In the DeFi world, WBTC seems to be one of the safest assets. As most of us already know, WBTC stands for Wrapped Bitcoin. It is first of all an ERC-20 tokenized version of BTC initially deployed on Ethereum blockchain and then on all the other EVM compatible blockchains, like Avalanche, Fantom or Harmony.
Is WBTC safe and decentralized?
The key question is: who created WBTC and ensures that it is liquid? The answer is on BITGO website:
WBTC was first announced on October 26, 2018 as a joint initiative by BitGo, Kyber Network, Ren (formerly Republic Protocol), and other community partners, to bring Bitcoin’s liquidity to the decentralized ecosystem on Ethereum and enhance all decentralized applications (DApps).
All the users’ deposits are sent to BitGo... Although BitGo seems qualified to keep large amounts, it concretely means that billions of dollars are centralized in one entity. No insurance will help if something bad happens.
According to an Avalanche's press release of December 2021:
BitGo processes approximately 20% of all on-chain Bitcoin transactions by value, and is trusted by more than 600 clients across 50 countries, including some of the world’s largest institutions and more than 150 exchanges. Collectively, BitGo secures over $64B in assets for these clients, and remains the only service provider in the industry providing both qualified custody and self custody technology solutions to institutional investors, fintech firms and crypto native platforms.
Therefore, if you keep WBTC on Avalanche, you can say that you are using a decentralized blockchain (with 1000+ validators) but you cannot say that your asset is decentralized... As always, the devil is in the details.
Possible impact on DeFi
Just imagine that something wrong happens with BitGo. WBTC liquidity would not be guaranteed anymore, and most of the DeFi protocols, even Curve Finance which is probably the most secure one, would collapse. As a sidenote, a huge problem could also happen with Tether USDT, buy that's another story. Therefore, if you want to use Bitcoin on an EVM blockchain, a safer solution could be to use a protocol like Synthetix on Optimism layer-2 chain, where you can have a synthetic BTC called sBTC, which is not backed by BTC, but by liquidity pools around SNX - which means there is a risk too, but no centralization.
More generally, holding WBTC on Avalanche or Fantom blockchains might not be as safe as you think in the long term. In other words, if you trust a blockchain like Avalanche or Fantom, maybe you'd better hold and stake their native tokens, and not a wrapped version of another blockchain token of which the liquidity depends on a single entity like BitGo.
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