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$1B in Wrapped Bitcoin now being audited using Chainlink’s ‘Proof of Reserve’

Wrapped Bitcoin custodian BitGo has adopted Chainlink’s Proof of Reserve mechanism in order to boost the transparency and auditability of the tokenized asset for DeFi protocols.

The functionality, which is currently live on testnet, enables Ethereum-based dApps to completely automate the burden of auditing wBTC. The move comes as the amount of Wrapped Bitcoin on Ethereum approaches $1 billion in value, or the equivalent of over 92,500 BTC.

The mechanism negates the need to rely on manual off-chain processes such as audit reports. It streamlines the process in a trustless and censorship resistant manner which gives further credibility and security to the tokenized version of Bitcoin.

Wrapped Bitcoin custodian BitGo announced the Chainlink collaboration on Oct. 1, adding this meant  DeFi applications could now receive definitive on-chain proof regarding the fully backed collateralization of wBTC.

The Proof of Reserve contract will access a decentralized Chainlink oracle to check the balances of BitGo custody wallets for wBTC every ten minutes, which is the average time between BTC blocks. If there is a deviation from a set threshold the oracle will push an update on-chain to reference the new balance.

Chainlink nodes will continually monitor the contract off-chain, but only update it on-chain when events change the balance such as the minting or burning of wBTC. User funds can also be protected — for example, a money market can check wBTC collateralization before executing a lending or borrowing action. The announcement added;

“This feature can be especially beneficial for decentralized applications that utilize wBTC as collateral to secure other digital assets.”

This has the overall effect of increasing user trust in the asset and protecting against unexpected events in decentralized finance markets. Chainlink protocol co-founder, Sergey Nazarov, told Forbes;

“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.”

He used the 2008 financial crisis as an example of how there was a disconnect between the actual underlying value of an asset and the market.

Bitcoin in its native form doesn’t work well with DeFi which is largely Ethereum based. Wrapping it, or tokenizing it in ERC-20 form, has become immensely popular this year as yield farming opportunities have emerged on an almost daily basis.

According to btconethereum.com, there is currently 125,300 BTC, or $1.33 billion worth, tokenized for use on Ethereum. Of this total, which has increased by 970% over the past three months, wBTC accounts for 76%.

This article was originally published on Cointelegraph

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