Originally published on: September 23, 2024
In a move to address concerns about the backing of the Bitcoin wrapper 21BTC, 21.co, the parent company of cryptocurrency asset manager 21Shares, has announced the integration of Chainlink’s proof of reserve. This addition aims to protect against malicious minting and provide cryptographic guarantees that new tokens minted are backed by reserves on both Ethereum and Solana platforms.
The decision comes amidst skepticism among cryptocurrency retail investors regarding the safety of underlying spot Bitcoin assets backing Bitcoin wrappers like Wrapped Bitcoin (WBTC) and Coinbase Wrapped BTC (cbBTC). Chainlink’s proof of reserves automatically audits financial data, including offchain reserve balances, and transmits this information to blockchain-based smart contracts in real time.
The move follows recent controversial developments in the crypto space, such as BitGo granting partial control of WBTC’s Bitcoin capital to a crypto exchange, triggering concerns of misappropriation of collateral. This has led to protocols like Sky dropping WBTC and the emergence of cbBTC as the third-largest wrapped BTC token.
Coinbase, which launched cbBTC on Sept. 12, has faced scrutiny over the safety of its Bitcoin backing, fueled by rumors of a cybersecurity exploit and BlackRock’s filing for quicker BTC withdrawal times. However, Coinbase’s chief legal officer has dispelled these rumors, emphasizing the company’s commitment to reimbursing cbBTC holders for any lost backing.
Regulated custodians and ETF sponsors in the U.S., including Coinbase and BlackRock, adhere to strict oversight and reporting requirements with regular third-party audits. Despite concerns, financial analysts highlight the trustworthiness of established institutions like BlackRock, reinforcing confidence in their handling of assets and custodial services.
Overall, the addition of Chainlink’s proof of reserve to 21.co’s Bitcoin wrapper brings enhanced security and transparency to the crypto space, reassuring investors about the legitimacy and backing of wrapped Bitcoin tokens.
