Wrapped Bitcoin Ethereum tokens are causing concern among co-founders

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The trust model wrapped bitcoin ethereum tokens are causing concern among ETH co-founders, ETH tokens continue to be a source of contention.

Wrapped bitcoin ethereum tokens In the cryptocurrency world, ETH tokens continue to be a source of contention. While such projects have received institutional funding and widespread adoption, some critics question the overall consensus method.

Models of trust are being examined

Take Wrapped Bitcoin (WBTC), which was established in 2018 and uses BitGo as a Proof-of-Reserve custodian. WBTC is an ERC20 token whose value is derived from Bitcoin, allowing for faster and easier cross-exchange transfers.

The project was mostly accepted by DEX projects such as Dharma and Compound, and it was made available for transfers via Khyber Network and Ren via “atomic swaps.”

BitGo is “in charge” of storing all Bitcoin that backs all minted WBTC tokens in circulation on Ethereum, similar to the traditional “fractional reserve banking” structure. All such tokens, along with all other ERC20 token benefits, may be monitored and traced on the latter’s blockchain.

Users can simply consult a webpage that displays all custodial Bitcoin addresses and compares them to the actual WBTC amounts on the Ethereum blockchain, according to BitGo security officer Benedict Chan. Users can conduct two-way bitcoin exchanges via swaps while reducing the chance of a payment default.

The popularity of these tokens is incredible. According to reports, WBTC expanded its lighting network in 2018. MakerDAO and other decentralized enterprises have exacerbated the trend, with a 1,000 WBTC issuance earlier this month surpassing the whole amount of Bitcoin held on the Lightning network.

However, Vitalik Buterin, the founder of Ethereum, is suspicious about similar agreements. In response to a post mentioning “2.5x more Bitcoin on Ethereum than Blockstream:” the 26-year-old expressed his alarm on Twitter.

Buterin made no mention of BitGo, WBTC, or any of the other companies referenced in the article. However, the success of such ventures may act as a motivation for similar, albeit poorly designed, enterprises in the future.

The trust models used by WBTC are entirely verifiable. However, a project may theoretically claim that its (hypothetically) issued coin is backed by greater assets. As Buterin puts it, “this might potentially lead to centralization.”

“It would be sad if there ends up being $5b of BTC on ethereum and the keys are held by a single institution.”

Furthermore, third-party custodians control the underlying assets for BTC-pegged ETH tokens and other asset-backed stablecoins like USDC. In the event that such custodians are served with a legal notice or hacked, this raises “counterparty risk.”

“The capacity of these corporations to filter and rollback transactions, which is anathema to the ethos of the DeFi space,” Forbes writes.

DeFi projects are still in their early stages, with a lot of development and ironing out of crucial aspects happening every week, so trust worries may be put to rest for good in the coming years.

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