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There are different kinds of wrapped tokens and Wrapped Ethereum is definitely among the most popular ones. But what is it? Read this guide to find it out.
Such words as Wrapped Ethereum, Wrapped Bitcoin and, in general, wrapped coins appear quite often in the media these days. But despite their popularity, not all traders and members of the crypto community deeply understand what these coins can offer to them and what differences from common coins they have. CoinSpeaker has prepared this guide on Wrapped Ethereum (WETH) to answer these and other popular questions on the issue.
When we talk about wrapped tokens, we mean currencies hosted in the ETH blockchain having the same price as their underlying assets. These underlying assets do not necessarily have to be on the ETH blockchain. Thus, wrapped tokens allow interoperability between them and other digital assets.
There are different kinds of wrapped tokens. For instance, think about Wrapped Bitcoin – it has the same value as a BTC. A smart contract reproduces the price of a BTC in real-time for the wrapped Bitcoin. So you can always trade Wrapped BTC with Bitcoin at a 1:1 ratio.
Wrapped Ethereum – also called WETH – is the token representing Ether, the original cryptocurrency from the Ethereum Network. WETH is the compatible version of Ether with ERC-20 standards.
The reason behind the creation of WETH is Interoperability. You need “Wrapped” Ethereum to trade ETH for other ERC-20 tokens.
Originally, Ether could not be traded directly with ERC-20 standards without a third party. If all the tokens created on the Ethereum network use the same standard, those tokens will be easily tradable and can immediately work with Dapps that use the ERC-20 standard.
To summarise, the main point of “wrapped” Ethereum is allowing decentralized financial activities without recurring to third parties and greater interoperability.
There are several advantages to using WETH. One of them is the upgrade of decentralized financial activities, so the Ethereum Blockchain, being the greatest DeFi ecosystem, does more than just registering and validating transactions. You will see many Decentralized Applications (dApps) requiring their users to convert from ETH to WETH because of the interoperability.
As stated before, WETH allows interoperability with standardized tokens. What a “standardized” token does is that it uses a set of functions to reduce mistakes and enhance the peer-to-peer economy. If developers know in advance how a token will work, they can easily integrate it into their projects with less fear of making mistakes. If multiple tokens behave similarly, calling the same functions in the same way, then a dApp can easily interact with different sub-currencies.
It all goes down to making use of the ERC-20 standards. Like Bitcoin and Ether, ERC20 tokens can be tracked on the blockchain, as Ethereum tokens are just a specific type of smart contract that “lives” on the Ethereum blockchain.
Currently, many projects leverage the Ethereum blockchain and the ERC-20 standard to issue the necessary tokens to operate their platforms.
Using ERC-20 tokens to carry out all kinds of transactions is increasingly common in the world of cryptocurrencies. These are especially interesting when it comes to participating in Initial Coin Offerings – ICO – and new coin outlets on the market, so it stands out all the options that cryptocurrencies bring today.
You can send your Ether to a smart contract and receive “wrapped” Ethereum in exchange. Keep in mind you’re not really “wrapping” anything, but trading tokens, that simple. A popular DeFi platform where you can trade your Ether is CoinGecko.
Countless tokens use the Ethereum platform to operate with the support that it guarantees. Some of them are Golem, Digix, and Aragon, relevant projects in the panorama of transactions with cryptocurrencies. In any case, all of them resort to the ERC-20 standard to carry out contracts and thus be able to offer the qualitative leap expected from a technology like this.