Wrapped Bitcoin supply drops to negative after 11,500 wBTC burn linked to Celsius
The supply of wrapped Bitcoin (wBTC) fell to the lowest since May 2021 after the second largest one-day burn on February 27.
A total of 11,500 WBTC worth around $260 million linked to now-bankrupt crypto lender Celsius were burned, turning the growth rate negative. The current total supply of the wrapped token is 164,396 WBTC, with a monthly growth rate of -7.39.
WBTC is an Ethereum-based ERC-20 token that reflects the value of Bitcoin and is linked 1:1 to the Bitcoin (BTC) price. Bitgo co-developed wBTC in 2019 along with blockchain interoperability protocol Ren and multi-chain liquidity platform Kyber. wBTC is also managed by the decentralized autonomous organization wBTC DAO, which consists of over 30 members.
When a seller wants to exchange BTC for wBTC, they initiate a burn transaction and notify the custodians. The custodians then send the corresponding amount of BTC to the seller’s bitcoin address. Users can then exchange wBTC for BTC at merchants, who burn the received tokens.
Being an ERC-20 token makes the transfer of wBTC faster than regular Bitcoin, but the main advantage of wBTC is its integration into the world of Ethereum wallets, decentralized apps and smart contracts.
During the peak of the bull run, wrapped tokens became a popular tool for use in the DeFi ecosystem. wBTC’s supply peaked at 285,000 in April 2022 when the BTC price traded above $48,000.
But with the rise of the bear market and many crypto contagions, demand began to disappear. The first signs of reduced demand came after the Terra-LUNA-led crypto contagion that forced several crypto borrowers to redeem wBTC. According to a report, the Celsius Network cashed out around 9,000 wBTC amid a surge in demand for withdrawals.
Related: The Celsius Network coin report shows a balance gap of $2.85 billion
A similar scenario occurred in November 2022 after the FTX collapse, where reports indicate that the now-bankrupt crypto exchange tried to redeem 3,000 wBTC right before filing for bankruptcy. After FTX’s collapse in November, wBTC experienced its largest monthly coin redemption, with over 28,000 wBTC redeemed back into the original coin.
The market contagion caused by the FTX collapse also depegged wBTC from the original value of BTC. Although the slippage was about 1.5%, it raised serious concerns at the time about whether such synthetic tokens are a viable means of value transfer.
