Coinbase Wrapped BTC (cbBTC) Fully Explained

Coinbase Wrapped Bitcoin (cbBTC) makes it easier and more reliable for Bitcoin holders to earn extra income by using their Bitcoin in DeFi apps, backed by the added security of Coinbase’s trusted platform. Normally, Bitcoin and Ethereum don’t work together directly, but with cbBTC, you can “wrap” your Bitcoin, converting it into a form that can be used on Ethereum platforms. This allows you to earn additional income while retaining the value of your original Bitcoin.

cbBTC Compared to WBTC

1. Trust and Security: cbBTC is managed entirely by Coinbase, a well-established company in the crypto space, giving it a strong reputation. WBTC, on the other hand, is run by multiple parties, which can sometimes raise concerns over how it’s managed.

2. Quick Conversion: With cbBTC, converting your Bitcoin is fast and easy, directly through Coinbase, whereas WBTC relies on third-party services for wrapping and unwrapping, which can take more time.

3. Broader Use: cbBTC can be used on Ethereum and Base (Coinbase’s network), with plans to expand to more chains, offering greater flexibility than WBTC.

Ways to Make Money With Coinbase Wrapped BTC

There are several ways to make money with Coinbase Wrapped Bitcoin (cbBTC) in decentralized finance (DeFi) platforms. These methods allow you to earn income without selling your Bitcoin, but they come with different risks, so it’s important to understand the potential downsides and choose what works best for you. Here’s how each method works in simple terms:

1. Lending: Lending allows you to deposit cbBTC into a lending pool. In return, you get a receipt token, representing your share in the pool because other lenders also contribute to it. As people borrow from the pool, you earn interest on your deposit. This is similar to putting your money in a savings account, where you earn interest. Popular platforms used for lending cbBTC include Aave and Compound. The common risks associated with lending are fluctuating interest rates and the possibility of system bugs.

2. Providing Liquidity: This is like running a currency exchange. You provide cbBTC and another asset (e.g., ETH) into a liquidity pool on a platform like Uniswap or Curve, and you are given LP (Liquidity Provider) tokens in return, representing your share of the pool. You will receive a small percentage of the transaction fees applied whenever someone trades between these two assets through the pool. The risk involved is “impermanent loss,” a situation where the value of your deposit changes based on market conditions.

3. Yield (Automated System of Earning): Platforms like Mellow and Veda use vaults that move your cbBTC between various DeFi strategies to find the best earning opportunities, such as lending or liquidity provision. As the vault invests your cbBTC, you earn yields (profits) from interest, fees, or rewards. While this can yield higher returns, it comes with higher risks, such as market fluctuations or bugs in DeFi protocols.

Steps to Obtaining cbBTC on Coinbase

To obtain Coinbase Wrapped Bitcoin (cbBTC), you don’t buy it directly. Instead, you convert Bitcoin (BTC) that you hold into cbBTC. Here’s a step-by-step guide:

1. Sign in to your Coinbase account and buy Bitcoin using fiat currency (like dollars) through the app or website.

2. Go to your Bitcoin wallet on Coinbase, then transfer your Bitcoin to a specific address on either the Ethereum or Base network. This transfer automatically converts your Bitcoin into cbBTC at a 1:1 ratio, meaning if you send 1 BTC, you receive 1 cbBTC.

3. Store cbBTC in any Ethereum-compatible wallet, such as Coinbase Wallet or another popular wallet like MetaMask.

4. Use or trade cbBTC on decentralized exchanges (DEXs) like Uniswap, Aerodrome, or Curve. These platforms allow you to lend, trade, or provide liquidity with cbBTC.

By converting Bitcoin to cbBTC, you can use your Bitcoin on DeFi platforms to earn interest, fees, or other returns while retaining the original value of your Bitcoin.

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