Sure you could use it in your smart contract, but it has the same kind of risks as using Tether. I think it can be dangerous to build layers of decentralized apps on top of something that's not.
(Or maybe I'm not understanding it correctly)
- How to programmatically/formally measure/characterize decentralization ?
- How to show the decentralization level of a particular dApp function execution to the user ?
In that case, a contract could be totally decentralized but the monetary value part of WBTC is external and centralized. That could be potentially very confusing and unexpected for a user if the WBTC redeeming process ultimately fell through, and they may come to blame other unrelated parts of the process.
For example Liquid does this: https://blockstream.com/liquid/
DAI is the USD stablecoin, overcollateralized by ETH and a variety of other ERC-20 tokens. And managed in a decentralized manner by MakerDAO token holders. A good experiment to watch imo