Getting to Know Coinbase Wrapped Bitcoin

Coinbase Wrapped Bitcoin (cbBTC) operates similarly to an investment property. If you’ve already invested in Bitcoin, which serves as your “long-term asset,” you can transform it into a version that works within the Ethereum ecosystem—much like converting an investment property into a rental. This process allows you to leverage your Bitcoin to generate additional revenue streams.

How to Purchase cbBTC

Rather than purchasing cbBTC outright, you convert your existing Bitcoin into it. Here’s how:

Step 1: Hold Bitcoin on Coinbase.

To get started with cbBTC, you must have Bitcoin in your Coinbase account. If you haven’t acquired Bitcoin yet, you can easily buy it via Coinbase’s website or app. (Refer to our guide for more details.)

Step 2: Convert BTC to cbBTC.

Once your Bitcoin is in your Coinbase wallet, you can transfer it to an address on either the Ethereum or Base network. This transfer automatically converts your Bitcoin to cbBTC at a 1:1 ratio, enabling you to interact with various decentralized finance (DeFi) applications.

Step 3: Store and Manage cbBTC.

You can store cbBTC in any Ethereum-compatible wallet, including Coinbase Wallet. Additionally, you can manage and trade cbBTC on decentralized exchanges (DEXs) such as Uniswap, Aerodrome, and Curve.

Two Ways One can Earn with Coinbase Bitcoin Wrapped (cbBTC)

Here are two ways you can generate additional income using your cbBTC:

Lending cbBTC (Aave, Compound)

With cbBTC, you are essentially converting your Bitcoin into an Ethereum-compatible ERC-20 token, allowing you to use your Bitcoin on decentralized finance (DeFi) platforms. Here are the three most common ways you can start earning.

Here’s how it works:

Deposit your cbBTC into the lending pool: After converting your Bitcoin on Coinbase, you send your cbBTC to a smart contract on platforms like Aave, Compound, or others. This smart contract aggregates your cbBTC with other users’ deposits, forming a pool of assets available for borrowing. In exchange for your deposit, you receive a “receipt token,” which represents your contribution to the pool and can be used to claim your share later.

Earn interest on your deposit: As borrowers take loans from this pool, they are required to pay interest. This interest is then divided proportionally among all lenders in the pool, including you. The interest rate can change based on the current supply of and demand for cbBTC loans, meaning it may fluctuate over time.

Withdraw at Any Time: You can retrieve your Bitcoin from the lending pool whenever you want, along with any interest accrued. To do this, simply send your receipt token back to the original smart contract address, and you’ll regain access to your cbBTC, plus the interest earned during the time your Bitcoin was lent out.

Here’s another way you can earn additional income with cbBTC:

Liquidity Provision with cbBTC (Uniswap, Curve)

By adding cbBTC, along with another token, to liquidity pools on decentralized exchanges like Uniswap or Curve, you make it possible for others to trade between assets. In return, you earn a portion of the transaction fees generated by the trades.

Here’s how it works:

Deposit cbBTC and Another Asset into a Liquidity Pool: To provide liquidity, you must supply two assets of equal value—such as cbBTC and ETH—into a smart contract on platforms like Uniswap or Curve. The liquidity pool will hold both assets and allow other users to trade between them. These trades happen within the pool, offering the liquidity needed for efficient transactions.

Receive Liquidity Provider (LP) Tokens: Once you’ve added your assets to the pool, you’ll receive Liquidity Provider (LP) tokens. These tokens act as receipts, representing your share of the liquidity pool. You can redeem these LP tokens at any point to retrieve your original assets, along with any trading fees you’ve accumulated, by sending them back to the smart contract.

Earn Fees on Every Trade: Each time a user swaps between cbBTC and the other asset in the pool (for example, ETH), they are charged a small transaction fee. This fee is distributed among all the liquidity providers in the pool, including you. The more trading activity that occurs in the pool, the more fees you can earn from your contribution.

Wrapped Bitcoin (BTC) vs. Coinbase Wrapped Bitcoin (cbBTC)

Both Wrapped Bitcoin (WBTC) and Coinbase Wrapped Bitcoin (cbBTC) enable Bitcoin holders to use their BTC within Ethereum-compatible decentralized finance (DeFi) applications. However, key distinctions set them apart.
Custody and Trust: WBTC is overseen by a consortium of entities, led by BitGo, whereas cbBTC is entirely managed and backed by Coinbase. While WBTC has raised concerns due to changes in its governance structure, cbBTC benefits from Coinbase’s solid reputation as a trusted leader in Bitcoin services.
Conversion Process: Converting BTC to WBTC requires third-party merchants to handle the wrapping and unwrapping of Bitcoin, which can lead to delays. In contrast, cbBTC offers a more direct and seamless conversion process fully integrated with Coinbase, allowing for faster and more efficient transactions.
Blockchain Support: WBTC is predominantly used on the Ethereum network, whereas cbBTC can be used on both Ethereum and Base, Coinbase’s layer-2 network. With plans to expand to additional blockchains, cbBTC is poised to offer lower fees and more convenient usage across multiple platforms in the future.

A Great Investing Opportunity

One of the most promising investments today is Coinbase stock ($COIN). Beyond being a cryptocurrency exchange, Coinbase is a leading “bitcoin bank,” holding nearly 1 million Bitcoin valued at over $57 billion. It’s also the largest custodian for Bitcoin ETF providers, with over 100 million users globally.

Through cbBTC, Coinbase allows customers to earn income from their Bitcoin, positioning it to lead the “wrapped bitcoin” market, similar to its success with Base, the top layer-2 platform. With over a decade of experience managing Bitcoin securely, Coinbase’s transparency and regulatory compliance make it a strong choice for investors.