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Cryptocurrency

Evaluating wrapped bitcoin alternatives in decentralized finance (DeFi): A comparison of wBTC, cbBTC, and tBTC

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Bitcoin (BTC) is the largest cryptocurrency by market capitalization and an emerging store of value asset. However, its limited programmability has historically restricted its utility in decentralized finance (DeFi) applications. Wrapped Bitcoin tokens help address this limitation and facilitate the transfer of Bitcoin’s value to platforms that are faster and more expressive.

However, recent developments have cast a shadow on the reliability of bridged Bitcoin tokens. The node infrastructure of renBTC, once a popular BTC bridge, was undermined by its financial dependence on Alameda Research and the project shut down in 2022. WBTC, the largest bridged BTC token, faces scrutiny due to its centralized custodianship, which has been compounded by the recent involvement of Justin Sun in the project.

These concerns have sparked interest in how bridged Bitcoin protocols operate. To that effect, Cointelegraph Research has undertaken a comparative analysis of four prominent Bitcoin bridging solutions – wBTC, renBTC, cbBTC, and tBTC. The article provides readers with an in-depth dive into the respective architectures, market performance, recent developments, and future prospects.

Access the complete analysis for free as a PDF here

Exploring the Spectrum of Bitcoin Wrapping Solutions

Bitcoin wrapping solutions exist on a spectrum of decentralization. Each approach on this spectrum presents its own set of trade-offs between security, decentralization, and efficiency.

Fully Custodial Tokens

On one end of the spectrum are fully custodial tokens, such as cbBTC, which rely on a single entity for issuance and custody. While this streamlines their technical implementation, such projects have a single point of failure and are vulnerable to censorship and regulation.

Example: cbBTC

  • Centralized Custodianship: cbBTC relies on a single entity for issuance and custody.
  • Vulnerability to Censorship and Regulation: As a fully custodial token, cbBTC is vulnerable to censorship and regulation due to its centralized nature.
  • Technical Implementation: The streamlined technical implementation of cbBTC makes it easier to integrate into existing systems.

Federated Bridges

Simple federations of keyholders are the most common way to reduce centralization. Some federated bridges require all keyholders to sign transactions, while others only need a majority of holders.

Example: WBTC

  • Decentralized Custodianship: WBTC operates with a two-of-three multisignature model managed by the BitGo consortium.
  • Centralized Nature: Despite this added layer of decentralization, WBTC is still considered rather centralized due to the small number of custodians and their close relationship.

Advanced Bridging Models

More advanced bridging models typically achieve decentralization through more sophisticated key-sharing schemes that rely on additional cryptography. One such example is tBTC v2.

Example: tBTC v2

  • Decentralized Custodianship: Unlike federations that rely on a set of authorized, trusted entities, tBTC v2 uses a staking system.
  • Permissioned Nature: At present, it still remains permissioned due to the limitations of currently available cryptography.

Comparative Analysis

Our full analysis shines light on some of the technical and trust trade-offs involved in these solutions. The comparative analysis provides an in-depth look at the architectures, market performance, recent developments, and future prospects of each solution.

Access the complete analysis for free as a PDF here

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.

Important Notes:

  • Disclaimer: This article is for general information purposes only and is not intended to be and should not be taken as legal or investment advice.
  • Author’s Views: The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.
  • Reader Responsibility: Readers should do their own research before taking any action related to any product or company mentioned in this article and carry full responsibility for their decisions.

Cointelegraph does not endorse the content of this article nor any product mentioned herein.