Coinbase Introduces cbBTC: A New Wrapped Bitcoin for the Base Ecosystem

Coinbase Ventures into Wrapped Bitcoin with cbBTC

Coinbase (COIN), a prominent cryptocurrency exchange, seems to be on the verge of launching its own version of wrapped Bitcoin, known as cbBTC, which will operate on its layer-2 blockchain, Base. This initiative aims to provide users access to Bitcoin, the largest cryptocurrency by market capitalization, within the Base ecosystem.

The speculation surrounding cbBTC began with intriguing posts from Coinbase on social media late Tuesday, U.S. time. These posts featured the phrases “cbBTC” and “Coming soon,” sparking curiosity in the crypto community. Following this, Jesse Pollak, who leads the Base project, emphasized the team’s ambition to cultivate a “massive bitcoin economy” on their network.

Wrapping a cryptocurrency token, such as Bitcoin, allows it to be utilized on different protocols than it was originally intended for, significantly enhancing liquidity across the target ecosystem. Each wrapped Bitcoin, or wBTC, corresponds to one original Bitcoin held in custody. When a trader wants to redeem their wrapped token for actual Bitcoin, the wrapped version is “burned,” or eliminated from the blockchain, and the original Bitcoin is released to the trader.

Coinbase’s forthcoming announcement comes amidst some uncertainty surrounding the existing wBTC model. Earlier this month, BitGo, the original provider of wrapped Bitcoin, revealed its formation of a joint venture with BiT Global, a custody platform based in Hong Kong. BiT Global is partially owned by the Tron ecosystem and its founder, Justin Sun. This venture is expected to utilize the same BitGo multisignature technology and robust cold storage solutions that have been foundational to wBTC.

The market’s reaction to this announcement has been largely neutral, as there are no immediate technical changes to the existing product. All data regarding the underlying reserves remain fully verifiable on-chain. However, some conversations within the forums of MakerDAO, the issuer of the DAI stablecoin, have shown a negative sentiment. A recent executive proposal has been introduced for MakerDAO token holders, suggesting a halt on wBTC borrowing and proposing to reduce wBTC debt limits to zero DAI in order to mitigate potential risks. This proposal is currently open for discussion for the next month.

Despite these concerns, on-chain data from Dune Analytics indicates that there has been no significant change in the supply of wBTC, suggesting that traders are not rushing to exit the protocol in large numbers. In a recent post on X, Justin Sun reassured the community that there would be “no changes to WBTC” outside of the newly formed joint venture. He clarified that he does not possess control over the protocol’s private keys and cannot make any alterations to the BTC reserves, stating, “My personal involvement in WBTC is entirely strategic.”