What is wrapped token
Crypto for Beginners
Tokens that are linked to a certain coin but can run on a different blockchain network. Wrapped bitcoin, or WBTC, is a cryptocurrency that draws its value from bitcoin pricing but may be used on the Ethereum network. Wrapped tokens may be regarded of as stablecoins siblings. In front of their ticker, they have letter W. For example:
Wrapped Bitcoin = WBTC
As previously indicated, this is a tokenized form of bitcoin that runs on the Ethereum blockchain. This is an ERC-20 token with a 1:1 correlation to the value of bitcoin. This enables users to benefit from Ethereum's second-generation blockchain while being reliant on bitcoin price fluctuations.
The ERC-20 is a cryptocurrency standard that allows non-native tokens to use the Ethereum network.
The Ethereum blockchain powers a sizable portion of the decentralized finance (DeFI) ecosystem. As a result, bitcoin users may be frustrated since they do not have access to certain DeFi programs. Users may readily access this ecosystem and its services by converting their bitcoins into WBTC. Furthermore, because BTC has considerably larger liquidity than other blockchains, wrapping BTC transforms this liquidity to Ethereum.
Finally, by utilizing the Ethereum network for bitcoin transactions, customers experience cheaper gas expenses while drastically lowering transaction times. This is due to the fact that the second-generation blockchain is more than twice as fast as the first-generation Bitcoin blockchain.
Wrapped ether (WETH) was built to trade on the Ethereum blockchain itself, as opposed to bitcoin wrapping, which was done to facilitate access to other blockchains. This is due to the fact that WETH delivers an ERC-20 compatible crypto coin. While the WETH may access DeFi protocols, the native ETH cannot. As a result, the conversion itself opens up a plethora of transactional options.
Investors may also use WETH to commit their tokens to DeFi protocols - a process known as staking and swap their wrapped tokens for other Ethereum-based cryptocurrencies.
In the case of WETH, you don't even have to mint fresh WETH. In a trade, you simply exchange ETH for WETH, either using a smart contract or a digital wallet like Metamask.
Cardano, Polkadot, and Solana are among the blockchains that have started developing wrapped tokens to facilitate access to DeFi apps.
The process of buying wrapped tokens is similar to the process of buying normal cryptocurrency.