Wrap Battle - An Overview of Wrapped Bitcoin Products
In this overview, we will outline the structure of three wrapped bitcoin products: wBTC, cbBTC, and kBTC. We will examine aspects of their design, key features, and security measures.
Disclaimer
The information contained in this analysis is provided for general informational purposes only and is not intended to be, and should not be relied upon as, legal, financial, or professional advice. Steakhouse Financial assumes no liability or responsibility for any errors or omissions in the content of this assessment or for any actions taken based on the information provided herein.
This analysis is based on the information available at the time of its preparation and is subject to change without notice. The assessment is not a guarantee of future performance or results, and past performance is not necessarily indicative of future results.
You should seek professional advice from a qualified attorney or financial advisor before making any decisions or taking any actions based on the information contained in this assessment. Steakhouse Financial disclaims all liability and responsibility for any actions taken or not taken in reliance on the information contained in this analysis.
1. Introduction
In this overview, we will outline the structure of three wrapped bitcoin products: wBTC, cbBTC, and kBTC. We will examine aspects of their design, key features, and security measures. The intent of this exercise is to give potential users an understanding of the different approaches such that they can make informed decisions about which product best suits their needs.
1.1. Summary Chart
2. wBTC
wBTC is widely regarded as the first successful implementation of a wrapped bitcoin product. It was launched on Ethereum by BitGo, Inc. (“BitGo”) on January 31, 2019, shortly after the publication of its whitepaper.
Kyber Network and Republic Protocol were also involved with the launch and acted as the first merchants – each holding a key to initiate the minting and burning of wrapped tokens, while BitGo acted as the custodian.
As of writing, the circulating supply of wBTC is 129,177 BTC, which is roughly equivalent to $10.8 billion.
2.1. Major Developments in 2024
2.1.1. BitGo - BiT Global Joint Venture Announcement
On August 9, 2024, BitGo announced that it would enter into a joint venture (“JV”) with BiT Global Trust Limited (“BiT Global”), following a transition period of 60 days. The JV would involve “diversifying both custodial jurisdictions and locations for the underlying BTC [for wBTC], which was previously held in the United States.”
Furthermore, BitGo would be a minority shareholder in the new JV. In practice, this would mean BitGo would hold one key of the 2 of 3 multisignature wallet (“Multisig”) in the US, while BiT Global would hold the other two keys in Hong Kong.
On August 14, 2024, in response to community feedback regarding the Initial JV Setup, BitGo announced the Revised JV Setup. Under this new configuration, BitGo retains control of two out of the three Multisig keys, replacing the Initial JV Setup that would have granted BiT Global the majority of key control. To maintain the jurisdictional diversity of the Initial JV Setup, BitGo holds one of the keys in Singapore at BitGo Singapore Pte. Ltd (“BitGo Singapore”).
As of writing, we believe the Revised JV Setup is what wBTC currently operates under. According to BitGo, the JV “will continue to use the same BitGo multi-signature technology and deep cold storage,” the only difference from the Original Model being that the keys are now held in multiple jurisdictions.
In its announcement of the JV, BitGo also hinted that there would be a greater Asia focus for wBTC’s future growth, given “the vast majority of wBTC is already in Asia.”
2.1.2. BiT Global vs. Coinbase
On December 13, 2024, BiT Global Digital Limited (“BG Digital”) filed a complaint against Coinbase Global, Inc (“Coinbase”) in the District Court for the Northern District of California, following Coinbase’s announcement on November 19, 2024 that it will suspend wBTC for trading on December 19, 2024.
BG Digital’s complaint alleged that “Coinbase’s plan to delist wBTC is clearly aimed to force its public cryptocurrency users who wish to use wrapped bitcoin into using cbBTC, which is predatory and unfair competition that violates both federal and state law.”
BG Digital is asking the court to declare Coinbase’s actions unlawful and to stop it from delisting wBTC. BG Digital also seeks a judgment for financial compensation, which includes damages for economic harm possibly exceeding $1 billion, as well as punitive damages.
Responding to news of BG Digital’s complaint, Coinbase’s Chief Legal Officer, Paul Grewal, responded on X: “When an asset no longer meets our listing standards, we will drop it. When another asset can meet or exceed market requirements without sacrificing those standards, we will list it. Thank you Bit Global for the chance to show this to a US federal court and on the entire global crypto stage.”
Alongside the complaint filed on December 13, 2024, BG Digital had also filed a motion seeking a temporary restraining order (“TRO”) against Coinbase to prevent it from delisting wBTC by December 19, 2024. Coinbase responded to this motion on December 17, 2024, following which, the Court denied BG Digital’s motion for a TRO against Coinbase.
On December 19, 2024, Coinbase delisted wBTC for trading on its platform. However, the story is not over, as the legal process will still have to play out in 2025 with respect to the underlying case that BG Digital has put forward, i.e., that Coinbase is engaging in unfair competition.
2.2. Issuance & Redemption
The remainder of this section on wBTC will focus on the features of wBTC under the Revised JV Setup. Given the recent JV and ongoing legal action between BiT Global and Coinbase, new facts may emerge that could render the below information out-of-date.
The issuance and redemption processes for wBTC involve a structured interaction between users, merchants, and the custodian. Minting wBTC is a two-step process initiated by a merchant and executed by a custodian. Merchants play a critical role by facilitating user interactions and maintaining compliance with AML and KYC regulations.
