In January 2024, 6,200 Wrapped Bitcoin (WBTC) tokens were burned, while only 4,170 have been minted.

The number of burned and minted WBTC. Source: Dune

Wrapped tokens resemble stablecoins in some ways. However, their price is tied to a specific cryptocurrency, which exists on the same network, or – in most cases – a different blockchain.

This is the origin story of one of the most popular and prominent tokens – Wrapped Bitcoin. Its value is pegged to the price of Bitcoin (BTC). However, it comes with a unique twist. WBTC operates on Ethereum’s ERC-20 protocol.

Dune data shows that for the past three months, more WBTC has been burned than minted. This suggests that more users are converting Wrapped Bitcoin to just Bitcoin rather than vice versa. It is not abnormal to see such trends, as users may no longer be interested in using WBTC on the Ethereum network for various reasons.

In a simplified explanation of the process to create “Wrapped” Bitcoin, BTC is first sent to a dedicated vault. Subsequently, the wrapping procedure takes place, resulting in the generation of Wrapped Bitcoin.

To convert WBTC back to BTC, the process involves “burning” the token. This means redeeming the Wrapped Bitcoin token to retrieve the original Bitcoin.

Wrapped Bitcoin is popular in DeFi

According to DefiLama, Wrapped Bitcoin has found its niche in decentralized finance (DeFi). 

WBTC ranked second in total value locked (TVL) with $6.78 billion. In first place is Lido, with a notable dominance in this ranking overall with 22.117 billion. However, Lido operates in a very different market segment.

DeFi’s TVL protocol ranking. Source: DefiLlama

Interestingly, the most expensive DeFi project, MakerDAO, has a lower TVL than WBTC. It ranks 4th with $5.707 billion. 

The popularity of WBTC in the DeFi space can be attributed to the token running on the ERC-20 protocol, unlike BTC. This is what gives access to the asset through decentralized finance.

Why is the Wrapped Bitcoin supply dropping? 

Wrapped tokens have their advantages and disadvantages. One of the advantages of such cryptocurrencies is that they increase liquidity. 

Another advantage is that Wrapped Bitcoin theoretically reduces the strain on the Bitcoin network. Thus, transaction fees with WBTC should be lower than with BTC. 

However, Wrapped Bitcoin is not as popular as the original. The declining number of active addresses evidences this. 

According to Glassnode, the number of new WBTC addresses as of Dec. 26, 2023 was 335. That’s up from 2022, though. But the overall trend shows fewer new addresses, though not with very steep drops. 

Number of active WBTC addresses. Source: Glassnode 

It’s also interesting to note that the total number of addresses is growing. On Dec. 26, 2023, there were 260,341 of them. One year later, this number has increased to 346,232. 

The growth of the total number of WBTC addresses. Source: Glassnode 

Perhaps this indicates that WBTC is more popular in the decentralized than in the centralized sector. Therefore, more users are converting Wrapped Bitcoin back to BTC, and the number of active addresses is decreasing. Additionally, there are other “wrapped” versions of Bitcoin on the market, such as HBTC, renBTC, KBTC, iBTC, etc.