How does the custodial process work when dealing with ERC-20 tokens such as WBTC ?
The custodial process for ERC-20 tokens such as WBTC is a multi-step process that involves several different parties.
First, the user sends their ERC-20 tokens to a custodian, who is responsible for securely storing the tokens. The custodian then creates a new smart contract on the Ethereum blockchain that is used to mint WBTC tokens. These WBTC tokens are then sent to the user’s wallet address.
The custodian also creates a “proof of custody” which is used to prove that they are in possession of the user’s ERC-20 tokens. This proof of custody is stored on the Ethereum blockchain and can be used to verify that the custodian has not tampered with or lost any of the user’s tokens. Finally, when the user wants to redeem their WBTC tokens, they send them back to the custodian who then destroys them and sends back an equivalent amount of ERC-20 tokens to the user’s wallet address.
This process ensures that users can trust that their funds are secure and can be redeemed at any time.
