Altcoin Spotlight: What is CBBTC?
Coinbase, the cryptocurrency trading platform, has been spending a lot of time in the spotlight due to the new cryptocurrency project they are backing. It’s a token called Wrapped Bitcoin and is bought and sold under the ticket CBBTC.
But what is CBBTC exactly? And should you invest? We’ve got everything you need to know and more in this blog article about Wrapped Bitcoin or CBBTC.
What is CBBTC?
First and foremost, although CBBTC is its own token, it acts a bit like a utility token. CBBTC is a version of Bitcoin that can be used in an Ethereum-based environment.
One of the biggest gripes in the cryptocurrency world is that Bitcoin and Ethereum are completely separate platforms, and the functionality of one cannot be crossed over to be functional on another. CBBTC seeks to bridge this gap by offering a tokenized version of BTC that can be used with any Ethereum platform built on the ERC-20 token rules.
CBBTC is not the only project in the space and is not the first tokenized version of Bitcoin. Other examples include BiT Global’s Wrapped BTC(WBTC) and the full-decentralized tBtc.
How Does CBBTC Work?
CBBTC works as an equity holding dapp. When you purchase CBBTC, an equivalent amount of BTC is locked up in an equity holding platform, in this case, Coinbase’s own coiffeurs.
Once locked up, CBBTC is issued, and you can use the token to perform actions on an ERC-20-based platform. Then, when you are finished, you can turn in your CBBTC in exchange for Bitcoin, which will then be released by the equity holder.
Because of the way CBBTC functions, its value is, therefore almost always around the cost of BTC, meaning it works a bit like a pegged stablecoin.
**It’s important to note that there is a related token on the market using the symbol cbBTC. Know that this is not the Coinbase project (you can also tell by the value of the token, which is quite low), and only buy at your own risk.
Who Created CBBTC?
The CB suffix before BTC stands for “Coinbase,” which tells you everything you need to know about the creator of CBBTC. Coinbase created and launched CBBTC in November 2024, something which has caused quite a legal upset as they did it shortly after delisting the Wrapped BTC (WBTC) project.
The creators of WBTC sued Coinbase for $1 billion over the incident, however, they have (so far) had a hard time proving their case. The lawsuit is still ongoing.
Should You Invest in CBBTC?
Because CBBTC acts a bit like a stablecoin, we generally don’t consider it to be an investment worth token. Sure, if you need wrapped BTC to be used on an Ethereum-based platform, then feel free to use the platform to exchange your crypto—there are way worse options out there, and Coinbase seems relatively safe.
That being said, we advise against purchasing CBBTC for investment purposes. This token, like any stablecoin, should retain a value close to the value of Bitcoin, and if it doesn’t, there are serious problems (Terra Luna, anyone?) So, there is no reason to invest as you won’t be making a profit.
Additionally, this is a newer and unproven platform. While we somewhat trust Coinbase, we can’t guarantee that this platform doesn’t have similar flaws to Terra Luna (LUNA) and won’t end up spiraling down to nothing if a criminal finds that vulnerability.
We would also like to mention that CBBTC is fully backed by Coinbase, meaning you are trusting them fully to maintain BTC on a 1:1 ratio of CBBTC. Several other projects in this space have come to light as not maintaining the financial reserves they claim to back these types of crypto products—adding an extra layer of risk.
Basically, if you want to use CBBTC, have at it, but use it at your own risk.
Where Can You Buy CBBTC?
CCBTC can be purchased on Coinbase and on almost any DEFI exchange. Below are the most popular marketplaces to purchase CBBTC.
· Coinbase
· Binance
· Areodome SlipStream
· Uniswap
· Orca
Where Can You Use CBBTC?
CBBTC can be deposited into the Metamask wallet and used on any website that interacts with it. Some of the most popular uses for CBBTC include the following:
· As collateral for a DeFi loan repayment
· Lending to other users on a DeFi platform in exchange for interest payments
· Increased liquidity to invest in liquidity pools on DeFi platforms
· Faster BTC transaction times (via Wrapped BTC on an Ethereum native platform)
Are There Any Other Options?
Obviously, CBBTC was created to fulfill a need in the DeFi cryptocurrency space, but you may be wondering if there is a less risky alternative.
Generally, the only alternative is Bitcoin layer-2 solutions, which are built upon Bitcoin itself to expand its functionality to other platforms. All these solutions are usually owned by a company, though there are some DeFi options. Regardless, you will face the same risks as using a wrapped BTC product, as the security and monetary backings of these solutions cannot always be verified.
Not to mention that many of these layer-2 solutions are only for certain platforms, which means you may have to use numerous to take advantage of the entire space.
Besides layer-2 solutions, you can, of course, sell your BTC for a cryptocurrency like Ethereum to use on these platforms—but know that Ethereum doesn’t act at the same level of an investment vehicle as Bitcoin—so it would mean losing access to that portion of your holdings forever.
Overall, wrapped BTC products were created for a reason, and there are currently several options for using your Bitcoin in an ERC-20 environment. As far as security goes, no product is guaranteed, but it would be hard to do worse than CBBTC. So, if you are looking to use and invest your BTC on a DeFi platform, definitely consider using Coinbase’s wrapped Bitcoin protocol.
