What is CBBTC? Using Bitcoin in DeFi [For Beginners]

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A must-read for cryptocurrency beginners! What is Coinbase Wrapped BTC (CBBTC)? A detailed explanation of the key to opening the door to DeFi

Hello, I'm John, a cryptocurrency blogger. In recent years, we've been hearing more and more about cryptocurrencies, including Bitcoin (BTC). However, I'm sure there are many people out there who feel that "there's a lot of technical terminology and it's difficult to understand..." or "I have some Bitcoin, but how can I use it?" For those of you who are new to cryptocurrencies, today I'd like to introduce some interesting "Coinbase Wrapped BTC (CBBTC)" I will explain it as simply as possible. Understanding CBBTC may open the door to new possibilities for Bitcoin, especially the exciting world of DeFi (decentralized finance)!

Basic information about Coinbase Wrapped BTC (CBBTC)

What is CBBTC? Easy-to-understand explanation for beginners

Coinbase Wrapped BTC, abbreviatedCBBTCIn a word,A special token that allows Bitcoin (BTC) to be used on other blockchains" It is issued by Coinbase, one of the world's largest virtual currency exchanges.

"Wrapped" means "wrapped". CBBTC is a service where actual bitcoins are safely stored by Coinbase and exchanged with that BTC.1:1 value-backed tokenIn other words, 1 CBBTC is designed to always have the same value as 1 BTC. This allows you to use functions that Bitcoin does not originally have while maintaining the value of Bitcoin.

What problem does CBBTC solve?

Bitcoin is the most famous and oldest virtual currency, but it also has some issues. For example, it can take a long time for transactions to be approved and fees can be high. This makes it a little inconvenient to use it directly in new services that require faster and more flexible processing, such as DeFi (Decentralized Finance - a system that allows financial transactions without the intervention of a central administrator such as a bank).

CBBTC was born to solve this problem. It works on blockchains other than Bitcoin, such as Ethereum and Base, which Coinbase helps develop. These blockchains are actively developing DeFi applications (decentralized finance apps - services such as lending, borrowing, and earning yields), and by using CBBTC,Seamlessly use your Bitcoin holdings with these DeFi servicesFor example, it will be possible to borrow money using CBBTC as collateral or to deposit CBBTC and earn interest.

Unique Features of CBBTC

CBBTC has several unique features compared to other wrapped tokens:

Issued and managed by Coinbase: CBBTC is issued and managed by Coinbase, a major and reliable cryptocurrency based in the United States. This is a source of peace of mind, especially for beginners. Coinbase is known for complying with regulations and taking strict security measures.
Coinbase Ecosystem Integration: For users of the Coinbase platform, exchanging and using CBBTC could be very smooth.
Increasing Bitcoin's utility: The main purpose of CBBTC is to expand the uses of Bitcoin. It is expected to be a tool for "actively using" Bitcoin, rather than simply "holding" it.
Transparency: Coinbase strives for transparency by providing “Proof of Reserves” that show CBBTC is in fact backed by BTC.

CBBTC supply and price impact

Maximum Supply and Current Circulation

CBBTC does not have a fixed upper limit on its "maximum supply" like other cryptocurrencies.Fluctuates according to the amount of Bitcoin a user deposits into CoinbaseIn other words, when someone deposits Bitcoin and exchanges it for CBBTC, the amount of CBBTC in circulation increases, and conversely, when someone converts CBBTC back to Bitcoin, the amount of CBBTC in circulation decreases.

The current exact amount in circulation can be found on Coinbase's official website or on a trusted cryptocurrency data site, but the important thing is that the total amount of CBBTC in circulation and the total amount of Bitcoin stored by Coinbase always match (or are managed to match).

How does supply relate to price?

The price of CBBTC is as mentioned above.Designed for 1 CBBTC = 1 BTCThis is called a "peg." Managing the supply is very important in maintaining this peg.

If the price of CBBTC becomes slightly higher than BTC in the market, traders will deposit BTC, issue CBBTC, and try to make a profit by selling it on the market (this is called arbitrage). Conversely, if CBBTC becomes cheaper than BTC, traders will try to make a profit by buying CBBTC on the market and exchanging it for BTC. Through this kind of market mechanism, the price of CBBTC is adjusted to be closer to the price of BTC.

