The supply of Wrapped Bitcoin (wBTC), an Ethereum-based ERC-20 token that reflects the value of Bitcoin and is pegged 1:1 to its price, has hit its lowest point since May 2021. This follows a significant burn of 11,500 wBTC linked to now-bankrupt crypto lender Celsius, which has turned its growth rate negative. The current total supply of wBTC stands at 164,396, with a monthly growth rate of -7.39%.

wBTC was co-developed in 2019 by Bitgo, blockchain interoperability protocol Ren, and multi-chain liquidity platform Kyber. It is managed by the decentralized autonomous organization wBTC DAO, which comprises more than 30 members. When traders want to exchange BTC for wBTC, they initiate a burn transaction and alert custodians. The merchant transfers actual BTC to an escrow address on the Bitcoin blockchain, which is locked. Once the actual BTC is received, the custodian address mints the equivalent amount in wBTC on Ethereum. Being an ERC-20 token, wBTC transfer is faster than regular Bitcoin, but wBTC’s key advantage is its integration into the world of Ethereum wallets, decentralized applications, and smart contracts.

During the peak of the bull run, wrapped tokens became a popular tool for use in the decentralized finance (DeFi) ecosystem. The wBTC supply peaked at 285,000 in April 2022, when the BTC price was trading above $48,000. However, with the arrival of the bear market and numerous crypto contagions, the demand for wBTC began to fade. .

The first signs of declining demand came after the Terra collapse, which forced several cryptocurrency lenders to redeem their wBTC. According to a report, the Celsius Network redeemed around 9,000 wBTC amid growing demand for withdrawal. A similar scenario occurred in November 2022 after the FTX crash, where reports indicate that the now-bankrupt crypto exchange attempted to redeem 3,000 wBTC just before filing for bankruptcy. After the FTX crash in November, wBTC experienced its largest monthly coin redemption, with over 28,000 wBTC redeemed back to the original coin.

The market contagion caused by the FTX crash also decoupled wBTC from the original value of BTC. Although the slippage was only 1.5%, it raised serious concerns about whether such synthetic tokens were a viable mode of value transfer.

The recent Celsius-pegged 11,500 wBTC burn is significant, as it is the second largest single-day wBTC burn. This burn has turned the growth rate of wBTC into negative, which means that its supply is dwindling. The total supply of wBTC has now hit a nine-month low.

Despite this, wBTC remains a major player in the DeFi ecosystem, offering a bridge between the Bitcoin and Ethereum networks. Its integration into the world of Ethereum wallets, decentralized applications, and smart contracts gives an added advantage to its users.