Cryptocurrency custodian BitGo has partnered with decentralized oracle provider Chainlink to adopt the latter's Proof of Reserve mechanism for Ethereum-based Wrapped Bitcoin (WBTC), according to an Oct. 1 blog post.
A Proof of Reserve mechanism—which is powered by a decentralized oracle—will automatically check BitGo's balances every ten minutes and update the supply of WBTC in accordance with all changes:
We are confident that Chainlink will provide WBTC users with a dependable, on-demand source of collateralization information, as well as an additional level of transparency for tracking WBTC reserves.
Don’t trust. Verify
WBTC is an ERC20 token rolled out back in January 2019 that completely mirrors the value of Bitcoin.
Over the past few months, it has taken the decentralized finance market by storm, with total market cap recently surpassing $1 bln.
It has now dwarfed the capacity of the Lightning Network, solidifying Ethereum's status as the leading Layer-2 solution for Bitcoin.
Unlike Bitcoin, WBTC is completely centralized. Its custody is singlehandedly managed by BitGo.
While BitGo is a highly reputable company that boasts a $100 mln insurance fund, the ability to constantly audit its wallets is needed to instill more confidence in the product, which is where Chainlink comes to the rescue.
Proof of Reserve allows for auditing in a decentralized and trust-minimized fashion.
As noted by Chainlink founder Sergey Nazarov, the technology makes collateral "more bulletproof":
I think the concept of Proof of Reserve generally is really about proving that an underlying asset somewhere is in a certain state. And that proof is actually very fundamental to how financial systems work.
tBTC is attempting a restart
WBTC is not the only synthetic version of Bitcoin that is being plagued by trust issues. As reported by U.Today, its main competitor, renBTC, has all of its Bitcoin stored in just one address.
Last week, decentralized Thesis-built protocol tBTC made a comeback after the disastrous launch of its mainnet, which lasted only two days before being shut down due to a critical bug back in May.