Comparing Wrapped Bitcoin in DeFi: wBTC, cbBTC and tBTC

Bitcoin is a big deal in the crypto world. It’s the top dog in terms of market capitalization and a hot asset for those looking to store value. But Bitcoin’s lack of programmability has limited its use in decentralized finance (DeFi) applications. That’s where wrapped Bitcoin tokens come in handy. They help bridge the gap, allowing Bitcoin’s value to be used on platforms that are more nimble and offer more features.

Recently, though, there have been some concerns about the reliability of bridged Bitcoin tokens. For instance, renBTC, a popular BTC bridge, faced issues due to its reliance on Alameda Research for funding and eventually shut down in 2022. And WBTC, the largest bridged BTC token, has come under scrutiny for its centralized custodianship, especially now that Justin Sun is involved with the project.

This has piqued interest in how these bridged Bitcoin protocols work. That’s where Cointelegraph Research steps in. They have done a deep dive into four major Bitcoin bridging solutions—wBTC, renBTC, cbBTC, and tBTC. The goal is to provide readers with a comprehensive look at how these different protocols operate.

When it comes to Bitcoin wrapping solutions, there’s a spectrum of decentralization. Some tokens, like cbBTC, are fully custodial, meaning they rely on a single entity for everything. While this makes things simpler on the technical side, it also means there’s a single point of failure and vulnerability to censorship and regulation. Other solutions, like the Liquid Federation, take a more distributed approach, spreading out the responsibility among many trusted companies.

More advanced bridging models use sophisticated key-sharing schemes to achieve decentralization. For instance, tBTC v2 utilizes a staking system, moving away from simply trusting a few keyholders. However, despite these advancements, there are still some limitations due to current cryptography capabilities.

Overall, there are trade-offs between security, decentralization, and efficiency with each Bitcoin wrapping solution. It’s a complex space, but understanding the ins and outs of these different protocols can help navigate the world of DeFi with more confidence. If you want to dive deeper into the analysis, you can access the full report for free as a PDF. Just follow the link provided.