DeFi Protocol Compound now Supports WBTC

With its implementation on Compound WBTC now has a collateral factor of 40% up from its initial 0%.

By · Jul 13, 2020 . 6min read

A May 12 community proposal on Ethereum-based Compound DeFi protocol gets ratified with WBTC’s latest addition on it.

Following the proposal and a hotly contested vote, Compound DeFi protocol now supports Wrapped Bitcoin. Compound, which is the leading DeFi protocol so far keeps growing astronomically with total value deposited reaching $1.5 billion recently. As a algorithmic Money Market protocol on Ethereum, it allows anyone to supply assets and earn interest. It equally allows anyone to borrow and pay interest. Users carry out their actions within a trustless environment. As a trustless protocol, governance is achieved through community consensus. It does this through token holders votes on implementation they would like to see happen on it. Compound did this by introducing its governance token.

This newest implementation is fraught with strong criticisms from community members who oppose the idea. The same people must have fiercely voted against its implementation into Compound. Some of the most vocal critics argued that WBTC suffers from “a single point of failure,”. And because of this it should not be implemented into a trustless protocol.

Community’s view on WBTC implementation on Compound DeFi protocol

Proponents on the other hand recognized the risk concerns of those who oppose the idea. They however argue that the advantages of adding WBTC on the protocol were more than the perceived risks. They argued the risks were not new as it is already exists on Compound, between USDC and DAI. The present incentive structure cancels out much of the risks due to the very large amounts of DAI being borrowed and loaned on the platform. They further argued that the introduction of WBTC brings more diversity usable collateral which reduces any structural risks to DAI’s continued use on the platform.

WBTC’s 0 to 40% Collateral factor beats DAI’s 75%

Wrapped Bitcoin is an ERC20 version of Bitcoin fully collaterized with Bitcoin. It means WBTC is pegged at a 1:1 with the real Bitcoin. It was conceived as a tool to tap into Bitcoin network’s rich liquidity. This affords growing DeFi applications such as lending, derivatives, DEXes, and payments more adoption.

With its implementation on Compound, WBTC now has a collateral factor of 40% up from its initial 0%. This means users can now loan and borrow WBTC using 40% of its value as collateral. This compared to DAI’s 75% collateral factor shows clearly WBTC’s high liquidity.

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