wBTC, the wrapped token created to keep parity with bitcoin, fell to $5,000 on the Binance exchange. This was allegedly brought on by a technical error (glitch), which was corrected. At the time of writing, the worth of the wrapped token maintains its anchor to BTC above $97,000.
The wBTC worth on Binance exhibits indicators of having fallen sufferer to a bug in a single of its newest every day candles. Said candle, which displays a really lengthy wick, reveals that at one level the worth of the token dropped to $5,200. However, the token rose on the identical day to attain parity with bitcoin once more. It occurred on November 22.
Wrapped Bitcoin (wBTC) is an ERC-20 token constructed on Ethereum and likewise purposeful on a spread of cryptocurrency networks, similar to Fantom, Avalanche, Polygon or Solana. Exchanges similar to Binance additionally help this token, permitting customers to deposit and withdraw it from their personal addresses, as well as to advertising and marketing it on the spot market.
The primary utility of wrapped tokens, as reported by CriptoNoticias, is that it permits a illustration of bitcoin to be moved and traded on different chains, and utilized in decentralized finance (DeFi) and different purposes, that are uncommon on the community. of Bitcoin.
wBTC is theoretically backed one-to-one (1:1) by bitcoin, which means that every wBTC in circulation needs to be collateralized by an equal quantity of BTC held in reserve by designated custodians.
However, as demonstrated by the occasion suffered by wBTC on Binance, the wrapped tokens have related dangers.
Holding wBTC isn’t holding bitcoin
First, the bitcoins in escrow that again up the wrapped bitcoins are held by a single firm. This signifies that wBTC’s parity with bitcoin relies upon on the right custody of a single entity. The actual BTC, that of the Bitcoin community, is distributed amongst greater than twelve million self-custody addresses, counting solely these whose stability is larger than 0.01 BTC. Therefore, the worth of BTC doesn’t rely on just a few actors.
Secondly, wrapped tokens might face liquidity points. Like bitcoin, the shopping for and promoting of wBTC relies upon on the provision out there on exchanges and decentralized exchanges. However, the provision of wBTC could also be way more restricted as it’s dispersed, fragmented amongst many chains, and its demand isn’t comparable to that of bitcoin. Especially, those that want to commerce massive quantities might expertise difficulties changing wBTC to BTC.
Third, wrapped tokens rely on sensible contracts and platforms whose safety acts outdoors of the Bitcoin protocol, and don’t rely on it for his or her operation. Contracts, exchanges and platforms They might include errors or vulnerabilities that may very well be exploited by attackers.
wBTC and any wrapped tokens needs to be considered solely as a brief means to get some performance out of bitcoin on different cryptocurrency networks while not having to promote the bitcoin. In addition, holding wBTC shouldn’t be thought of the identical as holding BTC on the Bitcoin community, since at any time, as wBTC on Binance taught, the wrapped token can lose worth parity.
