Coinbase Wrapped Bitcoin (cbBTC) Market Emergence Presents Opportunities and Challenges

The Wrapped Bitcoin market is seeing the emergence of new players, like Coinbase, the largest American crypto exchange. Analysts believe the market's current condition presents an opportunity for higher user engagement, enhanced cross-chain liquidity, and significant growth in the coming years.

The market for Wrapped Bitcoin tokens is expanding with the entry of new players, such as Coinbase, presenting opportunities for user engagement, cross-chain liquidity, and future growth. However, observations noted in the latest CryptoQuant report suggest potential challenges in the race.

Wrapped Bitcoin tokens allow users to access other networks and decentralized finance (DeFi) applications beyond the Bitcoin network without having to sell their BTC. These tokens are backed 1:1 by BTC and are predominantly found on Ethereum.

The first-ever Wrapped Bitcoin, WBTC, was created in 2019 by BitGo, a digital asset infrastructure provider. It remains the largest Wrapped Bitcoin in the market, with a circulating supply of 153,000.

Other Wrapped Bitcoins were launched in 2020, including HBTC by exchange HTX, tBTC by Threshold Network, and renBTC by Ren Protocol. Coinbase's cbBTC is the latest addition, موجود on the Ethereum layer-1 network and Base, the exchange's layer-2 protocol.

Coinbase launched cbBTC on September 12, and within a week, the token became the third-largest Wrapped Bitcoin in the market, surpassing HBTC and renBTC. According to CryptoQuant analysts, 64% of the token's supply on Ethereum is in the decentralized exchange (DEX) Uniswap, where it has been deposited in pools to provide liquidity for trading pairs such as cbBTC/WBTC and cbBTC/USDC.

The Coinbase Wrapped Bitcoin has a circulating supply of around 1,670 cbBTC ($101 million), with 941 cbBTC on Ethereum and 729 on Base. While cbBTC unlocks a range of financial opportunities, offering holders the ability to trade, lend, borrow, and yield farm on DEXs, the token has faced some criticism within the community.

Unlike BitGo, which publishes the list of addresses holding the BTC that backs WBTC on the Bitcoin network, Coinbase has not disclosed such information for cbBTC. This makes it impossible for any user to independently verify whether the BTC backing cbBTC is present on the Bitcoin blockchain.

"Other criticisms have emerged due to the ability of the cbBTC smart contract administrator to blacklist addresses from transferring, minting, and burning cbBTC, potentially posing a risk for cbBTC users that their holdings could be frozen," CryptoQuant noted.

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