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Compound Protocol Approves 40% Collateral Factor for Wrapped Bitcoin

Wrapped Bitcoin (WBTC), an ERC-20 token that tracks the value of bitcoin (BTC) can now be used on DeFi protocol Compound (COMP) with a 40% collateral issue.

WBTC Goes Live on Compound with 40% Collateral

A community proposal floated by Compound holders in May 2020 has lastly acquired the inexperienced mild so as to add WBTC as collateral on the lending protocol. Notably, 533,899 votes fell for the proposal in comparison with 523,974 towards it.

(Source: Compound)

The intently contested voting spherical signifies the divided opinion on the addition of WBTC as collateral on the platform. A serious level of ache for WTBC, in line with the proposal, is that it suffers from “a single point of failure” and isn’t “trustless.”

The go-ahead of the proposal means customers of the Ethereum-based Compound protocol will now have the ability to use WBTC to borrow different belongings on the DeFi platform. Notably, the BTC-pegged cryptocurrency will launch on the protocol with a 40% collateral issue.

A Primer on Wrapped Bitcoin

Wrapped Bitcoin is an ERC-20 token having a 1:1 peg towards the actual bitcoin (BTC). In essence, the token offers BTC holders the chance to make use of Ethereum-based purposes.

It is worthy of word that WBTC joined the Compound protocol again in July 2019.

However, till now, WBTC had a collateral issue of 0% on Compound, that means it may solely be loaned or borrowed on the platform.

Now, Compound protocol’s customers won’t solely have the ability to mortgage WBTC whereas utilizing 40% of its worth as collateral but in addition have the choice to avail a bitcoin-based product for collateral utilization.

The governance proposal posited two main benefits of accelerating the collateral issue of WBTC from 0%.

First, WBTC offers Compound customers a various set of choices when it comes to belongings that can be utilized as collateral on the protocol. Prior to the approval of the proposal, the protocol allowed customers the choice of Ethereum-based belongings reminiscent of DAI, USDC, and ETH for collateral utilization.

Second, WBTC will allow DeFi protocols reminiscent of Compound and MakerDAO in porting debt positions to search out the perfect charges and contribute to a extra environment friendly market. Subsequently, it’ll additionally result in higher interoperability between the DeFi platforms.

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