Therefore, rather than the supply of CBBTC itself directly causing "price fluctuations of CBBTC itself," if the demand for CBBTC in the DeFi market increases, the impact will be that more BTC will be locked and CBBTC will be issued. The source of value of CBBTC is solely the Bitcoin that backs it.

CBBTC’s technical structure

A brief explanation of blockchain

To understand CBBTC, it is useful to know the basics of blockchain. Blockchain is a technology that links and manages transaction records in units called "blocks" like a chain. These records are stored in computers all over the world, making them very difficult to tamper with and highly transparent. Both Bitcoin and Ethereum run on their own blockchains.

What blockchain does CBBTC run on?

CBBTC is primarily a blockchain-basedERC-20 tokens on the Ethereum blockchain(a common standard token issued on the Ethereum blockchain).Base BlockchainThere are also efforts underway to make it available on other blockchains, such as Ethereum, which will allow the value of Bitcoin to be brought into the DeFi ecosystem of Ethereum and Base.

What does it mean to "wrap"? CBBTC's special technology

The process of "wrapping" is the typical way that assets on one blockchain can be used on another blockchain.

Locking BTC: When a user wants to acquire CBBTC, they first deposit Bitcoin (BTC) with Coinbase, which then locks these BTC in secure custody.
CBBTC Mint (Issued): An amount of CBBTC equivalent to the deposited BTC will be minted on a supported blockchain such as Ethereum and sent to the user's wallet.
On-chain usage: The issued CBBTC can be freely traded and used on DeFi apps on that blockchain.
Unwrap (Redemption): If a user wishes to convert their CBBTC back to BTC, they can send it to Coinbase, which will burn it and return the equivalent amount of BTC locked in it to the user.

This mechanism ensures that CBBTC is always backed by actual Bitcoin on a 1:1 basis. The unique feature of CBBTC is that Coinbase centrally manages the wrapping and unwrapping process, as well as the storage of BTC.

Development Team and Community

Is it a trustworthy team? The role of Coinbase

The developer and operator of CBBTC isCoinbaseFounded in 2012, Coinbase is one of the largest cryptocurrency trading platforms in the United States and is listed on the NASDAQ. It has a long history of operation and is highly regarded in the industry for its security measures and regulatory compliance.

The fact that CBBTC is issued and managed by a highly reliable organization, Coinbase, is one of the major sources of reassurance for users. Coinbase's strict security standards are also likely to be applied to the storage of the underlying assets, Bitcoin.

Is the community active? Where can I get information?

Information about CBBTC is mainly disseminated through Coinbase's official website, official blog, and social media accounts. It is more likely to be discussed in the Coinbase community as a whole or in the communities of DeFi platforms that use CBBTC, rather than in a specific CBBTC-only community.

We recommend checking the following sources for up-to-date information and support:

Coinbase cbBTC official page (see Apify #1)
Coinbase Help Center and Official Blog
Cryptocurrency-related forums such as Twitter (now X) and Reddit (see Apify #6 and #8)

Coinbase is also developing wrapped tokens on the Base blockchain (see Apify #4), so it’s a good idea to keep an eye on the developments in the related ecosystem.

Uses and future prospects of CBBTC

What can it be used for? Specific examples of use

The biggest attraction of CBBTC is, of course,Use in DeFi (Decentralized Finance)Specifically, the following usage is possible:

Lending: Lend CBBTC to DeFi platforms and earn interest.
Borrowing: Use CBBTC as collateral to borrow other cryptocurrencies and stablecoins.
Yield Farming/Liquidity Mining: CBBTC will be provided in pairs with other tokens (liquidity provision) on DeFi platforms, and new tokens and fees will be earned as rewards.
Trading on Decentralized Exchanges (DEX): Smoothly exchange CBBTC for other tokens on DEXs on the Ethereum and Base blockchains.
Rapid and low-cost value transfer: It will be used as a means of transferring value of BTC on a blockchain that may be faster and have lower fees than the Bitcoin network.

Through these activities, it becomes possible to actively manage dormant Bitcoin and pursue profit-making opportunities.

What does the future hold for CBBTC? Experts' opinions

CBBTC's future depends on a number of factors, but the general view is generally positive.

