> ## Documentation Index
> Fetch the complete documentation index at: https://docs.theblockchainlibrary.com/llms.txt
> Use this file to discover all available pages before exploring further.

# Wrapped Bitcoin

> Wrapped Bitcoin (WBTC) is an ERC-20 token on the Ethereum blockchain that is backed 1:1 by actual Bitcoin. It allows Bitcoin holders to utilize their holdings within the Ethereum DeFi ecosystem, participating in lending, borrowing, and yield-farming activities that are not native

# Wrapped Bitcoin

Wrapped Bitcoin (WBTC) is an ERC-20 token on the Ethereum blockchain that is backed 1:1 by actual Bitcoin. It allows Bitcoin holders to utilize their holdings within the Ethereum DeFi ecosystem, participating in lending, borrowing, and yield-farming activities that are not natively supported on the Bitcoin network. WBTC is managed by a decentralized autonomous organization (DAO) and utilizes a network of custodians and merchants to ensure that every WBTC token is fully collateralized by a corresponding amount of BTC held in cold storage.

## Definition

Wrapped Bitcoin (WBTC) is an ERC-20 token on the Ethereum blockchain that is backed 1:1 by actual Bitcoin. It allows Bitcoin holders to utilize their holdings within the Ethereum DeFi ecosystem, participating in lending, borrowing, and yield-farming activities that are not natively supported on the Bitcoin network. WBTC is managed by a decentralized autonomous organization (DAO) and utilizes a network of custodians and merchants to ensure that every WBTC token is fully collateralized by a corresponding amount of BTC held in cold storage.

## Simple explanation

Wrapped Bitcoin is a version of Bitcoin that can walk and talk on the Ethereum network. It lets you use your Bitcoin value to participate in Ethereum's banking and trading apps, while keeping your actual Bitcoin safely stored elsewhere.

## Why it matters

WBTC bridges the liquidity of the world’s largest cryptocurrency with the utility of the world’s most active smart-contract platform. It has been a key driver in the expansion of Ethereum's decentralized finance sector.

## How it works

Users send BTC to a verified custodian. Once the BTC is held in custody, the custodian mints an equal amount of WBTC on Ethereum and sends it to the user's wallet. To redeem, the user burns their WBTC, and the custodian releases the corresponding amount of BTC back to the user's Bitcoin address.

## Real-world example

WBTC is widely used on platforms like Uniswap and Aave to provide liquidity and serve as collateral for loans.

## Advantages

* Brings Bitcoin liquidity to Ethereum
* Compatible with Ethereum-based dApps
* Transparently verifiable on-chain

## Limitations

* Requires reliance on custodians
* Security risk if custodian is compromised
* Centralization in the minting process

## Common misconceptions

* WBTC is just a price-tracking token like a synthetic asset. WBTC is fully backed by real Bitcoin held in escrow, not just a price peg.
* You can use WBTC on the Bitcoin network. WBTC is specifically designed to work only on the Ethereum blockchain as an ERC-20 token.

## Related knowledge

* [Bitcoin](/categories/bitcoin) — term
* [DeFi](/categories/defi) — term
* [ERC-20](/generated/v2/glossary/erc-20) — term
* [Ethereum](/categories/ethereum) — term
* [Wrapped Asset](/generated/v2/glossary/wrapped-asset) — term

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**Canonical knowledge ID:** `glossary:wrapped-bitcoin`