Wrapped Token is the name given to cryptocurrencies that have the same value but operate on different blockchains or contracts. These tokens are equal to the price of the cryptocurrency to which they are equivalent, and their prices move at the same level. For example, the value of one wBTC is equal to one BTC. wBTC is also affected by the price movements of BTC. Let’s look at why Wrapper Tokens are issued and for what purposes they are used.
The Decentralized Finance (DeFi) system, which gradually emerged with MakerDAO in 2018, has become one of the most important usage areas of the cryptocurrency ecosystem as of 2020. The total amount of locked value in the DeFi ecosystem, where there are many decentralized platforms and digital assets, has risen to $52b. The chart below shows the increase in the amount of USD locked into decentralized finance platforms over the past year.
And with the increasing use of decentralized finance, the need for new digital assets has emerged. One of these assets is Wrapped Tokens that can be traded outside of their own blockchain. For example, wBTC, which can be exchanged for Bitcoin, can be used on the Ethereum network as an ERC-20 Token. Thus, it can be transferred faster than the Bitcoin Network by taking advantage of the features of the Ethereum Network. Apart from that, the most important feature it provides is that it can work with smart contracts on the Ethereum network. Functioning like a token on the Ethereum network, wBTC can be used in decentralized applications and exchanges on the network and stored in Ethereum wallets. In this way, the decentralized finance ecosystem grows.
What Is Wrapped Bitcoin (wBTC)?
Wrapped Bitcoin, or wBTC for short, is the version of Bitcoin created on the Ethereum network in the ERC-20 protocol. The price of one wBTC is always equal to one BTC. When you own Bitcoins, the only network that you can make transactions with your Bitcoins is the Bitcoin blockchain. With wBTC, which has the same value as BTC, you can make transactions on many decentralized platforms and applications. In this way, wBTCs also provide liquidity to all platforms in the Ethereum ecosystem. As of April 2022, the total number of wBTC in circulation is approximately 275,329. And this number is equal to approximately $12b.
What Is Wrapped Ether (wETH)?
Wrapped Ether, or wETH for short, is the convertible version of Ethereum that has the same value as Ethereum and complies with the ERC-20 standard. There are many decentralized applications and platforms on the Ethereum network. And wETH is used on many of these platforms. This is because ETH, the native cryptocurrency of Ethereum, emerged on the Ethereum blockchain before the ERC-20 standard. That’s why ETH cannot be directly exchanged for other ERC-20 Tokens on the network. The developers created wETH instead of evaluating ETH in two separate interfaces and enabled it to be used in ERC-20-based applications. wETH can be used to make transactions in these applications and can perform many different additional functions. Users can convert their wETHs to an equal amount of ETHs at any time.
