Coinbase introduces 'cbBTC,' a wrapped Bitcoin digital asset.
Crypto exchange Coinbase has introduced its cbBTC token, a wrapped version of Bitcoin (BTC), on the Ethereum network and its layer-2 scaling solution, Base.
According to the announcement on September 12, cbBTC is backed 1:1 by Bitcoin held by Coinbase and does not have a separate order book or trading pairs on the platform. The token is automatically minted at a 1:1 ratio when a user sends Bitcoin to a Base or Ethereum address. Conversely, sending cbBTC to a Coinbase address will automatically convert it back to regular Bitcoin.
Coinbase also hinted at plans to expand cbBTC to other blockchain networks and ecosystems in the future, though no further details were provided. Tokenized Bitcoin exists to enable decentralized finance (DeFi) functionality for Bitcoin, which traditionally lacks these capabilities.
Bitcoin's ledger operates using unspent transaction outputs (UTXO), and Bitcoin wallets consist of these UTXOs linked to specific addresses. This structure, along with the difficulty of transferring digital assets between blockchains, has limited Bitcoin's integration with DeFi, which is primarily built within the Ethereum ecosystem. With cbBTC and similar tokens, users can leverage their Bitcoin for DeFi purposes, such as collateral for loans or lending to earn yield.
At launch, cbBTC will be supported by platforms like Aave, Compound Finance, Morpho, Spark, and Moonwell. Coinbase announced cbBTC shortly after BitGo faced criticism for changing the custodial structure of its Wrapped Bitcoin (WBTC) product, shifting to a multi-jurisdictional model that included Hong Kong and Singapore.
Concerns were raised due to the involvement of Tron (TRX) founder Justin Sun in this new arrangement. In response, risk management firm Block Analitica suggested restricting all WBTC positions, citing Sun's involvement as an "unacceptable level of risk."
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