Bitcoin is the most valuable asset in crypto. But using it in DeFi has always meant a compromise: wrap it first.

Wrapping means handing your BTC to a custodian, receiving a synthetic token, and hoping nothing goes wrong. This post explains why wrapped Bitcoin exists, what risks it carries, and how native cross-chain swaps offer an alternative.

Why Wrapped Bitcoin Exists

Bitcoin wasn't built for smart contracts. It can't interact with Ethereum, Solana, or other DeFi ecosystems directly.

Wrapped Bitcoin (wBTC) solves this by locking real BTC with a custodian and minting an ERC-20 token on Ethereum. You use the token in DeFi. When you want real Bitcoin back, the token gets burned and the custodian releases your BTC.

Why People Use Wrapped Bitcoin

Despite its tradeoffs, wBTC has found real product-market fit. Over 150,000 BTC has been wrapped at peak levels [1].

The reasons are practical: DeFi composability with hundreds of Ethereum protocols, years of accumulated liquidity on major DEXs, and established infrastructure across wallets and portfolio trackers. For users comfortable with the tradeoffs, wBTC serves a real purpose.

The Risks of Wrapped Bitcoin

The tradeoffs are significant.

Custodial risk: wBTC requires a custodian (BitGo) to hold the real Bitcoin. In August 2024, BitGo announced a partnership with BiT Global, linked to Justin Sun [2]. MakerDAO immediately voted to remove wBTC as collateral [3]. Redemptions outpaced mints by 60x [4].

Bridge and smart contract risk: Cross-chain bridges have lost $2.89 billion to hacks, roughly 40% of all value hacked in crypto [5]. Wrapped tokens depend on these same architectures.

Depeg risk: During the FTX collapse, wBTC depegged from BTC by roughly $250 [6]. When you hold wBTC, you own a claim on Bitcoin held by someone else.

This is where Chainflip offers wBTC holders an exit. By supporting wBTC swaps, users can convert their wrapped positions directly into native BTC, ETH, SOL, or other assets without relying on redemption processes or centralized exchanges. If you're uncomfortable with wBTC's custodial structure but already hold it, Chainflip gives you a way out.

Choosing Between Wrapped and Native Bitcoin

Neither option is universally better.

wBTC makes sense if you need deep Ethereum DeFi integration or want to use Bitcoin as collateral on lending platforms like Aave.

Native Bitcoin swaps make sense if you value self-custody, want to minimise counterparty risk, or prefer a single transaction over multi-step processes. 

And soon, you won't need to choose between native Bitcoin and DeFi utility. Chainflip is launching a native Bitcoin lending platform that lets you borrow against your BTC without wrapping, custodians, or taxable events.

The Native Alternative: Cross-Chain Swaps Without Wrapping

Native cross-chain swaps let you trade real Bitcoin for real ETH, SOL, or USDC without synthetic intermediaries. No custodian. No wrapped token. Just a direct exchange of native assets.

Chainflip operates a decentralized validator network using threshold signature cryptography (TSS) with a 100-of-150 validator requirement. Send native BTC to a deposit address, and native assets arrive in your destination wallet. No wrapping. No bridges.

This eliminates custodial risk, smart contract complexity, wrapped token exposure, and operational friction. One transaction, no KYC.

Meeting Users Where They Are

Chainflip will support wBTC as a swappable asset. Why?

Many users already hold wBTC through DeFi strategies or payments. By supporting wBTC alongside native BTC routes, Chainflip lets users swap wBTC directly for native assets, exit wrapped positions without centralized exchanges, and access competitive rates regardless of which Bitcoin variant they hold.

The goal isn't to promote wrapping. It's to give users options.

The Bottom Line

Wrapped tokens proved Bitcoin holders want DeFi access. For certain use cases, they still make sense. But they were always a compromise.

Native swaps preserve Bitcoin's core properties while enabling cross-chain functionality. By January 2026 Chainflip had processed over $2 billion in cumulative swap volume with native Bitcoin.

Your Bitcoin doesn't need a wrapper. But if it already has one, that's fine too.

Resources

• Swap Now – Start swapping native assets
• Lend BTC – Borrow against native Bitcoin
• Documentation – Technical guides and protocol details
• Blog – Product updates and announcements
• Chainflip Scan – Track swaps and network activity
• Discord – Join the community
• Telegram – Chat with us

FAQ

What is wrapped Bitcoin (wBTC)?

Wrapped Bitcoin is an ERC-20 token on Ethereum backed 1:1 by real Bitcoin held by a custodian. It lets Bitcoin holders use BTC in Ethereum-based DeFi applications like lending protocols and DEXs.

Why is wrapped Bitcoin risky?

wBTC requires trusting a centralized custodian (BitGo) to hold your real Bitcoin. This introduces custodial risk, regulatory exposure, and potential depeg events during market stress.

What is a native Bitcoin swap?

A native Bitcoin swap exchanges real BTC directly for other native assets like ETH or SOL without creating wrapped or synthetic tokens. You send Bitcoin, you receive the destination asset. No intermediary token involved.

How is Chainflip different from a bridge?

Traditional bridges lock assets and mint synthetic tokens on the destination chain. Chainflip uses a decentralized validator network with threshold signatures to settle native assets directly. No wrapped tokens are created during the swap.

Is Chainflip custodial?

No. Chainflip is non-custodial. Funds are secured by a distributed validator network using threshold signature cryptography (TSS). No single entity controls the vaults.

How long does a native Bitcoin swap take?

Most swaps complete within minutes. Bitcoin swaps require 3 block confirmations (~30 minutes) before execution, then settlement happens in seconds.

Do I need KYC to use Chainflip?

No. Chainflip is permissionless. No account creation, identity verification, or KYC required.

Sources

[1] wBTC Supply Data - btconethereum.com or DeFiLlama (https://defillama.com/protocol/wbtc)

[2] BitGo-BiT Global Partnership Announcement - BitGo Blog, August 2024 (https://blog.bitgo.com/bitgo-to-move-wbtc-custody-to-multi-jurisdictional-structure)

[3] MakerDAO wBTC Collateral Vote - MakerDAO Governance Forum (https://forum.makerdao.com/t/proposal-to-reduce-wbtc-collateral/24871)

[4] wBTC Redemption Data Post-Announcement - Dune Analytics wBTC Dashboard (https://dune.com/queries/wbtc-mints-burns)

[5] Bridge Hack Statistics - DeFiLlama Hacks Dashboard (https://defillama.com/hacks)

[6] wBTC FTX Depeg - CoinDesk, November 2022 (https://www.coindesk.com/markets/2022/11/10/wrapped-bitcoin-depegs-as-ftx-fears-spread/)