Tokenized Bitcoin — Comparison of different approaches

(Updated 1/28/20) Recently several approaches have been made to tokenize Bitcoin and move it to other blockchains with different properties. The individual projects have various degrees of decentralization and trustlessness depending on how the 1:1 peg to the original Bitcoin blockchain is achieved and how decentralized the host blockchain is. The reason why there is an interest in tokenizing Bitcoin is to enable functionality which is not natively supported by the Bitcoin blockchain such as compatibility with the Ethereum DeFi ecosystem, increasing the transaction speed, privacy and fungibility. Of all crypto-currencies Bitcoin is considered the hardest money, so it would only make sense to make it compatible with the growing number of DeFi services and be able to use it e.g. as collateral for loans, etc.

In the following, I will describe both already existing solutions as well as projects that are still in development.

Existing Bitcoin tokens

Wrapped Bitcoin (WBTC) went live on Ethereum at the beginning of 2019. It is an ERC-20 token and backed 1:1 with real Bitcoin. WBTC is a custodial solution where a federation of custodians keep real Bitcoins locked up and issue corresponding WBTC tokens. The governance model is via a DAO (Decentralized Autonomous Organization) in which the…