Key Takeaways:

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• cbBTC is a trusted and reputable wrapped version of Bitcoin
• cbBTC is supported on multiple blockchains, including Ethereum, Solana, and Base
• On Backpack Exchange, cbBTC is redeemable 1:1 for native BTC

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Understanding cbBTC

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cbBTC, short for Coinbase Wrapped BTC, is an ERC20 token fully collateralized by Bitcoin (BTC) held by Coinbase. As a wrapped asset, cbBTC allows users to transfer and represent ownership of BTC seamlessly across various platforms. cbBTC is supported on multiple blockchains, including Ethereum, Solana, and Base, enhancing its versatility and accessibility.

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On Backpack Exchange, cbBTC is redeemable 1:1 for native BTC. There is no manual conversion process required — simply deposit cbBTC, and it will automatically be credited to your account as Bitcoin.

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Learn more about cbBTC in the White Paper. ‍

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How do I get cbBTC?

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When Coinbase users send their BTC from Coinbase to an address on Base, Solana or Ethereum, that BTC will automatically be converted 1:1 to cbBTC.  When users receive cbBTC in their Backpack Exchange account, it will be converted 1:1 from cbBTC to BTC.  

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cbBTC will also be available to trade on DEXs using Coinbase Wallet, and may be available on other third party exchanges that choose to support it.

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Why would I wrap BTC to get cbBTC?

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This innovation enhances the traditional Bitcoin experience by allowing users to engage more deeply with decentralized finance (DeFi) without sacrificing their BTC holdings. By converting BTC into cbBTC, you can participate in various DeFi activities, expanding the utility of their Bitcoin investments.

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cbBTC allows you to seamlessly use your BTC onchain across a range of DeFi apps, which may allow you to borrow, lend or discover other new ways to put your BTC to work.

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How cbBTC Works

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The Wrapping Process

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Wrapping Bitcoin involves creating a tokenized version of BTC that complies with another blockchain's standards, typically Ethereum's ERC-20. When you convert BTC to cbBTC on Coinbase, your BTC is securely held in reserve, and an equivalent amount of cbBTC is issued. This 1:1 backing ensures that each cbBTC token maintains parity with the original Bitcoin, providing stability and trust for users.

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Integration with DeFi

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Once you have cbBTC, it becomes compatible with a wide range of DeFi applications. This integration means you can use cbBTC for lending, staking, trading on decentralized exchanges, and more. Essentially, cbBTC bridges the gap between Bitcoin's robust security and the versatile financial tools available in the DeFi ecosystem.

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Benefits of Using cbBTC

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Enhanced Liquidity

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By converting BTC to cbBTC, users gain increased liquidity. This makes it easier to move funds between different platforms and take advantage of various financial opportunities without the need to sell BTC. Enhanced liquidity is particularly beneficial for traders looking to quickly react to market changes.

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Access to DeFi Opportunities

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cbBTC opens the door to numerous DeFi services that are not directly accessible with standard BTC. Users can earn interest through lending platforms, provide liquidity in decentralized exchanges, and participate in yield farming, all while maintaining their investment in Bitcoin. This expanded access allows for more strategic financial planning and portfolio diversification.

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Interoperability Between Blockchains

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One of the standout features of cbBTC is its ability to interact with multiple blockchain networks. This interoperability means that Bitcoin holders can seamlessly engage with financial instruments and services across different platforms, enhancing the overall utility of their crypto assets.

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Strategic Advantages of cbBTC

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Participation in DeFi

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One of the primary advantages of cbBTC is enabling Bitcoin holders to participate fully in the DeFi ecosystem. Whether it's earning interest, providing liquidity, or engaging in yield farming, cbBTC allows users to maximize their Bitcoin's potential without selling their primary asset.

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Efficiency and Cost-Effectiveness

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cbBTC benefits from the faster transaction times and lower fees associated with the underlying blockchain it operates on. This efficiency makes managing and transferring funds more cost-effective compared to standard BTC transactions, which can sometimes be slower and more expensive.

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Security and Stability

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Maintaining a 1:1 backing with BTC ensures that cbBTC retains its value parity with Bitcoin. This stability provides a secure investment avenue for those looking to diversify their crypto portfolio while still holding a stable and reputable asset.

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What is token wrapping?

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Token wrapping is a critical process in the cryptocurrency world, enabling assets from one blockchain to be utilized on another. By creating a tokenized version that adheres to the target blockchain's standards, wrapped tokens like cbBTC enhance interoperability and expand the functional capabilities of major cryptocurrencies.

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For instance, wrapping BTC into cbBTC involves locking the original BTC in a secure smart contract and issuing cbBTC tokens on the Coinbase platform, adhering to Ethereum’s ERC-20 standard. This process not only ensures security and trust but also allows Bitcoin to be used in a broader range of decentralized applications, DeFi platforms, and blockchain-based services.

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Furthermore, the use of smart contracts in token wrapping automates and secures the issuance and redemption processes. This automation provides transparency and reduces the risk of fraud, fostering a more connected and versatile blockchain ecosystem. As a result, users can engage in more complex and integrated financial interactions, leveraging the strengths of both Bitcoin and the platforms they integrate with.

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Check out our article on how to use cbBTC on Solana with Backpack to get started today.

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Disclaimer: This content is presented to you on an “as is” basis for general information and educational purposes only, without representation or warranty of any kind. It should not be construed as financial, legal or other professional advice, nor is it intended to recommend the purchase of any specific product or service. You should seek your own advice from appropriate professional advisors. Where the article is contributed by a third party contributor, please note that those views expressed belong to the third party contributor, and do not necessarily reflect those of Backpack. Please read our full disclaimer for further details. Digital asset prices can be volatile. The value of your investment may go down or up and you may not get back the amount invested. You are solely responsible for your investment decisions and Backpack is not liable for any losses you may incur. This material should not be construed as financial, legal or other professional advice.