First,Overall growth of the DeFi marketThis could boost demand for CBBTC. As DeFi becomes more accepted by users, the need to leverage Bitcoin, the largest cryptocurrency, in DeFi is expected to grow.

next,Coinbase’s credibility and brand powerThis is a major advantage. As reported in the news, "Tokenized bitcoin (...) primarily wrapped bitcoin (WBTC) and Coinbase's cbBTC, now represent over 172,130 BTC, extending bitcoin's utility far beyond its native chain." (Apify #5, news.bitcoin.com), tokenized bitcoin has already formed a large market, and CBBTC has a strong promoter in Coinbase. Proof of Reserves provided by Coinbase (Apify #13, Coingecko) also contributes to gaining the trust of users.

In addition, Coinbase's active rollout of wrapped tokens on its own Base blockchain (Apify #4) will also lead to an expansion of CBBTC's usage scenarios. Milkroad's article (Apify #7) cites a case where Coinbase bridges BTC to cbBTC to take out a loan on the Ethereum network.

Some experts see Coinbase’s decision to stop handling WBTC and promote its own CBBTC (Apify #14) as a strategic move (Apify #19, Polsinelli BitBlog), which could be interpreted as a sign of Coinbase’s intention to focus on CBBTC.

However, you should also take into account the risks described below.

Comparison with competitors: CBBTC's strengths

How is it different from other wrapped BTC? (e.g. WBTC)

There are other wrapped tokens besides CBBTC that allow Bitcoin to be used on other blockchains. The most representative isWBTC (Wrapped Bitcoin).

Key differences and advantages of CBBTC compared to WBTC:

Issuance and management system:
- WBTC: It aims to be a more decentralized issuance mechanism involving multiple merchants (issuing businesses) and custodians (custodians of storage). It is run by a DAO (Decentralized Autonomous Organization).
- CBBTC: Coinbase is a single, regulated, well-known company that centralizes issuance and backing assets.The process is simple, easy to understand, and trustworthy for usersThis is an advantage, especially for Coinbase users, as it allows easy access through existing accounts.
Trustworthy and transparent:
- WBTC: Although we strive for transparency, the involvement of multiple organizations can make auditing and accountability somewhat complicated.
- CBBTC: Coinbase is taking the lead and offering "Proof of Reserves" and is running the platform with its own brand and credibility. Coinbase's peace of mind, which is also building relationships with regulators, will be especially attractive to beginners and institutional investors.
Ecosystem collaboration:
- WBTC: It is adopted by a wide range of DeFi protocols and has high liquidity.
- CBBTC: It has a very high affinity with the Coinbase ecosystem (exchanges, wallets, Base blockchain, etc.). As Coinbase strategically promotes the use of CBBTC, it is expected that the corresponding services and liquidity will expand in the future. As pointed out in Apify #14, Coinbase's decision to discontinue handling WBTC on its platform and promote CBBTC is considered to be part of this strategy.

It is difficult to say which is better, but CBBTC says,Trusted and easy to use by major exchangesThis is an attractive option for users who place importance on this.

Risks and Cautions

CBBTC is a useful tool, but you should be aware of some risks and precautions when using it.

Price Fluctuation Risk: The value of CBBTC is pegged to Bitcoin, so if the price of Bitcoin itself fluctuates, the value of CBBTC will fluctuate as well. Please remember that virtual currencies are financial assets with high price fluctuations (high volatility).
Custody risk (centralization risk): CBBTC relies on a centralized mechanism in which Coinbase stores Bitcoin and manages issuance. If Coinbase is hacked, goes bankrupt, or faces legal issues, there is a risk that the value and redemption of CBBTC will be affected. This is the biggest characteristic of CBBTC, but it is also a risk factor.
Smart Contract Risks: The issuance and management of CBBTC involves smart contracts (programs that automatically execute contracts on the blockchain). There is a possibility that these programs may have unknown bugs or vulnerabilities. If they are exploited, there is a risk of losing assets. However, large companies like Coinbase usually conduct rigorous audits.
Depegging Risk: Theoretically, 1 CBBTC = 1 BTC, but in times of extreme market turmoil, the price may temporarily diverge (the peg may be removed).
Regulatory risks: Legal regulations regarding virtual currencies and DeFi are currently being developed in various countries around the world. It is necessary to take into consideration the possibility that new regulations may be introduced in the future, which may affect the use of CBBTC and the operation of Coinbase.
General cryptocurrency risks: It is also important to be aware of security risks associated with virtual currencies in general, such as private key management, phishing scams, and hacking.

Expert opinions and analysis

There have been mixed opinions from experts and industry media regarding CBBTC and wrapped Bitcoin in general.