All merchants onboard into the wBTC ecosystem by completing a KYC process with the custodian and verifying three addresses: the merchantBTCaddress to receive Bitcoin after burning wBTC, the custodianBTCaddress to send Bitcoin for minting wBTC, and the merchant’s ETH address which is the whitelisted address for minting / burning requests.
After meeting these requirements, an on-chain vote is held to officially designate the merchant. This vote is conducted by the “Small DAO,” which, at different points in time, has included Aave, Maker, Kyber, BitGo, and BiT Global. Production minting / burning can only commence once the Small DAO has approved the merchant’s membership.
The wBTC issuance process begins with the merchant authorizing the custodian to mint a specified amount of wBTC. Once the merchant sends the equivalent amount of BTC to the custodian, the custodian verifies the transaction by waiting for six BTC block confirmations. Upon confirmation, the custodian mints the corresponding wBTC tokens and transfers them to the merchant’s Ethereum address.
Users do not directly interact with the minting process. To receive wBTC, users must request it from a merchant. After completing the necessary KYC procedures, users and merchants execute a transaction where the user provides BTC and receives wBTC in return.
Burning wBTC involves the reverse process, where wBTC tokens are burned for BTC redemption. Only merchant addresses are authorized to initiate a burn transaction. The merchant sends a transaction on the Ethereum blockchain specifying the amount of wBTC to burn, which reduces their on-chain wBTC balance and decreases the total wBTC supply.
Once the burn transaction is confirmed with 65 Ethereum blocks, the custodian releases the equivalent amount of BTC (minus a fee) to the merchant’s BTC address. The custodian also completes an Ethereum transaction to mark the burn request as finalized.
For users, redeeming wBTC follows a similar path to issuance. Users request redemption through a merchant, complete AML and KYC procedures, and perform a transaction where they send wBTC to the merchant and receive BTC in return.
It is important to distinguish between the wallet addresses merchants use for minting and burning on Ethereum, and the keys controlling the Bitcoin reserves backing wBTC. Merchants employ their own Ethereum addresses (often protected by a Multisig) to initiate mint and burn transactions, while the custodian exclusively manages the keys for the underlying BTC. Most merchants also maintain a Multisig arrangement for their Bitcoin addresses, ensuring robust security on both the Ethereum and Bitcoin sides of the process.
2.3. Security
The custodian manages the BTC backing wBTC, but safeguards are put in place to reduce reliance on their integrity. Third-party audits verify that the total supply of wBTC matches the amount of BTC held in reserve. Proof of reserves are also provided through published cryptographic signatures from custodial BTC addresses, enabling independent onchain verification.
The framework requires collaboration between the custodian and merchants for minting new tokens, preventing the custodian from unilaterally issuing wBTC. This process ensures that token creation involves multiple parties, adding an additional layer of oversight. Users do not interact directly with the custodian; instead, they transact through merchants, distributing trust across a network of institutions rather than relying on a single entity.
A public dashboard provides real-time data on network operations, including the total amount of BTC held by the custodian, the corresponding wBTC supply, and the status of mint and burn orders. The dashboard also displays details such as merchant and custodian Ethereum addresses, BTC addresses controlled by the custodian for merchants, and links to the open-source token contract code. Audit results, including transactions proving custodial control of the BTC reserves, are also made available.
These measures collectively aim to reduce the risks associated with custodial systems, while providing verifiable information and operational transparency to maintain the integrity of the wBTC network.
2.4. Custody
The BTC reserves backing wBTC are managed collaboratively by BitGo and BiT Global through the JV discussed above (see the section titled Major Developments in 2024). Funds are secured using a 2 of 3 Multisig, with keys split between the United States, Singapore, and Hong Kong at BitGo, BitGo Singapore, and BiT Global respectively.
Referring to the specific custodial entities – prior to the JV, the BTC reserves were legally held with BitGo Trust Company. Following the JV, the BTC reserves are now legally held by BiT Global Trust Limited, which assumes fiduciary responsibilities for wBTC. According to BiT Global, fulfilling these responsibilities require compliance with regulatory audits, business model evaluations, ultimate beneficial owner (UBO) clearance, segregation of assets from the custodian’s own balance sheet, and robust operational controls.
The custodian is not involved in direct user transactions. Instead, it interacts exclusively with merchants—entities selected by the Small DAO. Currently, approximately 74 merchants and partners have been elected to facilitate wBTC operations, including minting and burning processes, creating an additional layer of governance and oversight in the custody framework.
At onboarding, merchants sign a Merchant Services Agreement with BiT Global Trust Limited, the legal custodian of wBTC and a licensed trust company in Hong Kong. As such, in the event of liquidation of BiT Global Trust Limited, the liquidation procedures under Hong Kong law apply and wBTC token holders can claim their BTC assets with the assistance of the merchants.
2.5. Fees
There are two types of fees involved with the minting and burning of wBTC tokens. The custodian charges a fee when merchants initiate the minting or burning of wBTC tokens. This fee compensates the custodian for managing the BTC reserves and ensuring the security and integrity of the system. Additionally, merchants may charge users a fee for facilitating the exchange of wBTC for BTC or vice versa. These fees are determined by the individual merchants and reflect the services they provide, such as handling AML and KYC procedures and facilitating token transactions.
The custodian generates revenue by applying a fee to wBTC minting and burning transactions. This fee generally falls between 0.05% and 0.2%, with variations depending on the size of the transaction.
