With the rise in popularity of ERC20, digital tokens in the Ethereum ecosystem have emerged
as an important asset class. These tokens have all the advantages that blockchains and
Ethereum have to offer in terms of transparency in total number of coins, owners, minting, fast
confirmation times, transactions details and smart contract execution. Tokens on the Ethereum
blockchain can serve several different functions; this paper will specifically focus on asset
backed or wrapped tokens. The prices of these tokens reflect the price of the asset backing
them and hence they can also be called “stable coins”. Asset backed tokens are usually done
in two different ways:
● Algorithmic – This is a mechanism followed by some tokens on Ethereum where
demand and supply are controlled by smart contracts in order to keep the price of the
token in line with a fiat currency. Some examples of this are Dai, Basis, Carbon, and
● Centralized – Assets are stored with an organization which publishes proof of reserves.
This is the case with Tether, True USD, USDC (USD), Digix (gold), Globcoin (a mix of fiat
currencies), and AAA reserve (governmental bonds)
Wrapped tokens follow the centralized model, but instead of relying entirely on one institution,
they rely on a consortium of institutions performing different roles in the network. This
whitepaper proposes a framework for issuing asset backed tokens by addressing challenges
with scalability, trust, regulation, and governance. The first wrapped token we launch will be an
ERC20 token backed by Bitcoin (BTC) and will be appropriately named, “Wrapped BTC”
(WBTC). Unlike centralized solutions (USD), WBTC will be fully accounted for and proof of
reserves posted on the BTC chain.
There is no additional secondary utility/payment token required to use WBTC, and no transfer
fees other than blockchain fees. WBTC uses a simple federated governance model and strives
to promote usability.