What Is Wrapped Bitcoin Exactly?

Nov 12, 2025 | 5 min read

What Is Wrapped Bitcoin (WBTC)?

Wrapped Bitcoin (WBTC) is a special version of Bitcoin issued on the Ethereum blockchain. The value of a Wrapped Bitcoin (WBTC) is tied 1:1 to a real Bitcoin (BTC). This means the price of WBTC always matches Bitcoin’s — no matter how the market moves.

The concept behind wrapped tokens is simple: they make it possible to use a cryptocurrency from one blockchain on another (for example, Bitcoin on the Ethereum network). In this case, you can use Bitcoin within the Ethereum ecosystem, which hosts thousands of DeFi applications such as lending, staking, and DEXs.

Key Takeaways

Wrapped Bitcoin (WBTC) is a token on the Ethereum blockchain backed 1:1 by real Bitcoin, ensuring both always have the same value.
To create WBTC, Bitcoin is securely stored by a custodian who issues an equal amount of tokens on Ethereum (the process is reversed when “unwrapping”).
WBTC allows Bitcoin to be used in DeFi applications like lending, staking, and liquidity pools not available on the Bitcoin network.
The token improves liquidity and interoperability between blockchains but also introduces risks such as reliance on custodians and potential smart contract vulnerabilities.
Since its 2019 launch, WBTC has played a key role in DeFi’s growth, showing how blockchains are becoming increasingly interconnected.

How Does Wrapped Bitcoin Work?

To create Wrapped Bitcoin (WBTC), real Bitcoin (BTC) is temporarily locked, and in return, an equal number of tokens is minted on the Ethereum blockchain.
This process isn’t done directly by an exchange, but through a network of merchants and custodians who maintain the system’s security.

Think of it like a train station connecting two separate railways (blockchains) that aren’t directly linked:

The Bitcoin “train” (track A) can’t run on the Ethereum “tracks” (track B).
So, the Bitcoin is parked in a secure vault (the custodian).
At the same time, a “wrapped version” of that same cargo — WBTC — is issued on Ethereum.
The number of WBTC tokens created is always exactly equal to the amount of BTC locked.

In practice:

A user requests to wrap their BTC through an authorized merchant.
The merchant verifies the user’s identity (KYC/AML process).
The custodian receives the real Bitcoin and stores it securely.
The custodian then mints an equivalent amount of WBTC tokens on Ethereum and sends them to the user’s address.

If the user later wants to convert their WBTC back to Bitcoin, the process is reversed: the WBTC tokens are burned (permanently destroyed) on Ethereum, and the custodian releases the same amount of real Bitcoin back to the user. This system ensures the total WBTC supply always matches the amount of Bitcoin held, maintaining the 1:1 peg and trust in the token.

Why Is Wrapped Bitcoin Unique?

WBTC is unique because it bridges Bitcoin and Ethereum. It combines Bitcoin’s stability and brand strength with DeFi’s flexibility.

With Wrapped Bitcoin, BTC holders can:

Participate in DeFi platforms on Ethereum
Add liquidity to pools
Use their crypto for loans or yield farming
Earn interest or rewards without selling their Bitcoin.

WBTC also boosts overall DeFi market liquidity by freeing up capital previously “locked” in Bitcoin.

Pros and Cons of Wrapped Bitcoin

While Wrapped Bitcoin (WBTC) offers exciting new opportunities, it’s important to understand its risks and limitations. Here’s a breakdown of its main advantages and disadvantages:

Pros	Cons
Access to DeFi: WBTC lets you use Bitcoin within Ethereum’s DeFi ecosystem without selling it.	Reliance on custodians: The real Bitcoin is held by centralized entities like BitGo, which requires trust.
Greater liquidity: Bringing BTC onto Ethereum increases total liquidity across DeFi.	Ethereum gas fees: Transaction costs can be high, especially during network congestion.
Full smart contract support: Use WBTC for yield farming, lending, staking, and more.	Technical risk: Smart contracts can have vulnerabilities.
Faster transactions: Ethereum transactions are generally faster than those on the Bitcoin network.	Partial centralization: While DeFi is decentralized, WBTC management itself is partly centralized.
Predictable value: Since WBTC is pegged 1:1 to BTC, you always know exactly what you hold.	Temporary price deviations: During extreme market volatility, small short-term differences can occur.

Tip: Use WBTC mainly if you’re active in DeFi. For long-term holding, it’s safer to keep original Bitcoin.

The Future of Wrapped Tokens

Wrapped tokens are just the beginning of a broader movement toward blockchain interoperability. More blockchains are experimenting with their own versions to simplify access to DeFi services.

However, challenges remain. Today, a trusted custodian is often required to hold the original asset, which partially contradicts crypto’s decentralized nature. In the future, new protocols will likely automate this process and make it more “trustless.”

Tokenomics and Development

Maximum supply: 21 million WBTC (same as Bitcoin), as each WBTC is backed by one BTC.
Launch date: January 2019
Developers: BitGo, Kyber Network, and Ren
Governance: via the WBTC DAO, a decentralized organization of multiple members.

Frequently Asked Questions About Wrapped Bitcoin

Is WBTC safe?
WBTC is relatively safe when used through verified merchants and custody platforms. However, some level of trust in the custodian (like BitGo) and in the smart contracts managing the process is still required.

Can WBTC’s value differ from BTC?
In theory, WBTC is pegged 1:1 to Bitcoin. Only under extreme market conditions might small temporary differences occur.

Is Wrapped Bitcoin the same as a stablecoin?
No. Stablecoins (like USDC, USDT, or EURC) are tied to fiat currencies like the dollar or euro. WBTC reflects Bitcoin’s value, not that of fiat money.

Where can I buy or use WBTC?
You can obtain WBTC through DeFi platform, centralized exchanges, or merchants performing the wrapping process. Once received, it can be used across Ethereum applications, such as Aave, Compound, or Uniswap.

Final Thoughts

Wrapped Bitcoin is a smart way to combine the best of both worlds:
Bitcoin’s reliability and DeFi’s innovation. By “wrapping” BTC into a token on Ethereum, it becomes usable in countless financial applications without losing its underlying value. As DeFi continues to grow, wrapped tokens like WBTC will play an essential role in connecting blockchains and expanding crypto investment opportunities.