2.6. Governance & Ownership Structure
The wBTC token contract operates under a Multisig, requiring signatures from BigDAO members to add or remove participants. Institutions can join the BigDAO without assuming a custodian or merchant role.
No legal entity formally acts as the issuer of wBTC, a distinction that sets it apart from the other wrapped bitcoin products discussed in this review. According to BiT Global, the issuance of wBTC is governed by the BigDAO regulated smart contract and facilitated by the merchant network and its participants.
The BigDAO owns the wBTC controller and token contracts. This gives the BigDAO admin rights to control things like adding / removing custodians. The SmallDAO owns the wBTC merchant contract, which is used to add / remove merchants. According to BiT Global, there have been no changes to the functions and voting mechanism of both DAOs post JV.
Although wBTC does not have a formal issuer, BitGo Trust Company served as its custodian prior to the joint venture, and following the restructuring, BiT Global Trust Limited assumed that role. In both instances, the tokens were registered in the custodian’s name.
2.7. Compliance & Regulatory Considerations
BitGo Trust Company, Inc. is a qualified custodian regulated by the South Dakota Division of Banking and registered as a Money Services Business (MSB) with the Financial Crimes Enforcement Network (FinCEN). BitGo New York Trust Company, LLC is overseen by the New York Department of Financial Services.
In Singapore, BitGo Singapore Pte. Ltd. holds a Major Payment Institution license from the Monetary Authority of Singapore (MAS), enabling it to offer regulated custody, trading, and self-custody wallets. Finally, BiT Global Trust Limited operates in Hong Kong as a licensed Trust and Company Service Provider (TCSP) under the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (AMLO) and is registered as a trust company under the Trustee Ordinance.
As regulated entities, these organizations must adhere to fiduciary obligations that include safeguarding private keys, conducting customer due diligence, and maintaining strict compliance with local and international regulations.
3. cbBTC
cbBTC is a wrapped bitcoin product brought to market by Coinbase, Inc., a wholly owned subsidiary of Coinbase Global, Inc. (“Coinbase”). cbBTC was first launched on Ethereum on September 12, 2024, with the Solana launch following on November 7, 2024.
As of writing, the circulating supply of cbBTC is 30,423 BTC, which is roughly equivalent to $2.5 billion.
3.1. Issuance & Redemption
Coinbase oversees the entire lifecycle of cbBTC, managing the issuance and redemption processes. As such, a person seeking the issuance or redemption of cbBTC from Coinbase must first be eligible to be a Coinbase user and based in a jurisdiction that is serviced by Coinbase.
When a user initiates a withdrawal of BTC from their Coinbase account to Ethereum, Base, Arbitrum, or Solana, an equivalent amount of cbBTC is minted 1:1.
The newly minted cbBTC is then transferred to the user’s designated wallet address, while the corresponding BTC is retained in Coinbase’s custody to back the issued cbBTC.
Similarly, users can redeem BTC by depositing cbBTC into a Coinbase-provided address linked to their account. Once the tokens are received, Coinbase burns the cbBTC and releases an equivalent amount of BTC to the user’s account.
On Ethereum, Arbitrum and Base, the minting and burning processes are governed by smart contracts designed to ensure the integrity and security of cbBTC’s operations. On Solana, cbBTC is issued as an SPL token, with Coinbase directly managing its minting and burning. The custodial and operational frameworks for cbBTC on Solana align with those on Ethereum and Base, ensuring that the token remains consistently collateralized across networks.
3.2. Security
To enhance security, private keys are encrypted and require the consensus of multiple authorized individuals for decryption, eliminating the risk of single-party control. Internal audits and regular reconciliations between wallets and blockchain data further ensure the integrity of custodial processes.
The minting and burning processes for cbBTC are controlled by specific roles embedded within the wrapping contract, each of which is safeguarded by Coinbase’s internal key management systems. These roles include the Admin, who can upgrade the token implementation; the Owner, responsible for assigning all roles except the Admin; and the Minter, who executes the minting and burning of tokens. Additional roles, such as the Blacklister, MasterMinter, and Pauser, provide functionality for managing token limits, restricting certain addresses, and pausing contract activity as necessary. Each action performed under these roles requires multi-party approval, involving teams from security, engineering, and finance, to mitigate the risk of unauthorized use.
On Solana, cbBTC operates as an SPL token with key authorities similarly managed by Coinbase. The Mint Authority oversees token issuance, the Freeze Authority controls the pausing and unpausing of transfers, and the Update Authority manages token metadata updates. As with the Ethereum and Base implementations, actions related to these authorities are subject to Coinbase’s multi-layered key management systems, ensuring the same rigorous standards of security and operational oversight across all supported networks.
3.3. Custody
According to Coinbase, the BTC reserves backing cbBTC are secured through a combination of hot and cold wallets, with cold storage facilities located in the United States and Europe. All collateral is custodied directly by Coinbase, which acts solely as a custodian on behalf of cbBTC holders.
Users retain ownership of the underlying BTC, as specified in Coinbase’s user agreements. In the event of a Coinbase bankruptcy, this custodial structure is designed to protect the reserves as customer assets, preventing them from being included in the bankruptcy estate. In February 2025, Coinbase launched a cbBTC proof-of-reserves portal to provide transparency for users.
