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Wrapped Bitcoin (wBTC) supply has fallen to its lowest level since May 2021 after the second largest one-day burn on February 27.
A total of 11,500 WBTC worth about $260 million related to the now-bankrupt crypto lender Celsius was burned, turning its growth rate negative. The current total supply of wrapped tokens is 164,396 WBTC with a monthly growth rate of -7.39.
WBTC is an Ethereum-based ERC-20 token that reflects the value of Bitcoin and is pegged 1:1 with the price of Bitcoin (BTC). Bitgo co-developed wBTC with Ren, a blockchain interoperability protocol, and Kyber, a multi-chain liquidity platform, in 2019. wBTC is also governed by the wBTC DAO, a decentralized autonomous organization with over 30 members.
If a merchant wants to exchange BTC for wBTC, it initiates a burn transaction and alerts the custodian. The custodian then sends the matching amount of her BTC to the merchant’s bitcoin address. The user can then exchange her wBTC for her BTC at merchants who burn the received tokens.
Being an ERC-20 token, wBTC transfers will be faster than regular Bitcoin, but wBTC’s main advantage is its integration into the world of Ethereum wallets, decentralized apps and smart contracts.
During the peak of the bull market, wrapped tokens became a popular tool used in the DeFi ecosystem. wBTC supply peaked at 285,000 in April 2022 when the BTC price was trading above his $48,000.
However, with the emergence of a bear market and the contagion of numerous cryptocurrencies, demand began to fade. The first signs of a drop in demand came after multiple crypto lenders were forced to redeem his wBTC due to the Terra-LUNA-led crypto contagion. According to one report, the Celsius Network has cashed around 9,000 wBTC amid rising demand for withdrawals.
Related: Celsius Network Coin Report Shows $2.85 Billion Balance Gap
A similar scenario occurred after the collapse of FTX in November 2022. He attempted to redeem 3,000 wBTC just before the now bankrupt crypto exchange filed for bankruptcy, according to reports. After the FTX collapse in November, wBTC experienced the largest monthly coin redemption, with over 28,000 of his wBTC redeemed back to the original coin.
Interesting nuggets of the day $WBTC Twitter space w/ @bit go and @KyberNetwork:
During the FTX hype, someone at Alameda tried to convert 3k WBTC into BTC.
BitGo denied this.
The token was burned anyway.
BitGo doesn’t know what to do with 3k BTC.https://t.co/A1wYY72skb
Chris Blec (@ChrisBlec) December 14, 2022
The market ripple effect caused by the collapse of FTX has also decoupled wBTC from the original BTC value. Slippage was only about 1.5%, but at the time there were serious concerns about whether such synthetic tokens were a viable mode of value transfer.
