Coinbase (COIN) Looks to Develop Wrapped Bitcoin (WBTC) Alternative for Its Layer-2 Blockchain Base

Posts on X from Coinbase and Base creator Jesse Pollak suggest the crypto exchange is developing a wrapped bitcoin similar to BitGo's wBTC to run on the layer-2 blockchain.

Crypto exchange Coinbase (COIN) is apparently developing an alternative to BitGo's wrapped bitcoin wBTC ({{WBTC}}) to operate on Base, its own layer-2 blockchain, to give users access to the largest cryptocurrency by market value on the network.

Coinbase sparked speculation with cryptic posts late Tuesday U.S. time. The posts included the terms "cbBTC" and "Coming soon."

cbBTC.

— Coinbase ?️ (@coinbase) August 13, 2024

The posts were followed by one from Jesse Pollak, who runs Base, stating the team's intention to build a "massive bitcoin economy" on the network.

to say it out loud: I love bitcoin, am so grateful for it's role kickstarting crypto, and we're going to build a massive bitcoin economy on @base.

— Jesse Pollak (jesse.xyz) ?️ (@jessepollak) August 14, 2044

Wrapping a crypto token makes it available on protocols other than the one it was originally designed for, increasing liquidity in the target ecosystem. Each wrapped bitcoin represents one original bitcoin, which is held in custody. When a trader wants to redeem the wrapped token for bitcoin, the wrapped version is "burnt," or deleted from the chain, and the original is released.

Coinbase's announcement comes as wBTC faces some scrutiny. Earlier this month, BitGo announced a joint venture with BiT Global, a Hong Kong-registered custody platform partly owned by the Tron ecosystem and Tron founder Justin Sun. The venture will continue to use the same BitGo multisignature technology and deep cold storage, the announcement said.

The announcement sparked a largely neutral response, as there is no technical change to the product and all data about underlying reserves continues to be verifiable on-chain. However, some chatter on the forums of DAI stablecoin issuer MakerDAO expressed a negative reaction. An executive proposal for MakerDAO token holders to stop wBTC borrowing and cut wBTC debt limits to 0 DAI to reduce risk is open for the next month.

Meanwhile, on-chain data from Dune shows there has been no change in supply for wBTC, indicating that traders are not attempting to exit the protocol en-masse.

In a post on X, Sun stated that there will be "no changes to WBTC" except for the joint venture and that he does not control the protocol's private keys or have the ability to move any of the BTC reserves.

"My personal involvement in WBTC is entirely strategic," he wrote.

UPDATE (Aug. 14, 15:41 UTC): Updates throughout to correct spelling of Jesse Pollak.