3.4. Fees
Currently, Coinbase does not charge fees for minting or burning cbBTC and absorbs the operational costs associated with these processes. For withdrawals of cbBTC from Coinbase to wallets on Base and Arbitrum, no network fees are charged at this time. However, for withdrawals to wallets on the Ethereum network, standard ERC-20 network fees apply. These fees are consistent with Coinbase’s approach to handling transactions for other Ethereum-based tokens.
While no additional charges are currently in place, Coinbase has indicated that fees for minting, burning, or withdrawing cbBTC may be introduced in the future. If such fees are implemented, Coinbase has committed to maintaining full transparency, ensuring users are informed through its send/receive interface.
3.5. Governance & Ownership Structure
Coinbase, Inc. is a Delaware corporation and a wholly owned subsidiary of Coinbase Global, Inc. Coinbase Inc will be the entity primarily responsible for the minting/burning/custody for cbBTC.
3.6. Compliance & Regulatory Considerations
Coinbase holds a range of licenses, including multi-state money transmission licenses in the United States. See here for a full list of all such licenses. Coinbase also holds crypto asset trading and custody licenses in key global financial hubs such as New York, Germany, Singapore, Canada, and Bermuda. Additionally, Coinbase is registered as a Virtual Asset Service Provider in several countries.
4. kBTC
kBTC is a wrapped bitcoin product brought to market by Kraken, a prominent crypto exchange that was founded in the United States in 2011. kBTC was first launched on Ethereum and OP Mainnet on October 17, 2024. As of writing, the total circulating supply of kBTC is 100 BTC, which is roughly equivalent to $8.4 million.
4.1. Issuance & Redemption
Similar to cbBTC, the issuance and redemption of kBTC is integrated directly into Kraken's exchange platform. As such, a person seeking the issuance or redemption of kBTC from Kraken must first be eligible to be a Kraken user and based in a jurisdiction that is serviced by Kraken.
To obtain kBTC, a user holding BTC in their Kraken account begins by accessing the portfolio page on Kraken and initiating a withdrawal of BTC. After selecting BTC from the asset dropdown, the user can select either Ethereum kBTC or OP Mainnet kBTC from the network dropdown. Proceeding with the withdrawal automatically converts the user’s BTC into kBTC and sends it to the designated external address on the chosen network.
To redeem kBTC for BTC, a user can deposit kBTC back into their Kraken account. After accessing the deposit page, the user selects BTC as the desired asset, chooses either the Ethereum kBTC or OP Mainnet kBTC, and sends kBTC to the provided address. Once Kraken receives the kBTC, it automatically converts it into the corresponding amount of BTC, crediting the user’s Kraken account accordingly.
4.2. Security
Kraken maintains control over the token contract and its management functions through a wallet under Kraken's direct oversight. According to Kraken, the kBTC smart contract has been rigorously reviewed by Kraken’s engineering and security teams and has also undergone an independent security audit by Trail of Bits to ensure its robustness and reliability. See here the kBTC OP Mainnet smart contract and the kBTC Ethereum smart contract.
4.3. Custody
According to kBTC’s terms and conditions, the underlying BTC for kBTC is held in the name of Payward Commercial Ltd (“Payward Commercial”) in a segregated vault at Kraken Financial for the sole purpose of fulfilling kBTC holders’ exchange requests on Kraken.
4.4. Fees
The fee structure for kBTC varies depending on the network and transaction type. For deposits, Kraken charges a 0.05% fee on both the Ethereum and OP Mainnet networks.
Withdrawal fees differ slightly by network. On Ethereum, users are responsible only for the standard on-chain transaction fee, with no additional charge from Kraken. On OP Mainnet, withdrawals incur a nominal fee of 0.00001, with no further Kraken fees applied.
4.5. Governance & Ownership Structure
kBTC is issued by Payward Commercial, which is registered in the British Virgin Islands. kBTC is custodied at Kraken Financial, Inc (“Kraken Financial”), a Wyoming-chartered Special Purpose Depository Institution. Our understanding based on the available information is that both Payward Commercial and Kraken Financial are wholly owned subsidiaries of Payward Inc., which does business as Kraken brand.
4.6. Compliance & Regulatory Considerations
As mentioned above, the underlying BTC for kBTC is held at Kraken Financial. This entity is headquartered in Cheyenne, Wyoming and holds a Special Purpose Depository Institution (SPDI) Charter from the state of Wyoming. Under Wyoming law, an SPDI functions as a state-chartered bank with regulatory approval to both hold digital currencies in custody and accept deposits of fiat. SPDIs are required to operate on a full-reserve basis. They must hold unencumbered liquid assets valued at no less than 100% of their clients' fiat deposits. This approach differs from the fractional-reserve practices of conventional banks.Kraken Financial provides institutions with fiat deposit accounts and a qualified custody solution for digital assets. According to Kraken, the entity is subject to regular safety and soundness examinations from the Wyoming Division of Banking.Kraken Financial operates as a distinct entity from Kraken’s exchange platform, maintaining its own dedicated governance framework led by a separate board of directors. This independent structure allows it to comply with Wyoming Division of Banking regulations and address risks unique to SPDI-chartered institutions. By tailoring its services to the needs of institutional clients under the SPDI framework, Kraken Financial can leverage regulatory advantages to deliver innovative financial products and solutions. The separation also fosters client confidence, ensuring that assets are safeguarded within a regulated financial institution specifically designed for secure asset custody and compliance.According to Kraken Financial’s website, being SPDI means that the entity operates under strict regulatory oversight and is required to uphold stringent security, data protection, custody and safekeeping standards.
