WBTC vs. cbBTC: A Closer Look at Ratings Outputs

Ratings Outputs
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The latest Credora reports offer a comparison of the two largest wrapped Bitcoin products relying on centralized custody structures, evaluating key metrics as per the Credora Token Rating Framework and Methodologies. This post provides a peer comparison and summary of the key credit strengths and challenges of each asset. Additionally, the post presents discussion points where we appreciate community insights and comments on the methodologies.

Ratings Overview

The methodology used to evaluate the rating of each asset is outlined in our documentation.

  • WBTC: Report, Scorecard
    • Risk Score: 8.3/10
    • Probability of Default (PD): 0.182%
    • Implied Rating: BBB-
    • Strengths:
      • 11+ year BitGo track record
      • Robust custody via a multi-sig structure (2 of 3 keys)
      • Regular proof-of-reserves and on-chain transparency
      • Dominant market share
    • Challenges:
      • MiCA compliance issues affecting European listings
      • Limited and outdated documentation
      • Governance risks and custodial controversy
  • cbBTC: Report, Scorecard
    • Risk Score: 9.3/10
    • Probability of Default (PD): 0.016%
    • Implied Rating: A
    • Strengths:
      • Issued by Coinbase, a publicly traded company with robust quarterly financial disclosures
      • Strong regulatory oversight and transparent financial audits
      • Comprehensive bug bounty program enhancing security
      • Recently released proof-of-reserves and on-chain transparency
    • Challenges:
      • Fewer smart contract audits and shorter contract maturity (~35 months)
      • Unclear control concentration due to undisclosed signer thresholds

Discussion Points

1. Financial Transparency

  • WBTC is penalized as BitGo is a private company, and therefore, financial preparation and audit practices are opaque. As segregated custody structures are utilized by the respective issuers, and the financial position of the issuer is not considered in the rating process, is BitGo fairly penalized relative to Coinbase?
  • cbBTC benefits from Coinbase’s status as a listed company, which is accompanied by robust financial reporting, audit practices as well as operational controls. Until recently, Coinbase did not provide users the ability to monitor reserve adequacy via proof-of-reserves publications. Before this recent release, the methodology assigned a lower probability of default to cbBTC despite the lack of proof of reserves. Should proof of reserves be valued more than the financial transparency standards met by the issuer or the custodian? What additional metrics could be used to measure the operational integrity of a custodian in the case of digital assets?

2. Financial Position

  • Is it appropriate to consider whether the financial position of the issuer, as disclosed, diminishes the risk profile? There are multiple historical incidents in the industry where companies have effectively utilized balance sheets to absorb losses, protecting user funds. Should the financial ability of the token issuer as measured by disclosed financial statements be incorporated in the methodology as a factor reducing the probability of defaults in a conservative manner?

3. Market Adoption and TVL as Proxies:

  • WBTC’s substantial 80% market share is underpinned by its relatively longer track record and the resilient market confidence. cbBTC’s 14% market share is growing, although meaningfully lower in comparison. Should market adoption be a more heavily weighted factor in the Credora Rating Framework, as market adoption usually elevates scrutiny from various market participants?

4. Peg Performance:

  • The tokens exhibit stable peg performance, with approximately 4% annualized volatility and no recorded depegging events in the past 12 months. The Peg Track Record Modifier considers only the most recent 12 months of peg stability when assessing a token’s peg track record. In contrast, WBTC has experienced depegging events in the longer time horizon, particularly in the aftermath of the FTX collapse. Should all historical depegging events be factored into the assessment, or is the current one-year timeframe sufficient to establish the peg track record of DeFi tokens?

The Credora team has internally debated the above. We would really appreciate community input, and of course, any other points you feel should be addressed when evaluating wrapped Bitcoin products.

Thank you!