What Is Wrapped Token? What Is Wrapped Ether (WETH)?

A wrapped token is built on a blockchain network for use on a different blockchain and is used to wrap cryptocurrencies. Wrapped Ether (WETH) refers to the wrapped version of Ether. Wrapped Ether works with the ERC-20 standard.

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Wrapped token is the concept of a cryptocurrency on one blockchain network being wrapped or represented for use on another blockchain network. It allows the cryptocurrency to be used on a different blockchain while retaining its value and functionality.

A wrapped token usually functions as a bridge or intermediary. An asset on a blockchain network is locked through a private contract and a wrapped token is created in return. This wrapped token can be transferred for use on another blockchain network. The wrapped token combines the liquidity and transaction capabilities of different blockchain networks and makes asset transfers easier. For instance, when a wrapped token of a cryptocurrency on the Ethereum network is created, this wrapped token can be used on another blockchain network and integrated into different DeFi protocols.

Wrapped tokens are widely used to increase interaction and liquidity between blockchain ecosystems. This makes the transfer of assets between different blockchain networks more flexible, while users can interact with a wider ecosystem of cryptocurrencies.

What Is Wrapped Ether (WETH)?

Wrapped Ether (WETH) represents the Ether cryptocurrency on the Ethereum blockchain network using the ERC-20 token standard. To convert Ether to Wrapped Ether, Ether must be sent to a specific smart contract. In this process, Ether waits for the transaction and returns as Wrapped Ether at a 1:1 ratio when the transaction is completed.

To convert the wrapped Ether back into Ether, you only need to send it to the smart contract.

Ether is the native cryptocurrency of the Ethereum blockchain network and was created before the emergence of other token standards, including the ERC-20 token standard. Therefore, Ether is not compatible with the ERC-20 token standard. It is not possible to exchange Ether for ERC-20 tokens without the help of trusted third parties and without going through complex processes. The decision to wrap Ether was taken in order to harmonize Ether with the ERC-20 token standard. Thus, Ether can be exchanged for Wrapped Ether, which can use the ERC-20 token standard.

Most decentralized platforms prefer Wrapped Ether over Ether because they have the ERC-20 token standard. This is because they want to ensure that all transactions are done under a single token standard. Recent developments in the Ethereum ecosystem include the use of a unit like Wrapped Ether as the main unit for all Ethereum Blockchain-based decentralized applications (dApps).

How Does Wrapped Ether (WETH) Work?

Wrapped Ether, unlike Ether, is not used to pay for gas fees on the network. WETH is used to enable more trading and staking in dApps as it is compliant with the ERC-20 standard. It is also used for trading via auctions on platforms such as OpenSea.

Wrapping ether tokens involves sending a smart contract to the Ethereum network. Wrapped ether is created in exchange for the smart contract. Ether is also staked so that the wrapped ether can be backed by a reserve. When or if wrapped ether is converted back into ether, the exchanged WETH is burned or removed from circulation. This is done to ensure that the WETH always remains stable to its ether value.

On the Ethereum blockchain network, wrapped ether is needed to switch between tokens in decentralized applications. For instance, some decentralized applications only work with wrapped ether, not ether as collateral. While ether is needed to pay gas fees, WETH is an ERC-20 token that can be exchanged for other ERC-20 tokens in decentralized applications.

How to Wrap Ether (ETH)?

The process of creating wrapped ether is considered simple and easy. If ether is sent to a smart contract, the smart contract offers wrapped ether in exchange for this transaction. This means that each wrapped ether created is fully backed by ether reserves. Ether is locked on the smart contract and can be traded with WETH.

To wrap an ether, one can interact directly with the WETH smart contract. The contract receives ETH and deposits WETH into the user's wallet in exchange for a transaction fee at a one-to-one ratio.

If you want to return to Ether, it is sufficient to make a transaction with a smart contract.

Wrapped Ether and Ether

Wrapped ether and ether are two different tokens running on the Ethereum network. ETH is the original, native cryptocurrency of the Ethereum blockchain network. It is used to pay gas fees and perform transactions on the network. WETH is an ERC-20 token created to make it easier to trade ETH for other cryptocurrencies. WETH has higher liquidity than ETH as it can only be created by a custodian. There is no difference in value between WETH and ETH.

What Are the Advantages of Wrapped Ether?

Wrapped Ether has most of advantages:

WETH is an ERC-20 compliant token and follows all predefined rules.
Wrapping Ether enables a direct and seamless exchange between Ether and ERC-20 tokens.
WETH provides a solution to the problem surrounding interoperability. It enables easy transfer of tokens.
WETH can be used in any supporting DeFi and dApp that supports the token standard on Ethereum.

What Are the Disadvantages of Wrapped Ether?

Wrapped Ether has some disadvantages:

Responsibles are needed to wrap and recycle WETH.
If there are any problems with the operations performed by the custodian, this can affect the generation and incineration procedure.
The need for custodians and the need to trust them can lead to a higher level of centralization.