WBTC and TBTC - Current Developments and Industry Reactions
Executive Summary
- Market trading color: Slew of economic data on BTC, ETH finally outperforming, % of ETH in smart contracts continues to increase
- Theme of the week – WBTC diversifies custodians, MakerDAO responds cautiously; TBTC gains attention for decentralization and low fees
- Sector commentary: Bitcoin and Ethereum show mixed signals, altcoins rise, and DeFi and RWAs see increased activity
Market Trading Color (Nolan Aibel)
This week has seen $BTC remain rangebound and chop between $58,000 and $62,000 as the market reacted to the slew of economic data that has been released. The asset responded favorably to Tuesday’s PPI data which came in below expectations and at its lowest level since March. Yesterday’s CPI data brought a less than favorable reaction. Despite headline CPI YoY coming in below expected, a disappointment on housing data, up 0.4%, which accounts for 90% of the monthly increase has seen $BTC negatively react to the print. The government moving 10,000 of Silk Road BTC worth $590M didn’t help price action either. While many are speculating this could be the beginning of the government selling tokens, these tokens were moved to a Coinbase Prime wallet. The US Marshall Service recently announced they were using CBP to hold seized assets. This could very well be a transfer to their new storage solution vs being sold into the market. If the tokens are sold in the market, things could be rocky in the short term however the market has absorbed larger sell pressure of late and remained resilient. Some of the recent sell pressure dating back to the beginning of the year stems from BTC miners. It was noted this week that miner reserves are now at Jan ’21 levels. This seems to have marked a slowdown of selling after the market saw $2.5B in sell pressure since January. The ecosystem continues to search for a narrative post ETH ETFs in what is a historically slow and choppy month for $BTC. It’s worth noting $BTC took 291 days post halving in ’16 to reach its local ATH and 216 days in ’20 to do the same. We are currently at day 118 post halving. Open interest was flushed on last week’s capitulation. It has since been ticking back up toward $30B as investors have looked to add exposure in this accumulation range.
ETH has outperformed on a one week look back. The token is up over 7% from the time of writing vs last week. The ETHBTC ratio has risen to 0.0449 after marking a yearly low last week of 0.0425. Despite being up 5.5% on the week, there’s still catching up to do as the ratio remains down 16% YTD. $ETHE saw 0 outflows on Monday. The first time this has happened since inception. The 8 new ETF products have taken in around $1B since inception. While once primarily in competition with BTC, Ethereum’s most prevalent rival may now be Solana. The SOLETH ratio has risen 18% on the month, albeit fallen over 12% on the week as ETH has found its footing. Solana continues to push ETH mainnet in categories such as DEX trading volume, fees and revenue generated.
Source: Artemis
However, if demand for these ETH ETF products picks up as we believe it should now that outflows have scaled back, the supply crunch we’ve been clamoring about for some time now could be on the horizon. Over 40% of all ETH supply is now in smart contracts. This includes over $33M of ETH being staked.
Source: Glassnode
A Quick Refresher of WBTC and TBTC
Wrapped Bitcoin (WBTC) is an ERC-20 token that represents Bitcoin on the Ethereum blockchain. By tokenizing Bitcoin, WBTC allows holders to utilize their BTC within the Ethereum ecosystem, leveraging smart contracts and decentralized applications (DeFi). It has become a significant player in DeFi, enabling Bitcoin's value to be used as collateral, liquidity, or in other financial instruments. WBTC has wrapped over 150,000 BTC (worth over $9 billion USD) and provides proof of reserve on its website. WBTC token distribution includes about 40% allocated to lending, 32% being bought and held, and 11% utilized in indexes, with the remainder involved in other smart contracts, spot trading, and more.
Source: WBTC.network, minting WBTC
TBTC, on the other hand, is a newer, decentralized alternative to WBTC. It operates through the Threshold Network and uses threshold cryptography to create a secure bridge between Bitcoin and Ethereum. Unlike WBTC, which relies on centralized custodians, TBTC is designed to be more decentralized, transparent, and less susceptible to counterparty risk.
Recent Developments:
1. MakerDAO’s Reaction: The changes in WBTC's custodial arrangements have sparked reactions within the DeFi community. MakerDAO’s risk management team, Block Analitica Labs, has proposed to close all new WBTC debts and prevent new borrowing against WBTC collateral. This proposal, which will be put to an executive vote, reflects growing concerns over the changes in WBTC’s custodial structure and the involvement of new partners, particularly Justin Sun and the Tron ecosystem.
Block Analitica Labs has drawn parallels between Sun’s new role and previous issues with the TUSD stablecoin under his control, which experienced operational and transparency problems, including management resignations, suspended real-time proof of reserves, and redemption service interruptions. Additionally, other Sun-affiliated projects, such as the substitution of Huobi’s USDT reserves with stUSDT, have raised concerns about potential misappropriation, with stUSDT lacking clear audits.
2. WBTC Custodial Diversification: BitGo, the primary custodian of WBTC, has announced significant changes to its custodial structure. Previously, all Bitcoin backing WBTC was held in the United States. BitGo will now diversify custodial locations to include Singapore and Hong Kong. Additionally, control of the WBTC project will transfer from BitGo to an institution associated with Justin Sun’s BiT Global within 60 days. This move aims to enhance WBTC's robustness and global reach, reducing vulnerability to geopolitical risks.
BitGo CEO Mike Belshe has addressed concerns about the partnership, asserting that WBTC’s security protocols remain unchanged. BitGo will continue to co-sign all transactions using its established technology, ensuring that only transactions with corresponding BTC deposits or token ownership are signed. The primary risk now involves the separation of key management across multiple parties, a shift from previous arrangements.