In many analyses,A way to increase Bitcoin's utilitynews.bitcoin.com (Apify #5) reports that "tokenized Bitcoin...is extending Bitcoin's utility far beyond its native chain," and CBBTC is said to be playing a part in this.

CoinGecko (Apify #13) noted that Coinbase provides proof of reserve for CBBTC, and praised its transparency efforts, saying that it “assures users that their total BTC reserves are secured,” which is a key element in reinforcing trust in centralized custodians.

MilkRoad (Apify #7) introduced a specific use case in which a user bridges BTC to the Ethereum network as cbBTC on Coinbase and then uses it as collateral to take out a loan, suggesting its practicality in DeFi.

Polsinelli BitBlog (Apify #19) describes CBBTC as "Coinbase's own competitive wrapped Bitcoin product," and sees it as a strategic product that Coinbase is looking to gain market share in. In fact, Coinbase's decision to stop handling the competing WBTC on its platform (Apify #14) is a move that supports this view.

On the other hand, some experts point out the dependency on a centralized management body (custody risk). Because this is a different aspect from the original "decentralized" philosophy of DeFi, it is recommended that you use it only after understanding the trade-offs.

Latest News and Roadmap Highlights

The environment surrounding CBBTC is constantly changing. Recent notable trends include the following:

Base Blockchain Focus: Coinbase is focusing on expanding the ecosystem on its Layer 2 blockchain "Base". It is reported that wrapped XRP and wrapped Dogecoin will be deployed on Base in June 2025 (Apify #6), and CBBTC is expected to become increasingly active on Base. Base aims to solve Ethereum's scalability problem and enable faster and lower-cost transactions, which may contribute to improving the convenience of CBBTC.
Promotional Activities: From time to time, campaigns are conducted to promote the use of CBBTC and related tokens, for example, there are reports of CBBTC being airdropped (distributed for free) to certain token holders (see Apify #6).
Coinbase's strategic thrust: As mentioned above, Coinbase has discontinued handling WBTC and is positioning CBBTC as its main product (Apify #14). This suggests that Coinbase will continue to actively promote the use of CBBTC and expand its functions.

We will have to wait for information from Coinbase for official details on CBBTC's roadmap, but some areas to look forward to include growth in the DeFi market, expansion to other blockchains, and further integration with Coinbase services.

Frequently Asked Questions (FAQ)

Q1: Is CBBTC Bitcoin (BTC) itself?

A: No, CBBTC is not Bitcoin (BTC) itself. CBBTC is a cryptocurrency that allows users to exchange Bitcoin for other cryptocurrencies such as Ethereum and Base."Tokenized Bitcoin" that can be used on another blockchainThey are backed by Coinbase so that their value is equal to 1 CBBTC = 1 BTC, but technically they are different tokens and run on different blockchains.

Q2: Where can I purchase/obtain CBBTC?

A: CBBTC mainlyCoinbase ExchangeYou can get it by exchanging (wrapping) Bitcoin. You can also use it on the Ethereum and Base blockchains.Decentralized Exchange (DEX)However, you may be able to obtain it by exchanging it with other virtual currencies. The method for obtaining it will vary depending on the platform you are using, so please follow the instructions for each platform.

Q3: What are the benefits of having CBBTC?

A: The biggest advantage is that you can increase the value of your Bitcoin.Can be used in DeFi servicesFor example, CBBTC can be lent out to earn interest, used as collateral to borrow other assets, provided liquidity to earn rewards, or used as a way to move value between BTC on the blockchain with potentially faster speeds and lower fees than the Bitcoin network.

Q4: Is CBBTC safe?

A: CBBTC is backed 1:1 by Coinbase with actual Bitcoin. Coinbase is a major exchange and has strict security measures in place.Centralized management comes with custody riskIf a problem occurs with Coinbase, you may be affected. Also, there is a risk that unknown vulnerabilities may exist in smart contracts. It is important to understand these risks before using it.

Q5: Will the price of CBBTC always be the same as BTC?

A: CBBTC is designed (pegged) so that 1 CBBTC is worth 1 BTC. However, due to the balance of market demand and supply, the price may deviate very slightly from BTC. Usually, when a large price difference occurs, the price tends to adjust closer to BTC due to the actions of market participants seeking arbitrage opportunities.

A must-read for cryptocurrency beginners! A complete guide to CBBTC: How to use Bitcoin in DeFi