Earlier this year, some wrapped bitcoin wBTC users were dismayed to discover that its issuer BitGo shared custody of their bitcoin (BTC) with BiT Global, a Hong Kong-based cryptocurrency custodian partially owned by the founder of TRON , Justin Sun.
The episode “reopened old wounds inflicted by previous centralized custody failures,” although it did not expose any novel flaws, the Bitcoin Builders Association (BBA) said in a report on Wednesday.
“These wounds make BTC holders unwilling to sacrifice their self-custody for trusted solutions,” the report says.
The BBA noted that there have been signs of growing distrust towards centralized entities. The supply of WBTC has dropped to 0.74% of the total circulating supply of bitcoins from 1.5% two years ago.
The collapse of numerous crypto entities in 2022 highlighted the risks of handing over custody of currencies to centralized custodians, a lesson that many users are unwilling to relearn the hard way.
WBTC Domain
WBTC is an Ethereum-based token tradable 1:1 for BTC, allowing users to put their assets to work in the world of decentralized finance (DeFi), which is largely unavailable in the Bitcoin ecosystem.
The token is comfortably the market leader in the tokenized BTC sector, with a 60.4% share, according to the BBA. When added with distant runner-up BTCB (built on BNB), the two tokens have a market share of 87.2%.
However, this consolidation could be in the process of breaking down given the surge in new tokens that have emerged lately. Of the 21 different players in this sector, 40% have launched in 2024 or will do so in the near future, the BBA said.
The BBA listed each of these participants in the report and addressed some of the pros and cons of a select few. For example, wBTC is the most liquid token, built into all major blockchains, and has been stress tested for over five years. However, the venture with BiT Global is a concern for many given the counterparty risk it introduces, “especially considering the involvement of Justin Sun, known for controversial practices in the crypto space,” according to the report.
On the other hand, a token like Bitcoin Layer-2 Stacks’ sBTC has not yet been stress tested (having only gone live this week) and its novel Clarity programming language may make DeFi integration more complicated. . On the positive side, it is more decentralized than wBTC and inherits the security protection of the Bitcoin network.
The tokenized BTC market represents just 1.23% of the total bitcoin market capitalization, which is equivalent to about $25 billion at the time of writing.
“This highlights the immense untapped potential of solutions offering a programmable version of BTC,” the BBA said.
Read more: BOB Bitcoin Project Maps How the Original Blockchain Could Take Over DeFi
