The consequences of the FTX and Alameda Research collapse continue to affect the cryptocurrency market. Finally, problems with Wrapped Bitcoin (WBTC) and Wrapped Ethereum (wETH) started to appear. Wrapped Bitcoin has lost its grip on BTC. In contrast, wETH has fallen victim to a FUD initiated by the crypto community. So what are Wrapped Bitcoin and Wrapped Ethereum? What happened?
What is Wrapped Bitcoin (WBTC)?
Wrapped Bitcoin (WBTC) lost its grip on Bitcoin last week. This makes it the latest crypto product to be hit by the FTX crash. Wrapped Bitcoin is the 23rd largest cryptocurrency with a market cap of $3.5 billion. This token represents Bitcoin on Ethereum, the leading smart contract platform. Since many DeFi and NFT projects are based on Ethereum, this asset is heavily used among investors. The idea behind it is simple Wrapped Bitcoin makes it possible for BTC holders to transact on Ethereum.
WBTC loses its grip on Bitcoin
There seems to be a problem with WBTC right now. According to CoinGecko, $88 million worth of tokens have changed hands in the last 24 hours. Meanwhile, Blockchain data firm Kaiko said last week that the token has lost its peggedness to Bitcoin. Since FTX exploded in early November, WBTC has been trading at a discount to Bitcoin on exchanges. Last Friday, this discount was 1.5%. According to Kaiko, the reason for this price drop is related to the collapse of FTX and Alameda Research. Alameda was among the largest Wrapped Bitcoin holders in the market.
The fact that Alameda Research holds too much WBTC has frightened Bitcoin investors. This was because they thought Wrapped Bitcoin was not backed by Bitcoin. However, this is apparently wrong. Kaiko says the reserves can be “verified on-chain.” Accordingly, the crypto custody firm BitCo continues to work as the main guardian of WBTC. Meanwhile, DeFi expert Kieran Mesquita states that the loss of stability in the ratio is not significant. According to him, the token dropped by only 2% and soon returned to the BTC price.
What is Wrapped Ethereum (wETH)?
All tokens developed on the Ethereum network are created with the ERC-20 standard released in 2015. ERC-20 basically consists of a set of rules required to create tokens. However, Ethereum’s native cryptocurrency, ETH, does not conform to this standard. Wrapped Ethereum (wETH), which users can obtain via their ETH, aims to solve this problem. Wrapped Ethereum was developed to increase interoperability and make ETH available for use in dApps. Basically, this means ETHs converted to ERC-20 compatible ETHs.
Rumors about weTH are terrorizing the market
In the same way that the WBTC token follows BTC, wETH follows the price of ETH. However, the same question arose for Wrapped Ethereum when the price of Wrapped Bitcoin lost its stability due to the impact of the FTX collapse. Fears spread throughout the crypto community over the weekend, stemming from allegations that wETH is at risk of losing its value 1:1 against ETH. But the allegations were nothing more than elaborate jokes about projects affected by the recent FTX crash. Ever since FTX’s massive collapse in just a few days, the crypto space has been rife with rumors of systemic risk.
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