Disclaimer
The information contained in this analysis is provided for general informational purposes only and is not intended to be, and should not be relied upon as, legal, financial, or professional advice. Steakhouse Financial assumes no liability or responsibility for any errors or omissions in the content of this assessment or for any actions taken based on the information provided herein.
This analysis is based on the information available at the time of its preparation and is subject to change without notice. The assessment is not a guarantee of future performance or results, and past performance is not necessarily indicative of future results.
You should seek professional advice from a qualified attorney or financial advisor before making any decisions or taking any actions based on the information contained in this assessment. Steakhouse Financial disclaims all liability and responsibility for any actions taken or not taken in reliance on the information contained in this analysis.
1. Introduction
In this overview, we will outline the structure of three wrapped bitcoin products: wBTC, cbBTC, and kBTC. We will examine aspects of their design, key features, and security measures. The intent of this exercise is to give potential users an understanding of the different approaches such that they can make informed decisions about which product best suits their needs.
1.1. Summary Chart
2. wBTC
wBTC is widely regarded as the first successful implementation of a wrapped bitcoin product. It was launched on Ethereum by BitGo, Inc. (“BitGo”) on January 31, 2019, shortly after the publication of its whitepaper.
Kyber Network and Republic Protocol were also involved with the launch and acted as the first merchants – each holding a key to initiate the minting and burning of wrapped tokens, while BitGo acted as the custodian.
As of writing, the circulating supply of wBTC is 129,177 BTC, which is roughly equivalent to $10.8 billion.
2.1. Major Developments in 2024
2.1.1. BitGo - BiT Global Joint Venture Announcement
On August 9, 2024, BitGo announced that it would enter into a joint venture (“JV”) with BiT Global Trust Limited (“BiT Global”), following a transition period of 60 days. The JV would involve “diversifying both custodial jurisdictions and locations for the underlying BTC [for wBTC], which was previously held in the United States.”
Furthermore, BitGo would be a minority shareholder in the new JV. In practice, this would mean BitGo would hold one key of the 2 of 3 multisignature wallet (“Multisig”) in the US, while BiT Global would hold the other two keys in Hong Kong.
On August 14, 2024, in response to community feedback regarding the Initial JV Setup, BitGo announced the Revised JV Setup. Under this new configuration, BitGo retains control of two out of the three Multisig keys, replacing the Initial JV Setup that would have granted BiT Global the majority of key control. To maintain the jurisdictional diversity of the Initial JV Setup, BitGo holds one of the keys in Singapore at BitGo Singapore Pte. Ltd (“BitGo Singapore”).
As of writing, we believe the Revised JV Setup is what wBTC currently operates under. According to BitGo, the JV “will continue to use the same BitGo multi-signature technology and deep cold storage,” the only difference from the Original Model being that the keys are now held in multiple jurisdictions.
In its announcement of the JV, BitGo also hinted that there would be a greater Asia focus for wBTC’s future growth, given “the vast majority of wBTC is already in Asia.”
2.1.2. BiT Global vs. Coinbase
On December 13, 2024, BiT Global Digital Limited (“BG Digital”) filed a complaint against Coinbase Global, Inc (“Coinbase”) in the District Court for the Northern District of California, following Coinbase’s announcement on November 19, 2024 that it will suspend wBTC for trading on December 19, 2024.
BG Digital’s complaint alleged that “Coinbase’s plan to delist wBTC is clearly aimed to force its public cryptocurrency users who wish to use wrapped bitcoin into using cbBTC, which is predatory and unfair competition that violates both federal and state law.”
BG Digital is asking the court to declare Coinbase’s actions unlawful and to stop it from delisting wBTC. BG Digital also seeks a judgment for financial compensation, which includes damages for economic harm possibly exceeding $1 billion, as well as punitive damages.
Responding to news of BG Digital’s complaint, Coinbase’s Chief Legal Officer, Paul Grewal, responded on X: “When an asset no longer meets our listing standards, we will drop it. When another asset can meet or exceed market requirements without sacrificing those standards, we will list it. Thank you Bit Global for the chance to show this to a US federal court and on the entire global crypto stage.”
Alongside the complaint filed on December 13, 2024, BG Digital had also filed a motion seeking a temporary restraining order (“TRO”) against Coinbase to prevent it from delisting wBTC by December 19, 2024. Coinbase responded to this motion on December 17, 2024, following which, the Court denied BG Digital’s motion for a TRO against Coinbase.
On December 19, 2024, Coinbase delisted wBTC for trading on its platform. However, the story is not over, as the legal process will still have to play out in 2025 with respect to the underlying case that BG Digital has put forward, i.e., that Coinbase is engaging in unfair competition.
2.2. Issuance & Redemption
The remainder of this section on wBTC will focus on the features of wBTC under the Revised JV Setup. Given the recent JV and ongoing legal action between BiT Global and Coinbase, new facts may emerge that could render the below information out-of-date.
The issuance and redemption processes for wBTC involve a structured interaction between users, merchants, and the custodian. Minting wBTC is a two-step process initiated by a merchant and executed by a custodian. Merchants play a critical role by facilitating user interactions and maintaining compliance with AML and KYC regulations.
