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Coinbase announced it would phase out Wrapped Bitcoin (BTC) from its exchange, starting with suspended trading on December 19, 2024. The development left many questioning this move, particularly after the recent launch by Coinbase of its own wrapped Bitcoin, cbBTC, on the Base blockchain.
Coinbase, the leading US-based cryptocurrency exchange, said it is removing wBTC from its platform “because it doesn’t meet our listing standards.” Coinbase added it routinely evaluates all assets offered on its site and removes those that fail to meet its proprietary requirements. That diligence led Coinbase to conclude it will suspend trading for wBTC, effective approximately 12 PM ET on December 19, 2024.
Wrapped Bitcoin (wBTC) is, simply put, a token that lets users utilize Bitcoin (BTC) on other blockchains, like Ethereum, by “wrapping” the same to represent Bitcoin value on the Ethereum network. While wBTC has been popular, particularly in decentralized finance (DeFi), it has come under the microscope in recent months.
The Rise of Coinbase’s cbBTC
One aspect making this decision by Coinbase quite interesting is the fact that it is being made close to the launch of Coinbase’s own version of wrapped Bitcoin, called cbBTC. This is on a layer-2 network called Base, on which Coinbase has been working. Providing an alternative to wBTC- especially in the ever-growing decentralized finance space-cbBTC would be the closest alternative offered by Coinbase.
Coinbase’s cbBTC is being marketed as a direct competitor to wBTC, which, in large part, is custodial, that is, Bitcoin is always custodied by a centralized party, BitGo to facilitate its use on Ethereum or other blockchains. Coinbase is basically offering wrapped Bitcoin that is natively tied to its platform and, in some respects, raises questions on its very competitive edge against wBTC offerings.
Concerns Around wBTC’s Custody Structure
This is also tied to the fact that there have been recent concerns about the custodial structure behind the token. The company responsible for the custody of wBTC has recently gone into a joint venture with BiT Global, a custodian owned partly by cryptocurrency figure Justin Sun. The partnership raised alarm among some sectors within the crypto community as their reputation is suspect within the industry.
However, BitGo CEO Mike Belshe came into the defense of the collaboration stating his arguments while saying that critics were made aware with wrong information about Sun. According to Belshe, BiT Global has its legal structure that regulates a stakeholding to no more than 20% for one individual and decentralizes the custodian’s operations. In addition, the keys for wBTC custody would be split between multiple parties to ensure security, as highlighted by Belshe.
Belshe has also been pretty vocal about Coinbase’s cbBTC, arguing that the token is “way too centralized” and could be ruinous to the more decentralized ideals of the broader DeFi space. The Coinbase executive added in a pointed critique, “If the DeFi community picks central bank Coinbase as the ultimate steward, then I think all DeFi hope should be lost.” In Belshe’s opinion, the centralization of Coinbase’s approach to wrapping Bitcoin could be seen as antithetical to the values of decentralized finance.
The Future of Wrapped Bitcoin
The decision by Coinbase to delist wBTC on its platform, in tandem with the launch of cbBTC, heralds the dawn of a new era in wrapped Bitcoin. It is now more apparent that competition among cryptocurrency exchanges and projects has grown, as everyone wants to be dominant in the market for these wrapped Bitcoin tokens.
As the industry waits to see what all this means for wider adoption of wBTC and cbBTC, the delisting also marks the challenges in custodial structures posed for wrapped tokens. The ongoing debate with centralization versus decentralization in the crypto space will continue to shape the future of wrapped assets like wBTC.
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