Coinbase’s newly launched wrapped Bitcoin product, cbBTC, has seen rapid adoption within its first 24 hours, with a market capitalization nearing $100 million.

Data from Dune Analytics shows the circulating supply of cbBTC has reached 1,720 tokens, valued at $99.8 million. Of this, 43% is on Base, while 57% resides on Ethereum.

Base’s DeFi growth

Industry analysts have noted that Coinbase’s cbBTC growth could significantly boost DeFi activities on the exchange’s layer-2 network, Base.

Luke Youngblood, a contributor to Moonwell DeFi, highlighted the product’s impact. He pointed out that cbBTC’s fungibility with Bitcoin on Coinbase would enable retail BTC holdings exceeding $20 billion and institutional holdings over $200 billion to seamlessly integrate with Base’s on-chain ecosystem.

Nansen CEO Alex Alealso praised the token’s rapid adoption and predicted that it would substantially increase total assets on the Base network.

Further, He shared that Coinbase currently holds about 36% of the supply, while market maker Wintermute ranks among the top holders. Svanevik remarked:

“[It appears] Wintermute is the #1 market maker. [It will] be a solid business for them.”

Sun FUDs cbBTC

Despite cbBTC’s early success, not everyone is optimistic.

TRON founder Justin Sun voiced skepticism, dubbing cbBTC “central bank BTC” due to its lack of Proof of Reserve audits and potential government intervention.

He stated:

“cbbtc lacks Proof of Reserve, no audits, and can freeze anyone’s balance anytime. Essentially, it’s just ‘trust me.’ Any US government subpoena could seize all your BTC. There’s no better representation of central bank Bitcoin than this. It’s a dark day for BTC.”

Sun further claimed that integrating cbBTC into DeFi could introduce security risks, as government subpoenas could instantly freeze on-chain Bitcoin, undermining decentralization. He said:

“I’m friends with many DeFi protocol founders, but integrating cbbtc will pose major security risks to decentralized finance. A single government subpoena could freeze on-chain Bitcoin instantly, making decentralization a joke.”

Some have suggested Sun’s criticisms may stem from concerns that Coinbase’s cbBTC could encroach on the market share of BitGo’s WBTC—a project with which Sun has ties. Notably, his involvement with WBTC has sparked debate within the crypto community, as some now seek alternatives.

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Coinbase has officially launched its wrapped Bitcoin token, cbBTC, on its layer-2 network, Base, and Ethereum mainnet, according to a Sept. 12 statement.

The new product comes around a month after Coinbase teased it on the social media platform X.

cbBTC

According to Coinbase, cbBTC is an ERC-20 token fully backed by Bitcoin and custodied on the platform. When users send BTC from Coinbase to Base or Ethereum, it automatically converts to cbBTC and vice versa.

Wrapped Bitcoin tokens allow users to leverage their BTC on other networks. So, the exchange noted that cbBTC aims to drive innovative financial applications and boost Bitcoin adoption in DeFi.

Already, several major DeFi protocols, including Aave, Morpho, Sky, Compound, Aerodrome, Curve, Veda, Mellow, and the real-world asset platform Maple, have already integrated cbBTC for their users.

Moreover, cbBTC is available via the Coinbase application in Singapore, the UK, the European Economic Area, Australia, Brazil, and the US (excluding New York State). The asset will also be accessible globally on Base and Ethereum.

Data from blockchain analytics firm Arkham Intelligence shows that Coinbase holds over 984,000 BTC, valued at approximately $57 billion. Meanwhile, most of this is held for exchange-traded fund issuers like BlackRock, who custody their ETF assets with the Brian Armstrong-led exchange.

WBTC troubles

Coinbase’s launch of cbBTC comes at an interesting time as the dominant Wrapped Bitcoin token issued by BitGo WBTC faces challenges.

Over the past month, crypto users have sought alternatives to WBTC due to BitGo’s new partnership with TRON founder Justin Sun. While the firm has tried to allay these worries, critics have pointed out that Sun’s involvement poses a threat to the token due to his track record.

Due to this, several projects have been seeking to take advantage of the fallout to push a Bitcoin wrapper product.

Earlier this month, 21.co, the parent company of 21Shares, introduced its Wrapped Bitcoin product (21BTC) on the Ethereum blockchain. Prior to that, DeFi protocol Threshold has proposed merging its BTC “wrapper” token, tBTC, with WBTC in an effort to save the more popular BTC product.

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Aave DAO has received a proposal to integrate Coinbase’s upcoming Bitcoin wrapper, cbBTC, into its V3 platform on the Ethereum mainnet and Base.

In a Sept. 10 post, Aave’s founder, Stani Kulechov, explained that the proposal aimed to position Aave as the preferred platform for launching Tier-1 assets.

Proposal details

The proposal seeks to expand the options for Bitcoin holders participating in DeFi on Aave V3. By adding cbBTC, users would gain more choices for leveraging their Bitcoin, which could boost liquidity and engagement.

It noted that the integration of cbBTC aligns with Aave’s strategy to offer high-quality assets. It allows users to access Coinbase’s liquidity while benefiting from Aave’s established lending and borrowing features.

The proposal stated that the synergy between a major centralized exchange and a leading DeFi platform could attract mainstream users and drive the platform’s growth.

In addition, the proposal also highlighted concerns surrounding Wrapped Bitcoin (WBTC) due to its association with TRON founder Justin Sun. It stated:

“With the ongoing changes with WBTC it is pertinent to have alternative wrapped BTC tokens for use on Aave. With Coinbase as the issuer and custodian, their reputation will likely make this a trustworthy alternative to WBTC.”

The proposal concluded that while cbBTC may take market share from WBTC, it provides a valuable alternative that could enhance BTC adoption on Aave.

Concerns raised

Meanwhile, an Aave user, Midapple, expressed concerns that the proposal to onboard cbBTC “seems premature, given that the asset is not yet live.”

The user highlighted several unanswered questions, including minting mechanisms, liquidity concerns, and proof of reserves.

Midapple also flagged potential regulatory risks, noting that Coinbase could face challenges that might affect cbBTC. Additionally, the user raised concerns about custodial risks, pointing out that if cbBTC relies heavily on Coinbase, it could pose a single point of failure.

They concluded:

“It seems that the standard vetting process has been sidestepped entirely, and cbBTC is receiving special treatment that other assets have not been afforded. This sets a dangerous precedent and raises questions about the integrity of our decision-making process.”

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