somebody buys Bitcoin on chain. then they issue the same amount of fake Bitcoin on ethereum. so it's custodial². somehow in the ethereum smart contract they lock the Bitcoin address but still.
Discussion
Makes no sense other than as a scam.
So the transfer of bitcoin would go to like a custodial wallet and that would be the only transaction recorded on chain?
Correct, the issuer of wBTC is a centralized third party. They buy BTC on chain an keep it in a wallet. They issue the same amount on ETH. So you have counterparty risk with the issuer, the ETH network and the exchange. And all that risk for owning an IOU of an IOU. It's retarded tbh.
Do you suspect banks will do something similar if they are allowed to custody? I know that wrapped is a term for a specific cross chain action but banks would be essentially wrapping their bitcoin to issue liquidity. For that matter, isn’t micro strategy just bitcoin wrapped in a financial derivative.
Sorry, I am really trying to understand where this is all going. Seems like most of the bitcoin that the general population will deal with in 50 years is going to be bitcoin wrapped in something.
yes and no. obviously, banks will not be able to lend bitcoin on chain in a credit based system - bitcoin makes this impossible. so banks will have to come up with some way of lending you money tied to bitcoin. but i think there will be an open market for risk (aka interest rates). the cheaper it is to borrow money for the customer, the more risk there will be involved. once banks start custodying bitcoin (now that sab 121 is pretty much abolished), they will need to start thinking about a business strategy. so they can 1) charge you for storing your bitcoin, or 2) do it for free because they can use your bitcoin elsewhere. since they "hopefully" are not allowed to move your actual bitcoin - let's pretend that's part of yur deal with them - they'll have to issue something else to work with. similar to how paper money emerged from gold certificates back in when dinosaurs roamed our planet.