Coinbase hinted that a new token, cbBTC, will be launched on its Layer 2 network, Base, in the near future. This announcement, made on August 13 via the official Coinbase account on X (formerly Twitter), has sparked speculation that cbBTC could become a direct competitor to Wrapped Bitcoin (WBTC).

cbBTC: A New Competitor to WBTC?

The introduction of cbBTC comes at a time when concerns surrounding WBTC's custodial changes have raised eyebrows. 

Bitgo recently announced that it will move its WBTC business to the "world's first multi-jurisdictional and multi-institutional custody" as part of a joint venture with Bit Global and Tron founder Justin Sun.

Justin Sun’s involvement in these changes has led to growing unease within the crypto community. 

WBTC, a tokenized version of Bitcoin on the Ethereum network, has long been a popular choice for users looking to leverage Bitcoin in decentralized finance (DeFi) applications. However, with the control of WBTC shifting to a new joint venture, the market is rife with uncertainty.

Coinbase’s decision to launch cbBTC could be seen as a strategic move to capitalize on this uncertainty. With its strong brand reputation and trust within the crypto space, Coinbase might attract users who are wary of WBTC's evolving custodial arrangements. 

Furthermore, the potential benefits of cbBTC, such as lower fees for minting and redeeming tokens, could make it an appealing alternative to WBTC.

Base Network and cbBTC

Base, Coinbase’s Layer 2 network, has been gaining traction as a platform for decentralized applications and crypto innovations. 

Jesse Pollak, the creator of Base, expressed his enthusiasm for Bitcoin, stating on X that the team aims to build a "massive Bitcoin economy" on the network. This sentiment reinforces the idea that cbBTC will play a significant role in the future of Base, potentially serving as a key asset within its ecosystem.

The introduction of cbBTC could also signal Coinbase’s broader ambitions to strengthen its presence in the Bitcoin space. 

Comparing cbBTC and WBTC

While details about cbBTC are still emerging, comparisons to WBTC are inevitable. WBTC has established itself as a widely-used asset in DeFi, with over 154,764 tokens currently in circulation on Ethereum, valued at over $9 billion. It is also a key collateral asset in major DeFi lending protocols like MakerDAO and Aave.

However, the recent custodial changes involving WBTC have prompted MakerDAO and Aave to reconsider their positions. MakerDAO’s risk management unit, BA Labs, has proposed offboarding WBTC, while Aave’s risk unit, Chaos Labs, is adopting a more cautious, wait-and-see approach. 

Coinbase’s previous success with Wrapped Staked ETH (cbETH) suggests that cbBTC could follow a similar path. 

cbETH, which represents staked Ethereum in a tradable form, offers users flexibility without the burden of wrapping fees. If cbBTC adopts a similar model, it could further enhance its appeal to users and DeFi platforms alike.