The major version of Wrapped Bitcoin on Ethereum (WBTC) has seen a panic crisis following some reports on Twitter. In fact, WBTC has been trading at a persistent discount to BTC since mid-November, falling to -1.5% on Friday.
Hence, a crisis of confidence has been generated for the wrapped crypto assets. While a WBTC should always be redeemable for a BTC through official merchants, the token is also traded on open markets, which means its price relative to BTC can fluctuate.
What happened on Twitter regarding WBTC
The official announcement of the stable situation for WBTC comes from The block‘s official Twitter account, which reads:
Wrapped ether remains perfectly fine, despite jokes on Twitterhttps://t.co/4aKGnJqCGu
— The Block (@TheBlock__) November 28, 2022
“Wrapped Ether remains perfectly fine, despite jokes on Twitter.”
Prior to this latest news, a panic crisis had been generated for Wrapped Bitcoin on Ethereum. It had started with a series of jokes among crypto experts on Twitter, and then escalated. However, wrapped WETH is doing fine, despite what was previously suggested.
It all began at a time when there was a lot of confusion around wrapped Bitcoin, a token that serves a similar purpose but works very differently. Some prominent crypto personalities had suggested that WETH was insolvent and would lose, or had already lost, its link to Ether.
For example, a tweet by Eric Wallthe CIO of Arcane Assetsread:
WETH is depegging quickly dump all your bags into my stink bid on uniswap
— Bearica (@ercwl) November 27, 2022
yearn‘s lead developer, Bantegrevealed that WETH was secretly hacked in 2019. Ethereum bull, Anthony Sassano, tweeted in a since-deleted post:
“ETH is doing nuclear because WETH is currently insolvent.”
WETH has a value of about $1.3 billion, so this all sounded pretty dire. The concern also briefly made its way into the mainstream Bloomberg news reports.
Panic over Wrapped Bitcoin on Ethereum: investors’ reaction
As a result, investors panicked after charts circulating on Twitter showed that Alameda Research is by far the leading trader of WBTC by number of tokens minted, having created more than 100,000WBTC.
This raised fears that WBTC was not fully supported. Although these appear to be unfounded, as Alameda was supposed to send all BTC to BitGo, which is the official custodian of WBTC, meaning that the now deceased exchange never actually took custody of the BTC itself.
BitGo’s COO reassured investors that WBTC is secure and fully backed, which can be confirmed on-chain with the issuer’s public address. DeFi protocols and investors were no doubt relieved to see the discount improve over the weekend, now at 0.5%.
So, it appears that none of this was really a sign of plausible concern. Sassano himself returned to Twitter later with an apology, writing:
“Gotta be clear for the homies since the WETH shitposting took on a life of its own. WETH is completely fine and anyone stating otherwise is joking/being sarcastic (or actually being serious because they don’t understand that WETH is fine). Stay safe frens.”
Gotta be clear for the homies since the WETH shitposting took on a life of its own
WETH is completely fine and anyone stating otherwise is joking/being sarcastic (or actually being serious because they don’t understand that WETH is fine)
Stay safe frens
— sassal.eth 🦇🔊 (@sassal0x) November 28, 2022
WETH: what it is and why it is a “simple” concept
Part of the reason why there has been so much dissension and banter on Twitter about the WBTC issue is because WETH is actually a relatively simple concept.
That is, when someone wants to turn their Ether into wrapped Ether, they use a smart contract that locks their tokens. If, for example, you want to redeem wrapped Ether, you simply unwrap it. During that time period, the Ether is securely locked into a smart contract, which is publicly visible.
This concept is intended to mean several things. First, the underlying Ether is not lent out to generate yield, so there is no risk that there could be hidden liabilities that would lead to the insolvency of the protocol.
Second, the Ether is in a publicly visible smart contract. This ensures that anyone can verify that it is fully backed at all times.
While there is always the smart contract risk for many other activities involving cryptocurrency, WETH is a very simple piece of code that has been operating safely for quite a while.
Thus, the bottom line is this: if a protocol is truly decentralized and runs on a working code, it is much safer than centralized entities that could mismanage funds and lose them.
This makes WETH one of the few things remaining that Twitter can encrypt by joking around safely when it comes to insolvency.
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