The change comes in the wake of BitGo's failed acquisition by Galaxy Digital, which was reportedly due to Galaxy's inability to list as a public company in the US. BitGo maintains a strong balance sheet and is prepared to provide evidence of this if necessary. The partnership with BiT Global and the Tron ecosystem aims to facilitate a smooth transition for custodial assets and merchant migration.
3. Strategic Partnerships and Concerns: BitGo also announced a joint venture with Hong Kong-based BiT Global and a strategic partnership with Justin Sun. While BitGo CEO Mike Belshe has dismissed concerns over Sun’s involvement, stating that WBTC’s security protocols remain unchanged, the crypto community remains divided. Some fear that Sun's involvement could impact WBTC’s transparency and security, while others see it as a purely strategic move.
4. Growing Interest in TBTC: Amid these developments, discussions around TBTC have gained traction. TBTC is being praised for its decentralization, transparency, and lower counterparty risk. Users highlighted TBTC's 0% mint fee, low slippage, and its suitability as collateral in DeFi, positioning it as a strong competitor to WBTC. The community also noted TBTC's growing adoption and its potential to become the leading tokenized BTC on Ethereum.
Source: Dune Analytics @threshold
5. TBTC’s Decentralized Approach: Unlike WBTC, TBTC operates without centralized intermediaries. It uses a randomly selected group of operators running nodes on the Threshold Network to secure deposited Bitcoin. This method requires a threshold majority agreement before any action can be taken with the Bitcoin, reducing the risk of fraud or censorship. TBTC’s second generation, known as tBTC v2, is being recognized as a better decentralized and scalable solution for bridging Bitcoin to Ethereum.
6. Coinbase Eyes Wrapped Bitcoin: This Wednesday, Coinbase's account on X teased "cbBTC" with the caption "Coming soon." This suggests Coinbase recognizes the demand for an alternative to WBTC. cbBTC will be a wrapped Bitcoin token on the Base network, and while it is not decentralized, Coinbase's large user base and their own wallet may drive adoption.
Implications for the DeFi Ecosystem:
The recent changes in WBTC’s custodial arrangements, along with the growing interest in TBTC, signal a potential shift in the DeFi landscape. If MakerDAO and other protocols begin to offboard WBTC, there could be a significant gap in BTC derivatives within DeFi, opening the door for TBTC and other decentralized solutions to take the lead. TBTC’s decentralized model, combined with its growing adoption and favorable economic features, positions it as a promising alternative to WBTC, especially for those concerned with centralization and counterparty risks.
As the DeFi space continues to evolve, the competition between WBTC and TBTC will likely intensify, with the community closely watching how these developments unfold. For now, TBTC’s emphasis on security, transparency, and decentralization is resonating with users, but WBTC’s established liquidity and broader adoption still make it a dominant force in the market.
Sector Commentary
- Layer One / Altcoins
- Bitcoin ($BTC): Bitcoin's Prospects Strengthen as Key Stablecoin Metric Slides to Lowest Level in 18 Months (link)
- Bitcoin ($BTC): Crypto Wallet Holding $2B Mt. Gox Bitcoin Sends Test Transaction as Distribution Continues: Arkham (link)
- Bitcoin ($BTC): Bitcoin buyers wait below $58K as Japan wipes out record stocks crash (link)
- Bitcoin ($BTC): Bitcoin More Likely to Fall by $5K Than Rise by Same Amount: Analyst (link)
- Bitcoin ($BTC): Bitcoin price to see massive move to new all-time high if chart pattern plays out — Trader (link)
- Ethereum ($ETH): Ether Beats CD20 as ETH ETFs Post Positive Inflows, DEX Tokens Rise (link)
- Ethereum ($ETH): Ethereum ICO whale deposits 48.5K ETH at 1,024,416% profit (link)
- Solana ($SOL): Explosive growth or speculative surge? Solana's active addresses soar as Firedancer upgrade looms (link)
- Altcoins: CoinDesk 20 Performance Update: BCH and SOL Gains Lead as Index Inches Up 0.3% (link)
- Altcoins: Bitcoin needs to breach $70K, ETH $4K, for altseason start — Arthur Hayes (link)
- DeFi
- Web3 / AI / NFTs
- RWA / Tokenization / Metaverse / Gaming
- Digital Infrastructure: Capital Markets / Exchanges / DAOs / Mining
- Decentral Park Research: The Weekly 295 (link)
- Investors flock to ETH products over BTC as markets recover — CoinShares (link)
- 4 years in, MicroStrategy’s Bitcoin gamble beats Warren Buffett’s warning (link)
- Coinbase Re-Enters Hawaii Market as State Goes Hands-Off (link)
- Coinbase calls for SEC to rethink rule on decentralized exchanges, calling it 'irrational' (link)
- Japan’s Metaplanet buys $3.3 million more in bitcoin, raising holdings to 303 BTC (link)
- Bitcoin risks ‘sharp weekend price swings’ as ETFs suck up liquidity (link)
- Expect Bitcoin ETF options to launch before 2025 (link)
- Spot Ethereum ETFs see $4.9 million in inflows, Grayscale’s ETHE ends 14-day outflow streak (link)
- Asset Manager Grayscale Introduces Crypto Fund for MakerDAO's MKR (link)
- Bitcoin miner Bitdeer’s stock slips 3.5% after reporting net loss in Q2 (link)
- Bitcoin miner Hut 8 sees 72% jump in revenue, but $71.9 million net loss in Q2 (link)
- Three Arrows Capital Liquidators Now Sue Terraform Labs for $1.3B: Bloomberg (link)
- Trump Election Win May be Bullish For Cryptocurrency Markets, Bernstein Says (link)
