What are wrapped tokens?
A wrapped crypto token is pegged to the value of another cryptocurrency. The original token is ‘wrapped’ into a type of digital vault and a new token is minted to transact on other platforms. They allow non-native tokens to be used on different blockchains.
What is the purpose of wrapped tokens?
Different blockchains offer different functionality and they’re not always compatible with one another. For example, you can’t use BTC on Ethereum. But wrapped tokens offer a way to overcome this issue.
With wrapped tokens, users can utilise non-native tokens on a blockchain. They can act as bridges between different blockchains and increase interoperability.
What is WBTC?
As the Bitcoin and Ethereum blockchains were created at different times, they have different characteristics and cannot easily communicate with one another. WBTC aims to bring the value of Bitcoin and make it usable in the DeFi (decentralised finance) space.
WBTC or Wrapped Bitcoin is an Ethereum token that represents Bitcoin. It enables the use of BTC on the Ethereum network. 1 WBTC equals 1 BTC, and WBTC can be converted into BTC and vice-versa.
The main benefit of WBTC is its compatibility with Ethereum wallets, smart contracts and DApps (decentralised applications).
You can get hold of WBTC on decentralised exchanges like UniSwap.
What is WETH?
Ether, Ethereum’s native currency, was created before the ERC-20 standard was implemented. (ERC20 is a standard for creating and issuing smart contracts on the Ethereum blockchain). So, ether isn’t ERC-20 compatible and can’t be directly exchanged for ERC-20 tokens. Wrapped Ether (WETH) is the ERC-20 compatible version of ether.
WETH is created by sending ether to be held in a smart contract. In return, you receive WETH at a 1:1 ratio. WETH can be converted back to ETH.
Disclaimer: NOT FINANCIAL NOR INVESTMENT ADVICE. Only you are responsible for any capital-related decisions you make and only you are accountable for the results.
