Over 550 bitcoins ($5.8 million) are now locked in an Ethereum-based protocol as tokens called wrapped bitcoins.

A wrapped bitcoin is an Ethereum- based token which is backed by bitcoin and tied to its price. Similar to U.S.-dollar pegged stablecoins which are backed by locked reserves of U.S. dollars, wrapped bitcoin are backed up by locked amounts of bitcoin.

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The coin’s purpose was to make the Ethereum network more stable and enable bitcoin funds to be used in Ethereum network dapps or decentralized exchanges.

“WBTC brings greater liquidity to the Ethereum ecosystem including decentralized exchanges (DEXs) and financial applications. Today, the majority of trading volume takes place on centralized exchanges with Bitcoin. WBTC changes that, bringing Bitcoin’s liquidity to DEXs and making it possible to use Bitcoin for token trades.”

Another application of WBTC is that it “standardizes Bitcoin to the ERC20 format, creating smart contracts for Bitcoin. This makes it easier to write smart contracts that integrate Bitcoin transfers.”

This also has a second effect; it decreases the amount of bitcoin in circulation, as long the bitcoin is locked. Any reduction of the bitcoin supply usually leads to an increase in the price.

But the 550 bitcoin will not impact the market that much, taking to account that the official circulating supply is 12 million (also considering the number of bitcoins lost or inaccessible).

Wrapped bitcoins have been launched in January this year, but since July, the number of locked bitcoins in the network has skyrocketed to 70 percent. The increase of decentralized finance applications has also raised the awareness of such types of stablecoins, especially Maker DAO.

Featured Image: The Merkle Hash


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