Crypto exchange Coinbase has launched its cbBTC token—a wrapped version of Bitcoin (BTC)—on the Ethereum network and its layer-2 scaling network Base.
According to the Sept. 12 launch announcement, cbBTC is backed 1:1 with Bitcoin held by Coinbase and has no separate order book or trading pairs on the exchange’s platform.
Coinbase’s wrapped Bitcoin works by automatically minting cbBTC at a 1:1 ratio when a user sends Bitcoin to a Base or Ethereum address. The opposite is also true; when a user sends cbBTC to a Coinbase address, the tokenized Bitcoin will automatically convert to standard Bitcoin.
The smart contract address for cbBTC on Base. Source: BaseScan
The exchange also announced ambitions to expand cbBTC to other blockchain networks and ecosystems in the future but did not provide further details.
Related: BitGo deploys wrapped BTC on Avalanche and BNB Chain
What’s the point of cbBTC?
Tokenized versions of Bitcoin exist to add decentralized finance functionality to the scarce digital asset. The Bitcoin ledger is essentially a sequence of unspent transaction outputs (UTXO).
Each Bitcoin wallet consists of a collection of unspent transaction outputs assigned to a particular Bitcoin address. In short, there are no actual coins on the Bitcoin ledger.
This structure and the other limitations posed by transferring digital assets between blockchain networks have restricted Bitcoin’s use in decentralized finance applications, which mostly exist within the Ethereum ecosystem.
Coinbase’s cbBTC and other Bitcoin tokens allow users to employ their Bitcoin as collateral to secure loans or as a lending asset that accrues yield. At launch, cbBTC will be supported on Aave (AAVE), Compound Finance (COMP), Morpho, Spark, Moonwell, and others.
BitGo’s Wrapped Bitcoin controversy
Coinbase announced plans to launch cbBTC several days after BitGo drew criticism over plans to transition the custodial structure of its Wrapped Bitcoin (WBTC) product to a multi-jurisdiction arrangement.
This new structure diversified the geographic locations of BitGo’s custodial centers to Hong Kong and Singapore. However, the involvement of Tron (TRX) founder Justin Sun in the initiative sparked concerns among certain industry analysts.
In response to the revelation that Sun would be involved, risk management firm Block Analitica proposed restricting all WBTC positions—calling Sun’s involvement in the diversified jurisdiction plan an “unacceptable level of risk.”
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