Wrapped Bitcoin (wBTC) supply fell to its lowest level since May 2021 following the second-highest single-day burn on Feb. 27.
A total of 11,500 wBTC ($260 million) tied to now-bankrupt crypto lender Celsius was burned, turning its growth rate into negative. The current total supply of the wrapped token is 164,396 wBTC, with a monthly growth rate of -7.39%.
WBTC is an Ethereum-based ERC-20 token that mirrors the value of Bitcoin and is pegged 1:1 to the Bitcoin (BTC) price. Bitgo co-developed wBTC in 2019 alongside blockchain interoperability protocol Ren and multi-chain liquidity platform Kyber. WBTC is managed by the decentralized autonomous organization wBTC DAO, which has more than 30 members.
When traders want to exchange BTC for wBTC, they initiate a burn transaction and alert custodians. The merchant transfers actual BTC to a custodian address on the Bitcoin blockchain, which is locked. Once the actual BTC is received, the custodian address mints the equivalent amount in wBTC on Ethereum.
Being an ERC-20 token, wBTC transfer is faster than regular Bitcoin, but wBTC’s key advantage is its integration into the world of Ethereum wallets, decentralized applications, and smart contracts.
During the peak of the bull run, wrapped tokens became a popular tool in the decentralized finance ecosystem. The WBTC supply peaked at 285,000 in April 2022, when the BTC price was trading above $48,000.
However, with the arrival of the bear market and numerous crypto contagions, the demand began to fade. The first signs of declining demand came after the Terra collapse, which forced several crypto lenders to redeem their wBTC. According to a report, the Celsius Network redeemed some 9,000 wBTC amid growing demand for withdrawal.
A similar scenario occurred in November 2022 after the FTX collapse, where reports indicate that the now-bankrupt cryptocurrency exchange attempted to redeem 3,000 wBTC just before filing for bankruptcy.. Following the FTX crash in November, wBTC experienced its largest monthly coin redemption ever, with over 28,000 wBTC redeemed back into the original coin.
Interesting nugget from today’s $WBTC Twitter Space w/ @BitGo and @KyberNetwork:
During FTX turmoil, someone from Alameda tried to redeem 3k WBTC for BTC.
BitGo refused to honor.
Tokens were burned anyway.
BitGo isn’t sure what to do w/ the 3k BTC.https://t.co/A1wYY72skb
—Chris Blec (@ChrisBlec) December 14, 2022
Interesting information from today’s $WBTC Twitter space with @BitGo and @KyberNetwork:
During the FTX turmoil, someone from Alameda tried to exchange 3,000 WBTC for BTC.
BitGo refused to do so.
The tokens were burned anyway.
BitGo is not sure what to do with the 3,000 BTC.
The market contagion caused by the FTX crash also decoupled wBTC from the original value of BTC. Although the slippage was only 1.5%, it raised serious concerns about whether such synthetic tokens were a viable mode of value transfer.
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