Wrapped Token

A token that represents another digital asset, locked in a smart contract, to enable interoperability across blockchain networks or standards.

What is Wrapped Token?

A wrapped token is a digital asset created on a blockchain to represent another asset, either from the same blockchain or a different one, by locking the original asset in a smart contract and minting an equivalent token. This mechanism allows assets to be used in ecosystems or applications where they wouldn’t otherwise be compatible. For example, Wrapped Ether (WETH) is an ERC-20 token on Ethereum that represents ETH at a 1:1 ratio, enabling ETH to interact seamlessly with decentralized applications (dApps) and smart contracts that require ERC-20 compliance, such as decentralized exchanges like Uniswap.

The process involves depositing the original asset (e.g., ETH) into a custodial smart contract, which locks it and issues the wrapped token (e.g., WETH). The wrapped token can then be used in DeFi protocols, traded, or transferred, and can later be redeemed for the original asset by burning the wrapped token. Examples include Wrapped Bitcoin (WBTC), which brings BTC to Ethereum, and cross-chain wrapped tokens that enable assets to move between blockchains like Ethereum and Binance Smart Chain. While wrapped tokens enhance interoperability, they rely on the security of the smart contract or custodian, introducing risks like contract vulnerabilities or centralization.