What are Wrapped Crypto Tokens?
What are Wrapped Crypto Tokens?
Wrapped Crypto Tokens in their basic form are just like all other Tokens, issued from the same underlying Network and transferred across that Blockchain in the same manner. A defining difference that makes a wrapped token, is in order to create a wrapped token, you must first Trade or Swap an existing token or coin and remove it from the available trading supply. In its place, a new wrapped token is created to represent the original counterpart. These wrapped tokens can be used for all types of Decentralized Finance expansion. Allowing for new projects that expand on existing ones. Complicated code manages the majority of these wrapped Tokens systems that are automated to lock up Tokens in Smart Contracts in exchange for the wrapped copy. When the user is ready to claim the original Token. Simply Unwrap the wrapped token and retain the original asset.
How do Wrapped Crypto Tokens Work?
These wrapped crypto tokens are thought of as synthetic assets. Because they themselves are a copy and considered merely a Synthetic representation. By owning Wrapped Bitcoin $WBTC you don’t actually own Bitcoin. You inherit the value associated with owning Bitcoin, but not the Bitcoin itself. It can appear convoluted but there are things Wrapped Tokens are able to do that the originals can’t. There’s no way to send Bitcoin ($BTC) directly to the Ethereum ($ETH) or Solana ($SOL) Networks. Locking out Bitcoin holders that want to use their $BTC to participate in Decentralized Finance on Ethereum ($ETH) or Solana ($SOL). Wrapping Bitcoin makes it possible to leverage that existing liquidity from the Bitcoin Network and use it for Loans or Yield Farming across other multi-purpose networks. An example of this for Ethereum is that you can’t pre-approve an ETH transaction when bidding on an NFT for example. By using Wrapped Ethereum ($WETH) the ability to pre-approve a bidding transaction is now possible. Only once Ethereum is Wrapped can it be used for complicated interactions.
What are the Benefits of Wrapped Tokens?
Wrapping various Tokens on any given network actually allows for capital efficiency and overall Blockchain Network health. Tokens that would otherwise be sitting in a wallet and doing nothing, appreciating or depreciating based only on the development of its associated product, can now be put to use. Wrapping a Token allows value to freely flow across multiple Networks. Without them, that value would be locked into only one Network. Wrapping Tokens and the introduction of Bridges has opened up a floodgate of opportunities across the entire Blockchain space for new groundbreaking concepts. Instead of each Blockchain operating as an independent entity, everyone is quickly becoming linked to one another as access to moving one’s capital from one Blockchain to another becomes increasingly easier. This is in large part due to Wrapped Crypto Tokens.
What are the Most Popular Wrapped Tokens?
Wrapped Bitcoin (WBTC)
An incredibly popular version of Bitcoin. It currently is available on about 2 dozen different chains including popular networks like Polygon and Avalanche. WBTC allows you to use your Bitcoin in popular defi applications like Yearn Finance to earn a yield on your BTC. The easiest way to get WBTC is to buy it on a popular exchange like BINANCE or to pick it up on one of the many decentralized exchanges. Basically every defi exchange sells WBTC due its immense popularity!
Wrapper Ethereum (WETH)
A wrapped version of Ethereum. It started as a more efficient way to use Ethereum on Ethereum by helping to reduce fees and it remains a popular coin for buying NFTs since it can allow you to buy NFTs and pay lower on chain fees, and it is needed to make offers on NFTs. It is also frequently used in liquidity pools on defi applications. WETH has now gone multi chain and is available on the majority of popular chains.
