemma. You can wrap your BTC to make WBTC, put your 10,000 dollars’ worth of Bitcoin in the account, and take a collateralized loan from MakerDAO. You can buy your desired car, and when BTC price rises a couple of weeks or months from that point you only have to return that dollar value of the loan to get your 1 bitcoin back, thus you didn’t lose your position. That is just one example but there is a whole array of financial use cases in these applications that WBTC enables you to plug into.
MakerDAO and WBTC Relation
WBTC has been amazing for MakerDAO. It had a massive and substantial impact on Dai and its pegging to the price of USD. The third-largest collateral on MakerDAO is WBTC, and that’s because there is such a big demand for financial products around bitcoin.
The goal for User of WBTC
We can look at the data and statistics, and see how much WBTC is set in which pools, and surmise the goal of the users. At the moment, there is a large amount of WBTC locked up in protocols like Aave, MakerDAO, and Compound, and the real use case here is the ability to borrow against your assets. Trading in and of itself is a use case too and people are interested in new trading venues such as decentralized exchanges — the mechanism that enables this kind of trade is WBTC.
Better Liquidity with WBTC
One of the arguments behind WBTC has always been that it connects the liquidity of Bitcoin to the Ethereum chain. It is no secret that Bitcoin is the most liquid asset in this space. WBTC provides a bridge for Bitcoin to flow over to Ethereum WBTC provides a very scalable and efficient bridge that can scale with very large transactions. We saw WBTC grow from 200 million to a billion in about a month and a half. That scalability of growth and high velocity of tokenization is the gift of WBTC.
3 Fundamental Pillars of WBTC
WBTC is very interesting to me because it was built on 3 fundamental concepts; transparency, verifiability, and community. Community refers to this project as something that was started by a multitude of DeFi projects, and these DeFi projects are involved in governing the system.
WBTC was built with transparency in mind, meaning we want the user to see all the information about the flow of funds, actors involved and processes held. This leads to the verifiability aspect of the project; because we have embraced transparency, the users are able to independently verify every mint, burn, and the bitcoin reserves that are backing the asset.
With a US dollar stable coin, you are inherently missing these transparency and verifiability features. However, the beauty of tokenizing another blockchain-based asset is that both sides of the equation are public information — meaning each user has access to verify things on the Ethereum and Bitcoin blockchains. So, the users go and look at the wallets where the Bitcoin is held, and they can rest assured that the system is solvent.
What is Supporting WBTC
I would break that down into 3 categories. One category is the protocols that allow their users to use this asset. The protocols supporting WBTC can be found on the website — some of them are MakerDAO, Compound, AAVE, etc. The second category is the trading venues. The third category which powers this all is the liquidity providers or merchants as we call them.
I would like to invite you all to go and check out both BitGo.com and WBTC.network. On BitGo.com you can learn about BitGo’s full-stack solution from infrastructure to prime-broker services. If you head over to wbtc.network you can learn more about the system and how it works. You can also get to learn all about all our partners, and you can see all the venues where the assets are traded. More importantly, please check out the dashboard on wbtc.network and explore this transparent verifiable nature of WBTC.
Interviewer , Editor : Lina Kamada
The Article published on this our Homepage are only for the purpose of providing information. This is not intended as a solicitation for cryptocurrency trading. Also, this article is the author’s personal opinions, and this does not represent opinion for the Company BTCBOX co.,Ltd.