Tokenizing Bitcoin on Ethereum: WBTC vs RENBTC vs HBTC vs BTCpx

@SergeenkovAndrey Sergeenkov

Cryptocurrency analyst. Founder and editor of btcpeers.com

Bitcoin users are often unable to explore the decentralized finance market segment. The vast majority of platforms that exist today are based on Ethereum. While the BTC and ETH blockchains cannot communicate directly, wrapped tokens can offer a viable solution.

Wrapped tokens are popular

The concept of Wrapped Tokens is simple to explain. Rather than having a cryptographic asset only on one chain, it can be “tokenized” and “wrapped” on another chain. A key example is Ethereum-based token wrapping, which convert an existing asset, such as Zcash, and wrap it in an Ethereum token that adheres to the ERC20 standard. In doing so, these embedded tokens can be used anywhere in Ethereum’s growing ecosystem, including dApps and Decentralized Financial (DeFi) solutions.

Each packaged token is backed by the original resource it represents. In our Zcash example, each ZEC wrapped on Ethereum is backed by 1 original ZEC on the Zcash blockchain. This supply must always be in a 1: 1 ratio, as there can never be more wrapped tokens for ZEC based Zcash ZEC used for this tokenization process.

Exploring this option opens up the Ethereum ecosystem to other cryptocurrency assets on different chains. Due to the lack of native cross-chain liquidity between DeFi platforms and dApps, wrapped tokens have become an alternative solution. Bitcoin users keen to stake their marginalized resources may want to explore the few options currently available on the Ethereum ecosystem.

Wrapped Bitcoin (WBTC)

Over the past few months, Wrapped Bitcoin has risen in terms of its overall market cap. Currently, there are 126,260 WBCs in circulation, creating a market valuation of $ 2.035 billion. Although Wrapped Bitcoin was initially created before the DeFi landscape, this asset has increased demand due to the decentralized financial platforms that support it. On platforms like DeFi Pulse, it is considered one of the best “DeFi platforms” for Total Value Locked.

Initially, Wrapped Bitcoin was created to improve liquidity for the Ethereum ecosystem. Decentralized exchanges (DEX) and financial applications support this. Bitcoin has a much larger market capitalization and trading volume than Ethereum or one of its ERC20 tokens. Tapping into DEX’s liquidity pools with Bitcoin would allow them to compete with centralized trading exchanges.

In essence, the WBTC was made possible through Wrapped Tokens DAO (Decentralized Autonomous Organization). This self-contained system adds and removes traders and custodians as needed. The minting of Wrapped Bitcoin takes place through a custodian, who verifies a sufficient amount of Bitcoin collateral to issue the newly requested tokens. If WBTC tokens are redeemed for Bitcoin again, that supply of WBTC will be burned permanently. However, the main drawback is that WBTC does not have a user interface and must be obtained from a centralized exchange.

RenBTC (RENBTC)

The Ren project is based on the implementation of RenVM, a protocol that provides inter-chain liquidity for all dApp and DeFi solutions. Through RenVM, users can get wrapped tokens for Bitcoin, Bitcoin Cash, and ZCash. As the RenVM implementation grows and evolves and demand increases, more resources can be supported by this open source protocol.

Through the implementation of RenBridge, users can convert the three aforementioned crypto assets into tokens wrapped on Ethereum. It’s a very simple process that seems a little easier to use than WBTC minting. However, both WBTC and RenBTC can be traded on various exchanges today, making it quite easy to get these wrapped tokens.

In terms of market capitalization and liquidity, RenBTC is well behind Wrapped Bitcoin. Specifically, RenBTC has a market capitalization of $ 309 million, with 18,821 RenBTC in circulation today. The shortcoming of RenBTC is that there is no central depository and the deposits are not insured, which makes it unsuitable for most institutions.

Huobi Bitcoin (HBTC)

It is not common to see cryptocurrency exchanges create their own tokenized version of Bitcoin. After all, it seems that it is not necessary to do this immediately. In the case of Huobi Bitcoin (HBTC), its start in February 2020 was created as a means to support the Ethereum ecosystem. Huobi Global implemented the Ethereum blockchain contract to create HBTC and help facilitate the growth of DEX trading.

Similar to the other resources on this list, each HBC must be backed by 1 full Bitcoin. By owning HBTC, Huobi offers some benefits to its users with faster trading and lower trading fees. Today, Bitcoin transactions still take around an hour to get 6 network confirmations. In stark contrast, HTBC transfers over the Ethereum network only take 5 minutes or less to be fully confirmed.

To get HBTC, Huobi Global directly offers a Bitcoin trading pair. In the spirit of full transparency, Huobi has also created a website for all of its HTokens. This page shows that there are currently 6010,1049 HBTC in circulation, worth $ 98.626 million. Historically, there have been a total of 6010.1646 HBTC, of ​​which 0.05964 HBC has since been burned in February 2020.

Bitcoin Proxy (BTCpx)

The latest competitor in the wrapped token ecosystem is Bitcoin Proxy. It is unique in the sense that it is the only solution by trying to deal with “the elephant in the room”. Through its multi-institutional decentralized tokenization protocol, Bitcoin can now be “chained” on the ERC20 protocol with the least friction with the greatest amount of security, making it the more viable alternative to the projects outlined above.

A different approach to wrapped tokens

The conversion of Bitcoin to Bitcoin Proxy (BTCpx) is achieved through the native Proxy framework. Described as a “Proxy Relay,” this protocol solution eliminates concerns about gas tariffs and network congestion, which plague the Ethereum blockchain. With a Layer 2 Matic sidechain integration, fees are significantly reduced to a fraction of a Layer 1 solution for just $ 0.00017 per day. It can interact with the smart contact every 30 minutes to mint or burn BTCpx when needed.

The Proxy Relay confirms the BTC transactions for the Ethereum smart contract. Such an approach introduces an additional layer of transparency and requires much less expense to verify BTC blocks. As a result, faster minting and redemption processing gives the end user a near real-time settlement experience.

Unlike other projects that create Bitcoin ERC20 tokens in a more centralized way, Bitcoin Proxy is a truly decentralized model. All BTC assets are stored with an insured custodian with the ability to separate funds for DAO members. The actual tokenization process is completely decentralized to provide a permissionless and trustless system. BTCpx.io

Both HBTC and renBTC are uninsured offers. While HBTC shows that it is primarily a centralized transaction, renBTC is not. However, the lack of insurance falls short of current custody standards. Although WBTC has some level of assurance, it is centralized without a public interface. None of the options are a “perfect” solution in their current form.

However, BTCpx is the closest to it. It is both decentralized and secured. More importantly, it offers segregation security, something none of the other three tokenized versions of Bitcoin can provide. The availability of institutionalized custody solutions and the introduction of a decentralized and permissionless process puts BTCpx in a class of its own.

Conclusion

With all the different options for creating Ethereum-wrapped Bitcoin assets, decentralization and security are very important. From a fintech point of view, Bitcoin Proxy is at the forefront. Having integrated a sidechain Matic with the Proxy Relay, it can be said that this product is a true “Decentralized / Trustless” system. Furthermore, having proof of reserves and institutional deposit custody insurance is, without saying it, “revolutionary” for the concept of wrapped tokens.