Bitcoin holders who need liquidity without selling BTC can borrow against it, but the process usually depends on custodial wrapped tokens because many lending applications run on Ethereum and cannot directly handle Bitcoin from Bitcoin’s network. WBTC, Coinbase’s cbBTC and Circle’s cirBTC are competing versions of this model. The original BTC stays with a custodian while a receipt token circulates on another chain. As the report notes, “Knowing that the Bitcoin exists is not the same as knowing that you can get it back.”
Deposits create tokens through minting; redemptions burn tokens and release BTC. Retail users often buy existing wrapped tokens, while approved merchants handle conversions for WBTC. Arbitrage can keep prices near one BTC, but redemption restrictions can weaken the link. Borrowers must overcollateralize because Bitcoin can fall, and lending applications may liquidate collateral if the buffer becomes too thin—potentially forcing the sale the holder wanted to avoid. Liquidity and lender acceptance matter because a token with ample backing may still have too few buyers where an application operates.
Coinbase folds conversion into ordinary withdrawals and deposits for eligible customers, with geographical restrictions and a public cbBTC reserve dashboard. Circle’s cirBTC targets institutions, connects with USDC, publishes reserve addresses and uses Chainlink data. WBTC’s merchant network connects exchanges and institutions to minting and redemption, giving an established wrapper an advantage in acceptance.
On the tokenized private-credit side, RedStone has launched price feeds for a FalconX credit vault with more than $170 million in exposure across Monad, Plume and MegaETH. Institutional investors deposit USDC to finance part of FalconX’s prime brokerage business and receive AA_FalconXUSDC, a senior tranche token whose NAV accrues interest. M11 Credit curates the product and monitors the credit exposure. RedStone reads the vault’s NAV from Ethereum, verifies FalconX’s signature, checks deviation and staleness rules, and uses circuit breakers before publishing the same signed value to the three networks.
RedStone co-founder Marcin Kazmierczak said accurate pricing does not guarantee liquidation, because lending protocols must apply haircuts, account for thin secondary liquidity and consider permissioned token restrictions. RedStone’s Settle product auctions liquidation or redemption rights to KYC-approved solvers. The liquidity gap remains wide: a Sept. 4 analysis found 89% of tokenized RWAs in a $34.6 billion market were outside active protocol use, with about $3.79 billion deployed. Pareto reports roughly $225 million in total value locked across tokenized private-credit products. RedStone says it supports more than 110 chains and over 200 clients, including Securitize, Morpho, Pendle, Spark and Compound, and prices tokenized products from BlackRock, Apollo and Hamilton Lane.