All merchants onboard into the wBTC ecosystem by completing a KYC process with the custodian and verifying three addresses: the merchantBTCaddress to receive Bitcoin after burning wBTC, the custodianBTCaddress to send Bitcoin for minting wBTC, and the merchant’s ETH address which is the whitelisted address for minting / burning requests.
After meeting these requirements, an on-chain vote is held to officially designate the merchant. This vote is conducted by the “Small DAO,” which, at different points in time, has included Aave, Maker, Kyber, BitGo, and BiT Global. Production minting / burning can only commence once the Small DAO has approved the merchant’s membership.
The wBTC issuance process begins with the merchant authorizing the custodian to mint a specified amount of wBTC. Once the merchant sends the equivalent amount of BTC to the custodian, the custodian verifies the transaction by waiting for six BTC block confirmations. Upon confirmation, the custodian mints the corresponding wBTC tokens and transfers them to the merchant’s Ethereum address.
Users do not directly interact with the minting process. To receive wBTC, users must request it from a merchant. After completing the necessary KYC procedures, users and merchants execute a transaction where the user provides BTC and receives wBTC in return.
Burning wBTC involves the reverse process, where wBTC tokens are burned for BTC redemption. Only merchant addresses are authorized to initiate a burn transaction. The merchant sends a transaction on the Ethereum blockchain specifying the amount of wBTC to burn, which reduces their on-chain wBTC balance and decreases the total wBTC supply.
Once the burn transaction is confirmed with 65 Ethereum blocks, the custodian releases the equivalent amount of BTC (minus a fee) to the merchant’s BTC address. The custodian also completes an Ethereum transaction to mark the burn request as finalized.
For users, redeeming wBTC follows a similar path to issuance. Users request redemption through a merchant, complete AML and KYC procedures, and perform a transaction where they send wBTC to the merchant and receive BTC in return.
It is important to distinguish between the wallet addresses merchants use for minting and burning on Ethereum, and the keys controlling the Bitcoin reserves backing wBTC. Merchants employ their own Ethereum addresses (often protected by a Multisig) to initiate mint and burn transactions, while the custodian exclusively manages the keys for the underlying BTC. Most merchants also maintain a Multisig arrangement for their Bitcoin addresses, ensuring robust security on both the Ethereum and Bitcoin sides of the process.
2.3. Security
The custodian manages the BTC backing wBTC, but safeguards are put in place to reduce reliance on their integrity. Third-party audits verify that the total supply of wBTC matches the amount of BTC held in reserve. Proof of reserves are also provided through published cryptographic signatures from custodial BTC addresses, enabling independent onchain verification.
The framework requires collaboration between the custodian and merchants for minting new tokens, preventing the custodian from unilaterally issuing wBTC. This process ensures that token creation involves multiple parties, adding an additional layer of oversight. Users do not interact directly with the custodian; instead, they transact through merchants, distributing trust across a network of institutions rather than relying on a single entity.
A public dashboard provides real-time data on network operations, including the total amount of BTC held by the custodian, the corresponding wBTC supply, and the status of mint and burn orders. The dashboard also displays details such as merchant and custodian Ethereum addresses, BTC addresses controlled by the custodian for merchants, and links to the open-source token contract code. Audit results, including transactions proving custodial control of the BTC reserves, are also made available.
These measures collectively aim to reduce the risks associated with custodial systems, while providing verifiable information and operational transparency to maintain the integrity of the wBTC network.
2.4. Custody
The BTC reserves backing wBTC are managed collaboratively by BitGo and BiT Global through the JV discussed above (see the section titled Major Developments in 2024). Funds are secured using a 2 of 3 Multisig, with keys split between the United States, Singapore, and Hong Kong at BitGo, BitGo Singapore, and BiT Global respectively.
Referring to the specific custodial entities – prior to the JV, the BTC reserves were legally held with BitGo Trust Company. Following the JV, the BTC reserves are now legally held by BiT Global Trust Limited, which assumes fiduciary responsibilities for wBTC. According to BiT Global, fulfilling these responsibilities require compliance with regulatory audits, business model evaluations, ultimate beneficial owner (UBO) clearance, segregation of assets from the custodian’s own balance sheet, and robust operational controls.
The custodian is not involved in direct user transactions. Instead, it interacts exclusively with merchants—entities selected by the Small DAO. Currently, approximately 74 merchants and partners have been elected to facilitate wBTC operations, including minting and burning processes, creating an additional layer of governance and oversight in the custody framework.
At onboarding, merchants sign a Merchant Services Agreement with BiT Global Trust Limited, the legal custodian of wBTC and a licensed trust company in Hong Kong. As such, in the event of liquidation of BiT Global Trust Limited, the liquidation procedures under Hong Kong law apply and wBTC token holders can claim their BTC assets with the assistance of the merchants.
2.5. Fees
There are two types of fees involved with the minting and burning of wBTC tokens. The custodian charges a fee when merchants initiate the minting or burning of wBTC tokens. This fee compensates the custodian for managing the BTC reserves and ensuring the security and integrity of the system. Additionally, merchants may charge users a fee for facilitating the exchange of wBTC for BTC or vice versa. These fees are determined by the individual merchants and reflect the services they provide, such as handling AML and KYC procedures and facilitating token transactions.
The custodian generates revenue by applying a fee to wBTC minting and burning transactions. This fee generally falls between 0.05% and 0.2%, with variations depending on the size of the transaction.
