One of the first blockchains to see the light of day, Cardano was developed by one of the co-founders of the highly successful Ethereum blockchain, Charles Hoskinson. Despite this, it was only very recently, in 2022, that Cardano saw the first dApps, decentralized applications and protocols, appear on its blockchain, including a “wrapped” version of BTC. Explanations.
What is Cardano?
Cardano was founded in 2017 by Charles Hoskinson, who gained notoriety through his active participation in the creation and development of Ethereum a few years ago. Cardano is a performance-oriented blockchain: it is divided into two main layers, the Cardano Settlement Layer (CSL) on which transactions take place, and the Cardano Compute Layer (CCL) where smart contracts and dApps are hosted and executed. Transactions are validated via Proof-of-Stake consensus, as in Ethereum.
What is wBTC?
Before introducing the concept of “Wrapped token”, it’s important to differentiate between blockchain and cryptocurrency.
Let’s take the example of Cardano. Cardano is the blockchain, i.e. the ledger on which transactions are regularized, and $ADA is the native cryptocurrency of the blockchain Cardano, which is used to pay transaction fees, in addition to managing governance.
$ADA only works and exists on the blockchain Cardano.
What happens when a user wants to use $ADA on another blockchain, such as on Polygon for example? Well, that’s where the concept of the “wrapped token” comes in, which is in fact the transposition of a token onto another blockchain, enabling it to be used as if it were on its original blockchain.
In most cases, the letter “w” will be added in front of the token’s ticker. The $ADA token wrapped on the Polygon blockchain will be named wADA.
The same goes for wBTC, the Bitcoin token that can operate and be used on other blockchains, such as on Cardano.
Of course, these specific tokens don’t come out of nowhere: their value is ensured by collateralizing tokens on the original blockchain. For wBTC to exist on Cardano, real Bitcoin must be collateralized.
This winding of the Bitcoin on Cardano is ensured by the Aneta Protocol, which already released its v1 on August 8, and already has plans for v2 and even v3.
If the introduction of wBTC reinforces the growing offer of DeFi solutions on Cardano and attract even more investors, after several years of stagnation and lack of major innovations, questions about centralization arise.
In v1, the Aneta has virtually absolute control over its wBTC and full custody of its assets. So let’s wait for v2 and v3, which promise greater decentralization, as well as the ability for anyone to deposit Bitcoin in “vaults” to grow the wBTC offering.
The introduction of wBTC by Aneta marks a turning point for DeFi on Cardano, one of the oldest blockchains in existence, expanding investment opportunities and offerings. This long wait, however, has certainly not encouraged the use of blockchain Cardano, and thus relegated—rightly or wrongly—the $ADA token to the status of a “dinosaur coin”, like Litecoin ($LTC) or Ripple ($XRP).
