The supply of wrapped Bitcoin (wBTC) fell to its lowest level since May 2021 after its second-biggest single-day burn on Feb. 27.
A total of 11,500 wBTC ($260 million) associated with the now-bankrupt cryptocurrency lender Celsius was destroyed, turning its growth rate into negative territory. The current total wrapped token supply is 164,396 wBTC, with a monthly growth rate of -7.39%.
WBTC is an Ethereum-based ERC-20 token that reflects the value of Bitcoin and is pegged 1:1 to the price of Bitcoin. Bitgo co-developed wBTC in 2019 with blockchain interoperability protocol Ren and multi-chain liquidity platform Kyber. WBTC is managed by the decentralized autonomous organization wBTC DAO, which consists of more than 30 members.
When a merchant wants to exchange BTC for wBTC, they start destroying the transaction and alerting the custodian. The merchant transfers real BTC to an escrow address on the Bitcoin blockchain, which is locked. Once real BTC is received, the custodian address mints an equivalent amount of wBTC on Ethereum.
As an ERC-20 token, wBTC transfers faster than regular Bitcoin, but the main advantage of wBTC is its integration into the world of Ethereum wallets, decentralized applications, and smart contracts. At the height of the bull market, wrapped tokens became a popular tool for use in the decentralized finance ecosystem. The supply of WBTC peaked at 285,000 in April 2022, when BTC was trading above $48,000.
However, with the onset of the bear market and the spread of numerous cryptocurrencies, demand started to fade. The first sign of declining demand came after Terra’s crash, which forced several crypto lenders to redeem their wBTC. According to a report, Celsius Network redeemed around 9,000 wBTC amid growing demand for withdrawals.
A similar situation occurred in November 2022 following the FTX crash, with reports suggesting the now-defunct cryptocurrency exchange attempted to redeem 3,000 wBTC before filing for bankruptcy. After the FTX crash in November, wBTC experienced the largest monthly token redemption, with over 28,000 wBTC redeemed for the original token. The market contagion caused by the FTX crash also took wBTC away from the original value of BTC. Although the slippage is only around 1.5%, it raises serious concerns about whether this synthetic token is a viable value transfer model.