2.6. Governance & Ownership Structure
The wBTC token contract operates under a Multisig, requiring signatures from BigDAO members to add or remove participants. Institutions can join the BigDAO without assuming a custodian or merchant role.
No legal entity formally acts as the issuer of wBTC, a distinction that sets it apart from the other wrapped bitcoin products discussed in this review. According to BiT Global, the issuance of wBTC is governed by the BigDAO regulated smart contract and facilitated by the merchant network and its participants.
The BigDAO owns the wBTC controller and token contracts. This gives the BigDAO admin rights to control things like adding / removing custodians. The SmallDAO owns the wBTC merchant contract, which is used to add / remove merchants. According to BiT Global, there have been no changes to the functions and voting mechanism of both DAOs post JV.
Although wBTC does not have a formal issuer, BitGo Trust Company served as its custodian prior to the joint venture, and following the restructuring, BiT Global Trust Limited assumed that role. In both instances, the tokens were registered in the custodian’s name.
2.7. Compliance & Regulatory Considerations
BitGo Trust Company, Inc. is a qualified custodian regulated by the South Dakota Division of Banking and registered as a Money Services Business (MSB) with the Financial Crimes Enforcement Network (FinCEN). BitGo New York Trust Company, LLC is overseen by the New York Department of Financial Services.
In Singapore, BitGo Singapore Pte. Ltd. holds a Major Payment Institution license from the Monetary Authority of Singapore (MAS), enabling it to offer regulated custody, trading, and self-custody wallets. Finally, BiT Global Trust Limited operates in Hong Kong as a licensed Trust and Company Service Provider (TCSP) under the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (AMLO) and is registered as a trust company under the Trustee Ordinance.
As regulated entities, these organizations must adhere to fiduciary obligations that include safeguarding private keys, conducting customer due diligence, and maintaining strict compliance with local and international regulations.
3. cbBTC
cbBTC is a wrapped bitcoin product brought to market by Coinbase, Inc., a wholly owned subsidiary of Coinbase Global, Inc. (“Coinbase”). cbBTC was first launched on Ethereum on September 12, 2024, with the Solana launch following on November 7, 2024.
As of writing, the circulating supply of cbBTC is 30,423 BTC, which is roughly equivalent to $2.5 billion.
3.1. Issuance & Redemption
Coinbase oversees the entire lifecycle of cbBTC, managing the issuance and redemption processes. As such, a person seeking the issuance or redemption of cbBTC from Coinbase must first be eligible to be a Coinbase user and based in a jurisdiction that is serviced by Coinbase.
When a user initiates a withdrawal of BTC from their Coinbase account to Ethereum, Base, Arbitrum, or Solana, an equivalent amount of cbBTC is minted 1:1.
The newly minted cbBTC is then transferred to the user’s designated wallet address, while the corresponding BTC is retained in Coinbase’s custody to back the issued cbBTC.
Similarly, users can redeem BTC by depositing cbBTC into a Coinbase-provided address linked to their account. Once the tokens are received, Coinbase burns the cbBTC and releases an equivalent amount of BTC to the user’s account.
On Ethereum, Arbitrum and Base, the minting and burning processes are governed by smart contracts designed to ensure the integrity and security of cbBTC’s operations. On Solana, cbBTC is issued as an SPL token, with Coinbase directly managing its minting and burning. The custodial and operational frameworks for cbBTC on Solana align with those on Ethereum and Base, ensuring that the token remains consistently collateralized across networks.
3.2. Security
To enhance security, private keys are encrypted and require the consensus of multiple authorized individuals for decryption, eliminating the risk of single-party control. Internal audits and regular reconciliations between wallets and blockchain data further ensure the integrity of custodial processes.
The minting and burning processes for cbBTC are controlled by specific roles embedded within the wrapping contract, each of which is safeguarded by Coinbase’s internal key management systems. These roles include the Admin, who can upgrade the token implementation; the Owner, responsible for assigning all roles except the Admin; and the Minter, who executes the minting and burning of tokens. Additional roles, such as the Blacklister, MasterMinter, and Pauser, provide functionality for managing token limits, restricting certain addresses, and pausing contract activity as necessary. Each action performed under these roles requires multi-party approval, involving teams from security, engineering, and finance, to mitigate the risk of unauthorized use.
On Solana, cbBTC operates as an SPL token with key authorities similarly managed by Coinbase. The Mint Authority oversees token issuance, the Freeze Authority controls the pausing and unpausing of transfers, and the Update Authority manages token metadata updates. As with the Ethereum and Base implementations, actions related to these authorities are subject to Coinbase’s multi-layered key management systems, ensuring the same rigorous standards of security and operational oversight across all supported networks.
3.3. Custody
According to Coinbase, the BTC reserves backing cbBTC are secured through a combination of hot and cold wallets, with cold storage facilities located in the United States and Europe. All collateral is custodied directly by Coinbase, which acts solely as a custodian on behalf of cbBTC holders.
Users retain ownership of the underlying BTC, as specified in Coinbase’s user agreements. In the event of a Coinbase bankruptcy, this custodial structure is designed to protect the reserves as customer assets, preventing them from being included in the bankruptcy estate. In February 2025, Coinbase launched a cbBTC proof-of-reserves portal to provide transparency for users.
3.4. Fees
Currently, Coinbase does not charge fees for minting or burning cbBTC and absorbs the operational costs associated with these processes. For withdrawals of cbBTC from Coinbase to wallets on Base and Arbitrum, no network fees are charged at this time. However, for withdrawals to wallets on the Ethereum network, standard ERC-20 network fees apply. These fees are consistent with Coinbase’s approach to handling transactions for other Ethereum-based tokens.
