The Next Big Thing Amid WBTC Controversy?

Coinbase indicated plans for a cbBTC against the backdrop of Wrapped Bitcoin (WBTC), which has become controversial in crypto.

While the product’s details are still unknown, Coinbase appears ready to dominate the market once again.

Coinbase Gains Market Edge On WBTC Controversy

The exchange’s announcement of a cbBTC turned heads, with pre-launch registration already live. Coinbase Layer-2 (L2) network Base hinted that it would run atop its blockchain, making it an alternative Bitcoin on Base, but this remains unclear.

It comes amid the WBTC controversy, following reports that BitGo is transitioning its Wrapped Bitcoin custody to a new multi-jurisdictional model. Wrapped Bitcoin is the brainchild of Kyber, Ren, and BitGo, and its January 2019 launch made WBTC the first token that makes Bitcoin (BTC) compatible with the Ethereum (ETH) network.

As a bridge between the two networks, WBTC provides Bitcoin users access to decentralized finance (DeFi) applications and allows Ethereum applications to gain additional liquidity. Specifically, it acts as collateral, enabling Bitcoin holders to participate in activities like lending, borrowing, margin trading, and yield farming on decentralized finance (DeFi) applications.

Read more: Wrapped Bitcoin (WBTC): A Beginner’s Guide

Coinbase deploying its own version of WBTC would be a game changer in the space, especially amid ongoing concerns surrounding the wrapped Bitcoin. Tether CEO Paolo Ardoino smelled foul in 2022, sharing in a post on X.

“If I were BitGo, and I believed my own story that every WBTC is backed by 1 BTC, I’d be buying every token I could right now for $0.98! A risk-free 2% return. Unless I knew it wasn’t backed, of course,” Ardoino shared at the time.

As BeInCrypto reported, Tron founder and Huobi Global advisor Justin Sun is embroiled in controversy. There are concerns that Sun will significantly influence WBTC as BitGo adopts a new multi-jurisdictional and multi-institutional custody model. Fears surrounding Sun emerge given the Tron executive’s past sour relationships with crypto projects like TUSD and Huobi’s USDT reserves.

BitGo CEO Mike Belshe anticipated the concerns around Sun ahead of the announcement and attempted to quell the matter. Nevertheless, his engagement notwithstanding, DeFi investors consider removing WBTC as collateral.

cbBTC Could Pass WBTC in Supply, VC Says

As Coinbase looks to capitalize on this confusion, venture capitalist Dan Elitzer says cbBTC is long overdue and makes his predictions. He says cbBTC could pass WBTC’s supply within six months of launch.

“cbBTC was inevitable and super strategic to Coinbase.  Frankly, I am surprised they did not ship it years ago.  Predictions: – 0 fees on mint/redeem – 0 fees to withdraw to Base – Passes WBTC in supply within 6 months of launch (unless acquisition falls through),” Elitzer says.

According to Elitzer, the massive mishandling of WBTC will create a shakeup. This comes as protocols and venues move to support alternative forms of bridged BTC. It will also benefit from more decentralized solutions like tBTC. The VC also observes that no competent DeFi user or risk manager will want to maintain exposure to WBTC under Justin Sun- affiliated management.

Indeed, DeFi platform MakerDAO is already evaluating the potential risks associated with BitGo’s new WBTC custody strategy. 

“Maker is planning to offboard WBTC due to the change in custody from BitGo. Is BitGo going to fumble its insane moat in WBTC?” DeFi dashboard builder at DefiLlama posed rhetoric in a post on X.

Elsewhere, crypto researcher Wei Dai says, “cbBTC is not the endgame.” The researcher anticipates trust-minimized bridging of BTC, citing the total value locked (TVL) on different Ethereum variants on Base.

Read more: Coinbase Review 2024: The Best Crypto Exchange for Beginners?

Meanwhile, crypto commentator Marty Party says permissioned bridges and permissioned derivatives like Wrapped Bitcoin on Ethereum are risky to crypto.

“They are moving the Bitcoin collateral from BitGo to Bit Global in the next 60 days. Does this mean the $9.45b of WBTC on Ethereum and Base, Aave, MakerDAO, and Compound, and therefore all those loans and corresponding collateralizations L2s will be uncollateralized during this time? Now I would not normally post this but it’s a perfect example of why I stress – Permissioned Bridges and Permissioned Derivatives like Wrapped Bitcoin on Ethereum are not Web3, and are the biggest risk to crypto,” MartyParty expressed.