Wrapped Bitcoin: Growing Worries Over Derivative Market Opacity
The wrapped Bitcoin derivatives market, valued at $30 billion, may be on unstable footing, according to LX Research.
Wrapped Bitcoin (BTC) tokens, typically backed 1:1 by native BTC and used in decentralized finance, face risks like rehypothecation, insufficient collateral. And centralization. Some wrapped tokens are now backed by other derivatives rather than Bitcoin itself, creating a “house of cards” structure.
LX Research highlights the potential for bank runs if multiple tokens lack liquidity during withdrawals and warns of compounded custodian risks. To address these concerns, LX Research plans to release a framework for evaluating wrapped Bitcoin assets soon.
Clever Robot News Desk 11th January 2025
