What is Wrapped Bitcoin?
Crypto Glossary Definition
Wrapped Bitcoin (WBTC) is an ERC-20 token backed by Bitcoin. Allows BTC to be used in the DeFi & Ethereum ecosystem.
Why Wrapped Bitcoin Matters
Wrapped Bitcoin (WBTC) is an ERC-20 token backed 1:1 by real Bitcoin held in custody, letting Bitcoin's value be used inside Ethereum's DeFi ecosystem (lending, trading, liquidity pools) even though Bitcoin's own blockchain doesn't natively support smart contracts.
Wrapped Bitcoin in Practice
Suppose a long-term Bitcoin holder wants to earn yield by supplying liquidity on an Ethereum-based lending protocol, but Bitcoin's own blockchain has no native way to interact with Ethereum smart contracts. To bridge that gap, they send their BTC to a custodian that locks it in reserve and mints an equivalent amount of Wrapped Bitcoin, an ERC-20 token pegged one-to-one to the locked BTC, directly into their Ethereum wallet. From that point on, the WBTC behaves exactly like any other Ethereum token: it can be supplied as collateral on a lending platform, paired with ETH in a liquidity pool, or swapped on a decentralized exchange, all while the underlying Bitcoin sits untouched in custody backing its value. When the holder eventually wants their original Bitcoin back, they redeem the WBTC through the custodian, which burns the wrapped tokens and releases the equivalent BTC back to a Bitcoin address. This mechanism is what lets Bitcoin's massive market value participate in Ethereum's DeFi ecosystem despite the two networks being technically incompatible, though it does introduce a layer of trust in the custodian holding the reserves, since the whole system depends on that entity actually maintaining full backing and honoring redemptions rather than the trustless design Bitcoin itself was built around.
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