While no additional charges are currently in place, Coinbase has indicated that fees for minting, burning, or withdrawing cbBTC may be introduced in the future. If such fees are implemented, Coinbase has committed to maintaining full transparency, ensuring users are informed through its send/receive interface.
3.5. Governance & Ownership Structure
Coinbase, Inc. is a Delaware corporation and a wholly owned subsidiary of Coinbase Global, Inc. Coinbase Inc will be the entity primarily responsible for the minting/burning/custody for cbBTC.
3.6. Compliance & Regulatory Considerations
Coinbase holds a range of licenses, including multi-state money transmission licenses in the United States. See here for a full list of all such licenses. Coinbase also holds crypto asset trading and custody licenses in key global financial hubs such as New York, Germany, Singapore, Canada, and Bermuda. Additionally, Coinbase is registered as a Virtual Asset Service Provider in several countries.
4. kBTC
kBTC is a wrapped bitcoin product brought to market by Kraken, a prominent crypto exchange that was founded in the United States in 2011. kBTC was first launched on Ethereum and OP Mainnet on October 17, 2024. As of writing, the total circulating supply of kBTC is 100 BTC, which is roughly equivalent to $8.4 million.
4.1. Issuance & Redemption
Similar to cbBTC, the issuance and redemption of kBTC is integrated directly into Kraken's exchange platform. As such, a person seeking the issuance or redemption of kBTC from Kraken must first be eligible to be a Kraken user and based in a jurisdiction that is serviced by Kraken.
To obtain kBTC, a user holding BTC in their Kraken account begins by accessing the portfolio page on Kraken and initiating a withdrawal of BTC. After selecting BTC from the asset dropdown, the user can select either Ethereum kBTC or OP Mainnet kBTC from the network dropdown. Proceeding with the withdrawal automatically converts the user’s BTC into kBTC and sends it to the designated external address on the chosen network.
To redeem kBTC for BTC, a user can deposit kBTC back into their Kraken account. After accessing the deposit page, the user selects BTC as the desired asset, chooses either the Ethereum kBTC or OP Mainnet kBTC, and sends kBTC to the provided address. Once Kraken receives the kBTC, it automatically converts it into the corresponding amount of BTC, crediting the user’s Kraken account accordingly.
4.2. Security
Kraken maintains control over the token contract and its management functions through a wallet under Kraken's direct oversight. According to Kraken, the kBTC smart contract has been rigorously reviewed by Kraken’s engineering and security teams and has also undergone an independent security audit by Trail of Bits to ensure its robustness and reliability. See here the kBTC OP Mainnet smart contract and the kBTC Ethereum smart contract.
4.3. Custody
According to kBTC’s terms and conditions, the underlying BTC for kBTC is held in the name of Payward Commercial Ltd (“Payward Commercial”) in a segregated vault at Kraken Financial for the sole purpose of fulfilling kBTC holders’ exchange requests on Kraken.
4.4. Fees
The fee structure for kBTC varies depending on the network and transaction type. For deposits, Kraken charges a 0.05% fee on both the Ethereum and OP Mainnet networks.
Withdrawal fees differ slightly by network. On Ethereum, users are responsible only for the standard on-chain transaction fee, with no additional charge from Kraken. On OP Mainnet, withdrawals incur a nominal fee of 0.00001, with no further Kraken fees applied.
4.5. Governance & Ownership Structure
kBTC is issued by Payward Commercial, which is registered in the British Virgin Islands. kBTC is custodied at Kraken Financial, Inc (“Kraken Financial”), a Wyoming-chartered Special Purpose Depository Institution. Our understanding based on the available information is that both Payward Commercial and Kraken Financial are wholly owned subsidiaries of Payward Inc., which does business as Kraken brand.
4.6. Compliance & Regulatory Considerations
As mentioned above, the underlying BTC for kBTC is held at Kraken Financial. This entity is headquartered in Cheyenne, Wyoming and holds a Special Purpose Depository Institution (SPDI) Charter from the state of Wyoming. Under Wyoming law, an SPDI functions as a state-chartered bank with regulatory approval to both hold digital currencies in custody and accept deposits of fiat. SPDIs are required to operate on a full-reserve basis. They must hold unencumbered liquid assets valued at no less than 100% of their clients' fiat deposits. This approach differs from the fractional-reserve practices of conventional banks.Kraken Financial provides institutions with fiat deposit accounts and a qualified custody solution for digital assets. According to Kraken, the entity is subject to regular safety and soundness examinations from the Wyoming Division of Banking.Kraken Financial operates as a distinct entity from Kraken’s exchange platform, maintaining its own dedicated governance framework led by a separate board of directors. This independent structure allows it to comply with Wyoming Division of Banking regulations and address risks unique to SPDI-chartered institutions. By tailoring its services to the needs of institutional clients under the SPDI framework, Kraken Financial can leverage regulatory advantages to deliver innovative financial products and solutions. The separation also fosters client confidence, ensuring that assets are safeguarded within a regulated financial institution specifically designed for secure asset custody and compliance.According to Kraken Financial’s website, being SPDI means that the entity operates under strict regulatory oversight and is required to uphold stringent security, data protection, custody and safekeeping standards.